OPENLANE, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, with fourth-quarter results for the three months ended December 31, 2023. OPENLANE operates digital wholesale used-vehicle marketplaces and AFC floorplan financing; its common stock trades under ticker KAR. The ADESA U.S. physical auction business, sold to Carvana in May 2022, is reported as discontinued operations.
Financial results
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Continuing-operations revenue | $1,645.1 million | $1,519.4 million |
| Gross profit | $777.5 million | $685.1 million |
| Operating profit (loss) | $(5.2) million | $173.7 million |
| Continuing-operations income (loss) | $(154.8) million | $28.6 million |
| Net income (loss) | $(154.1) million | $241.2 million |
| Adjusted EBITDA (non-GAAP) | $272.0 million | $231.2 million |
| Cash from continuing operating activities | $237.0 million | $4.1 million |
- Revenue rose 8%. Marketplace revenue was $1,251.7 million, up 9%; Finance revenue was $393.4 million, up 5%.
- Marketplace sold 1.331 million vehicles, up 3%: commercial volume increased 7%, while dealer-consignment volume fell 2%. Auction fees per vehicle increased 4% to $297.
- Marketplace gross profit was $450.0 million; reported gross margin was 36.0%, or 44.3% excluding purchased-vehicle sales. Finance gross profit was $327.5 million, with an 83.2% margin.
- Finance provision for credit losses rose to $50.6 million from $9.8 million; the provision was 2.1% of average managed receivables versus 0.4% in 2022. Finance operating profit nevertheless increased to $268.4 million from $258.4 million.
- Cash and cash equivalents were $93.5 million at year-end, down from $225.7 million; restricted cash was $65.4 million. Working capital was $363.1 million. Continuing investing activities used $90.5 million and continuing financing activities used $279.9 million.
- Total debt was $364.6 million, excluding AFC securitization obligations of $1,631.9 million. The company had $133.3 million available under its revolving credit facility after outstanding letters of credit. The senior secured net leverage ratio was 0.4, against a maximum covenant level of 3.5; the company reported covenant compliance.
Material changes and unusual items
- A $250.8 million non-cash goodwill and intangible impairment charge drove the Marketplace segment’s $273.6 million operating loss and the consolidated operating loss. Charges included $218.9 million for U.S. Dealer-to-Dealer goodwill, $6.4 million for Europe goodwill, and $25.5 million for the ADESA tradename following the OPENLANE rebrand.
- Interest expense increased 31% to $155.8 million, principally reflecting higher AFC securitization rates: approximately 7.4% on average for 2023 versus 4.0% in 2022. The 2022 comparison also included a $33.9 million gain on Montreal land and $212.6 million of income from discontinued operations, including the gain on the Carvana sale.
- Other income included a $20.0 million payment for early termination of a contractual arrangement; partly offsetting items included $10.3 million of investment and note-receivable impairment.
- OPENLANE acquired Manheim Canada in December 2023 for approximately $103 million. The filing says the acquisition’s 2023 consolidated earnings impact was immaterial. In January 2024, the company added a C$175 million Canadian revolving facility and a C$50 million Canadian borrowing sub-limit.
- Preferred-stock cash dividends were $44.4 million in 2023. Series A preferred stock carries a cumulative 7% annual dividend and senior rights relative to common stock.
Fourth quarter
Q4 continuing-operations revenue increased 5% to $391.3 million. Continuing-operations income was $13.6 million versus $41.9 million; net income was $14.3 million versus $37.1 million. Marketplace vehicle volume rose 10%, led by 21% growth in commercial volume, while dealer consignment fell 2%. Finance revenue declined 4% to $96.6 million as the higher credit-loss provision offset growth in loan transactions; Finance operating profit fell to $65.6 million from $73.0 million. The prior-year quarter included the $33.9 million property-sale gain.
Outlook, risks and contingencies
- Management expects used-vehicle market improvement over coming years to support auction volumes and results, but says weak or deteriorating market conditions could materially affect liquidity. It expects 2024 continuing-operations capital expenditures of approximately $55 million to $60 million.
- AFC’s provision for credit losses is expected to be approximately 2% or less of average managed receivables over the long term; actual losses may vary. Used-vehicle value declines, higher interest rates and tighter retail credit availability contributed to elevated 2023 losses.
- Key risks include uncertain wholesale vehicle supply and prices, macroeconomic and interest-rate pressures, dealer-credit losses, competition, customer retention, execution of digital platform consolidation and cost initiatives, cybersecurity and privacy incidents, regulatory changes, foreign-exchange exposure, and reliance on Carvana under post-sale agreements and services.
- The filing identifies environmental concerns at some facilities and ordinary-course litigation and disputes. Management did not believe their resolution would materially adversely affect financial condition, results or cash flows; no environmental liability was recorded at year-end.
- The company reported effective internal controls over financial reporting and received unqualified audit opinions on its financial statements and internal controls. The auditor identified allowance-for-credit-loss assumptions and fair values of certain reporting units as critical audit matters.
Important facts for investors to verify
- Whether marketplace volume and margins improve, particularly in dealer consignment and U.S. Dealer-to-Dealer operations, and whether further impairment is required.
- Whether AFC credit losses moderate toward management’s long-term expectation and how delinquencies, recoveries, collateral values and securitization funding costs trend.
- Cash conversion and liquidity quality: operating cash flow improved sharply but was affected by timing of marketplace collections and payments; review restricted cash, working-capital movements and facility availability.
- Debt repayment and refinancing: $210 million of 5.125% senior notes mature in June 2025; confirm refinancing plans and the effect of the post-year-end Canadian facility and Manheim Canada acquisition.
- Preferred-stock economics and potential dilution: confirm cash dividend burden, conversion and change-of-control terms, and the effect of preferred holders’ voting rights.