Good morning, ladies and gentlemen, and welcome to the KAR Auction Services, Incorporated Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to your host Mr. Mike Eliason, Vice President, Investor Relations and Treasurer. Please go ahead.

Thanks, Jerome. Good morning and thank you for joining us. Today we will discuss the financial performance of KAR Global for the quarter ended December 31 2020. Before Jim kicks off our discussion, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect KAR’s business, prospects and results of operations and such risks are fully detailed in our SEC filings. In providing forward-looking statements, the company expressly disclaims any obligation to update these statements. Let me also mention that throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we issued yesterday, which is also available in the Investor Relations section of our website. Now I’d like to turn this call over to KAR Global CEO, Jim Hallett. Jim?

Thank you, Michael, and good morning ladies and gentlemen. Welcome to our call. Today I plan to cover three topics. I want to review 2020; provide you with an update on the integration of TradeRev and BacklotCars; and review our guidance for 2021. Let me start with acknowledging the challenges that we faced in the most unusual year. Obviously, COVID-19 impacted all businesses in 2020, including KAR. We remain committed to providing the safest possible working environment for our employees and our customers. With the challenges COVID-19 created in our workforce, we also saw challenges that directly impacted our marketplaces for our wholesale used cars. We continue to operate our auctions on our digital platforms, Simulcast, Simulcast+, OPENLANE, TradeRev and DealerBlock. But demand was very low in April, as uncertainty was prevalent throughout the automotive ecosystem. We continue to offer vehicles only through our digital marketplaces from mid March through the remainder of 2020. The key challenge that we faced in the second quarter was the need to accelerate the development of our digital marketplaces. This increased level of online bidding began literally over a 2-week period, and our technology teams had to make sure our systems were always available and there were no service disruptions caused by the increased use of our networks. I'm extremely proud of the collective effort of all KAR employees to make this happen. In the past, many investors have asked me what keeps me awake at night. And technology and digital disruption have always been at the top of the list. Well, while the challenges of 2020 took technology and digital disruption to a new level, we responded quickly and today we have the best collection of digital assets in the entire industry. We were able to accelerate the transition of our legacy physical…

Thank you, Jim. And before I get into my remarks, I'd like to correct a statement Jim made during the call. He said that we do not believe the second half of 2021 will improve upon the first half. He misspoke it is we do believe the second half of 2021 will improve upon the first half of 2021 and the second half of 2020. So now I'll get into my remarks. Let me start with an overview of our financial performance in 2020. To say the least, it was a challenging year and our results quarter-to-quarter were like riding a roller coaster. We experienced both ups and downs in performance this year. In review, we started the first quarter strong and performed very well until the middle of March. Uncertainties created by COVID-19 caused us to shut down our operations for the last 2 weeks of March. We lost approximately $35 million in those 2 weeks as revenue was minimal, and all employees were paid for 2 weeks despite all locations being closed. We lost money in the month of April. We had negative adjusted EBITDA of approximately $25 million for the month. We then saw a relatively fast rebound during May as weekly volumes rebounded to over 90% of the prior year. Followed by June, were volumes and our financial performance exceeded the prior year. Volumes and financial performance remain strong in July as we saw strong used car demand, low new car inventories, used car values were increasing and we were selling inventory that had been on our properties through the pandemic. While volume started to decline in August, we finished the third quarter with volumes over 90% of 2019 levels for the quarter and adjusted EBITDA that was 8% above 2019 levels. We had gross profit…

[Operator Instructions] Your first question comes from the line of Ryan Brinkman with JPMorgan. You may now ask your question.

Hi. Thanks for taking my questions. The first of which is about margin. So in both 2Q and 3Q, your vehicle sold and revenue were materially lower year-over-year, but still you managed to eke out increases in both gross and EBITDA margin given a lot of cost out actions. I get the volume deleverage, of course in 4Q, but it does seem like the revenue headwinds were maybe less than in 2Q. And so I'm trying to understand why the margin performance was materially softer. Maybe you can comment on the trend in ADESA SG&A, which seems to increase materially from 3Q to 4Q even as volume and revenue sequentially declined. So, maybe just talk about the layering back in of the expenses, if that went as planned? Or maybe there's just some seasonal costs in 4Q that cannot be avoided, such as compensation, I'm not sure. And then just how much should we consider? Or what should we consider about these trends in margin? Should we place more emphasis on 4Q as opposed to 2Q or 3Q, etcetera, when it comes to forecasting the trend in 2021?

Thanks, Ryan. First, let me just speak. In fourth quarter, we do have the annual issue of the revenue mix tends to be more heavily weighted towards services, and that's every year. That impacted us and that gives us a higher ARPU or higher gross revenue per transaction. But some of that revenue is much lower margin. Second, and we highlighted this, relative to overall performance, we did have some expenses in the fourth quarter. And there are some annual incentive payments that do hit direct labor, that would impact margins in the fourth quarter. We made the decision to use discretion to change threshold for the year so that we could -- we compensate our people based upon the performance and the hard work. We recorded most of that expense in Q4 because we had not been occurring it against the previous threshold that we had in the first three quarters. There was some bonus accrual in the third quarter, but most of it was in the fourth quarter. So that changed the expense structure a little bit and we've called that out. So, again, it's really just the number of transactions was so low in the fourth quarter. You actually get decremental margins on the work we're doing and that's the impact. So we don't see any changes in the overall cost structure. We don't see changes in the pricing of individual transactions, and falling to 75% of 2019 for the full quarter consistently through the quarter was a headwind we couldn't overcome.

I see. Thanks. Then, I'll just finish by asking on volume, presumably the off-lease volumes are weighing quite a bit, given the strong residuals that are out there in the marketplace. Are you able to quantify the impact of lower off-lease volume in 4Q, or maybe what your expectations are for 2021? And there's a lot going on also with regard to the repossession volumes. Maybe you can just talk about what you're seeing there, what you're expecting and how much do you think stems of lower repossession volume from a genuinely better economy relative to maybe any sort of ongoing forbearance on the part of lenders? Do you have any insight into when those forbearance activities might start to subside?

So I'm going to talk about some specific numbers. And then Jim is going to talk more about the latter topic, Ryan. So we did see some declines on the off-lease volumes. But the biggest impact is the fact that they're getting purchased upstream by grounding dealers. If we do get the transaction, you are correct, it's a lower revenue per transaction, if it's executed at the grounding dealer level. So while it wasn't as much of a decline, as you might expect, there was a very significant decline downstream, which would have impacted both ADESA and all our competitors that process from physical locations. Very few off-lease cars are getting into the auction -- into the physical auction network. Relative to off-lease volumes, well, it's a number that we have to dissect as an industry because they don't really report that, but we kind of have a good feel for it. Off-lease volume, I mean, repossession volumes, I'm sorry, repossession volumes are off at least 40% for the year and continue to be off. And I'll let Jim take over talking about kind of what we see, how that's going to continue maybe longer than we expect and how Stimulus actually might be a negative for repossessions.

Yes. So, good morning, Ryan, and thanks for your question. I think the -- as Eric mentioned, the off-lease volumes, it's with the strong pricing, I'm just repeating here, but it will be more difficult to get those vehicles to our platforms and obviously on through the funnel down to the physical auctions. So there's no question that we expect for the first half of the year those volumes will continue to be tight. We've been talking about repossessions and waiting on repossessions since the middle of 2020. We thought repossession was starting to return to a more normal level in the second half of 2020. And in fact, now I would tell you that with the uncertainty in the marketplace, and all that's going on with COVID and unemployment and the market, just all the noises out there and in these times of crisis are laws that protect people from having their vehicles repossessed, excuse me. I think that through the first half of the year, I would say that we're not expecting to see a huge return, or a huge increase in the repossessions. But we do think if the market can get better, and all the things we talked about related to COVID and vaccinations and unemployment and on, we do feel in the second half of the year, we should see an increase in repossessions. I'm not sure they get back to 100% of what they were in 2019, but we think that there will be an increase in the second half of the year.

Okay, very helpful. Thank you.

You're welcome.

Your next question comes from the line of John Murphy with Bank of America. You may now ask your question.

Good morning, guys.

Good morning.

To follow-up on Ryan's question, and maybe think about sort of all the sort of the channels of vehicles flowing into the auction, and maybe just thinking about dealer, commercial and then sort of the major buckets in 2021. And I think that the thing that we're struggling with and I think a lot of people are struggling with is, you're hearing from the dealers being that -- the franchise guys, CarMax, Carvana, the business is actually going fairly well, volumes are okay, a little bit hampered by supply, but not nearly as much as sort of what you're seeing of down 23%. So it seems like at the retail level, the industry is functioning fairly well. But at the wholesale level, obviously, there's this pressure. So just kind of trying to understand really what you think is going on between the retail and the wholesale side, but then also the channels and the flow in 2021 beyond just the repo, which is an important question. Really what you think is going to happen here on the dealer side? I’m really just trying to understand the near-term flow and so maybe there the current flow going into 2021.

Yes, John, it's a good question. And I will tell you that, I see a lot of similarities to what we saw in 2010 and 2011. While retail used car sales remained strong, the dealers do have the opportunity to source. As values are increasing, they are acquiring inventory at relatively low values, whether that would be by buying vehicles from consumers, taking trade ends, etcetera and retailing because all the cars are being sold at really a strong retail price. And I think we're seeing all the public retailers having reasonably strong retail used car profits right now. But they've all acknowledged supply is tight. And the truth is, at this point, you don't see them running through the network and that would apply to every channel. We do continue to see in terms of the segments, we see very strong performance in our digital dealer-to-dealer space. In fact, we sold 316,000 cars if you take the BacklotCars and TradeRev platforms together. And I think that's an outstanding performance and we think that will be a source of significant growth in 2021 for us. And I'll let Jim comment on that one, in a minute. Off-lease is going to be the -- strong, but probably slightly below previous levels, because again, you're seeing buying out of leases by the dealers early, they're pulling forward. And with a lack of new car production, they will likely be extending leases, until they have new car inventory for the consumer to turn in his car and get another vehicle like we saw in the spring of this year. And then when the repos come back, those are big users of our networks. That has been a low volume performer. We still have a forbearance of being a strong emphasis by the captive finance companies and the lenders. We've got a number of things that are affecting the overall economy where it's just not the right time to repossess vehicles for probably from a publicity perspective. And we think over time, those things will free up. So Jim, do you want to talk a little more about maybe the dealer [consignment] [ph] portion of our business?

Yes, I think the only thing I could add to what Eric said is we do expect that our dealer consignment business can offset some of these potential losses that we're going to get on the commercial side of the business, especially with the off-lease and the repossessions. As I said in my commentary, we are very excited about the acquisition of Backlot and now taking TradeRev and transferring it to a single platform. The receptivity by the dealers has been very good. In fact, I don't know if there's any dealer that said, no. Every dealer that we've gone to so far at this point in time, has migrated over to the Backlot platform. Obviously, when we're acquiring the company and doing our diligence, we're very excited about the leadership of that team, their background and their experience and their knowledge. We like the platform. We like the bid-ask platform. We like the inspections. We really and truly believe that we are going to take the leadership position in this dealer-to-dealer digital segment. And I think Eric mentioned that volumes last year combined were 316,000 vehicles. I can tell you, we have a big target in terms of what we think we can do with a single platform here in dealer-to-dealer this year and we're excited. We're not focused on the number two position. We are absolutely clearly focused on the number one position, and we’re -- we see that gap closing and we think that we can have the number one position in that space, and we can do it in the short-term.

Okay. And then, Jim, just a strategic question. We looked at the -- I appreciate the reorganization around off premise and on-premise to try to help us understand stuff. But you still have Simulcast, Simulcast+ Dealer Block, OPENLANE, TradeRev, BacklotCars, it's kind of a mouthful, and you’ve got a lot of really good services in there. In addition to other things that you -- that you're doing way above and beyond just those bigger brands. Is there a move to maybe simplify this so your sales force can go into a dealer and just be like, we got everything you need, just call us, get online, just do it. Because it just -- it feels like there's a lot of moving parts here. It's kind of hard to understand how the industry is shifting, and the deal -- and your sales force as well as the dealers themselves kind of have to kind of go around, it's like, well, I want to do this with KAR, so I go this way, or if I want to do this with KAR, so I go that way. It's interesting way to just, hey, listen, we got you, give us the car, we're going to get it sold. And like, just combine all these brands into ADESA or one single brand to just go-to-market with a maybe a clearer, simpler message that might just solicit more business? I don't know if that's a stupid question, or I'm just --it's for us, it's kind of a little bit harder externally to understand a lot of the moving pieces here.

John, your question is a good one, and it's one that we're focused on is we think about how we go-to-market with all these brands and all these platforms. Clearly, we're now getting out there and we've combined the sales forces. We've combined the sales teams, Backlot and ADESA. And we're going out and we're kind of hand holding and walking these dealers through how these platforms operate, and how they perform and how to get on the platform and how to use the platform. In many cases, we're staying with them, so to speak, until they've transacted certain number of vehicles, either on the buy side or on the sell side. And then, we have our commercial sales team, and commercial sales team is focused on going out and really articulating how these platforms work and how they add value. Eric and I have told you for 100 years that we are totally focused on never telling a dealer which channel they should use. We want to provide all those channels, we want to provide all those platforms. But our job is to make sure that we're out there with our customers, making sure they know how to use these platforms. And just a little anecdote here. Over the course of the last year, we've signed up over 20,000 new buyers that had never bought a car online and never bought a car [technical difficulty] platform. And as a matter of fact, a very high percentage of those dealers have now transacted on the platform. So once you get them to the platform, that's one step. Getting them to use the platform is the next step and that's really what we -- what we're focused on now is getting them to utilize the platform, get familiar with the platform and stay with them and give them that support. So I hope that answers your question, but yes, so a lot more focused on handholding and really spending time to really make sure the dealer understands what these platforms can do for them.

And, John, let me add to that. One of the strategic initiatives we have is when you prepare a car offered on BacklotCars in the U.S., we can take that to a Simulcast or Simulcast+ auction, if you don't get the price you want and try a different market. And we are working very hard to make that a seamless move to your point strategically, so that we can offer a more end-to-end solution to the seller than any of our competitors do because we have all the solutions.

Yes, John, I'll just add. I think Eric makes a very, very good point here. And we have, I would say, quietly done a pilot in Canada where we've been taking cars that haven't sold on TradeRev in Canada, and we've been shipping them seamlessly right to the physical auction. And with no marketing dollars behind it, and doing it very quietly, I would just share with you that we're very encouraged with the results that we're seeing. We think we can continue on that path and we think we can bring that into the U.S market and do that as well. So there's a huge opportunity here. It's just a matter of getting to it.

Okay. One just last real quick one with the stock where it is at 14, can change. When do you consider going private?

We run the business, we feel we have a strategy that has a lot of value and the current stock price it does not reflect the long-term value that we see in the KAR opportunity, and that's all I can really say to that today. We don't -- we won't worry about who owns us, we'll just run the business for our owners.

I appreciate the feedback. That's helpful. Thank you. Thank you, guys.

Thank you, John.

Your next question comes from the line of Craig Kennison with Baird. You may now ask your question.

Hey, good morning. Thanks for taking my question. Jim, I know you were excited after you acquired TradeRev. What really were the lessons from that integration that you take to the Backlot integration? What's going differently this time around?

Craig, fair question. I think that it was execution and go-to-market strategy. I think that we missed there, I think we got beat on our go-to-market strategy. And the things that -- but I will also say, and this is not being defensive, I will also say we learned a lot from TradeRev. First of all, it's a Canadian product and it still remains to be the leading digital dealer-to-dealer marketplace in Canada. And does very, very well in Canada. However, we thought we could just bring that to the United States and drop it in, and that wasn't the case. Dealer behavior was very, very different in the U.S. And the Backlot guys figured out what was important to dealers in the U.S and it was different and they were able to develop that. And I think the key was they come up with the bid-ask marketplace, which is really gives you up to 3 days to sell the car on the platform. I think the average on Backlot is about 1.2 days, but you do have 3 days that gives the dealers more time to bid on the cars. I think that was an important change. I think the inspections on BacklotCars was really key that we recognize that in Canada, we were able to get the dealers to do their own inspections. And it was just part of the program right from the outset. In the U.S., we started doing inspections. Dealers want us to do inspections for them and I think Backlot clearly had the winner here. They have mechanics going out and doing these inspections, and that adds a lot of credibility and a lot of confidence in the condition report when the buyer is buying the car. So I think overall, we've learned that even though there's a thin border that separates us from Canada, the markets are very different, dealer behavior is very different. The go-to-market strategy I think we've got it right now combining the sales teams with ADESA and TradeRev here in the U.S. Listen, we did get to break even and we were profitable in some months. So, overall, we did stumble a little bit. We stumbled, but I think we got it right. And I guess if I take some satisfaction out of going through the process with TradeRev is it did get us to where we are today. It did get us to recognize the need to take a look at our competitor Backlot and what they were doing and did get us to the point of acquisition. And now I'm very bullish on our leadership opportunity and our leadership position, and I think that we can be the winner that takes most.

And Craig, I'd like add. It's not that TradeRev doesn't have a lot of value. In fact, the Backlot team, BacklotCars team is very excited about having our sales force represented, because that accelerates their entry into new markets without a doubt. And our operations support has gone over to the Backlot platform, and giving them greater support and better customer service as a result of having more resources that can support the transaction once it's completed online. So you know what, the combination is the value creation, it's not just one taking over for the other.

I think the final point I'd make, Craig, and I may be repeating here, but the leadership team at Backlot, they grew up in the retail car business, they really understand the dealer and understand what how that dealer thinks and how that dealer wants to do business, and they really spent more time understanding the dealer and understanding what the dealer needed. And they grew up in a family business where they owned and operated dealerships. They knew this business and knew well. And quite frankly, I think, aside from the execution and the go-to-market strategy, it was this -- their knowledge of the industry has really shown up here in terms of leading BacklotCars.

Thanks to both of you. You have, I guess a big goal to expand volumes significantly. When you think about that, what are the barriers or bottlenecks that you are concerned about? Is it adding dealers? Is it hard to add enough mechanics to provide that type of feedback to buyers? Just curious, what are the KPIs that you use to run that business and feel good that you're on track?

Yes, Craig, the most important metric in our business is one word, it's called volume. We need more volume, and we're focused on volume. As a matter of fact, I will tell you, in 2021, there is more focused on volume than there is on profitability. Now, with that said, we want to make sure that we operate this business at a breakeven or better pace. But it's really getting out there and getting the existing dealers doing more volume and getting more dealers signed up. And it's a volume game, and that's what we're focused on. And we have our sights set on some big numbers here.

Craig, very specifically, it's probably easier to sign up a dealer than it is to get him to use the platform on the first day that he signs up. So the first thing you do is you want to sign them up, and then get them using the platform and having success. And then once they're successful, get them increasing the volume they put through it, and getting them to that kind of super user status, where they're selling high numbers per week. And the market -- these platforms have the potential to do that, that's actually the metric that accelerates the growth. The market is well-defined, we know who the dealers are, and it's getting them using the platform.

Thank you.

You're welcome.

Your next question comes from the line of Stephanie Benjamin with Truist. You may now ask your question.

Hi, good morning.

Hi, good morning.

Hi, Stephanie.

Just to continue on the last question, could you maybe talk how you think TradeRev and BacklotCars performed in the fourth quarter versus your expectations without breaking out the individual volumes, like you did in the past? Maybe you could talk directionally how just the dealer-to-dealer segment business performed? How you think that compares to the overall industry in the fourth quarter?

The very strong growth at BacklotCars and TradeRev on a combined basis, we look at both week-over-week and sequential as well as year-over-year, and it's been a strength of our business. Again, when you look at the quarterly performance of dealer-to-dealer off-premise, it is doing very well and it is where our growth is going to come from Stephanie. I'm looking at some numbers, it was up without a doubt year-over-year. I'm looking here, okay, I got to get to the right numbers. On a combined basis, digital dealer-to-dealer was up year-over-year in Q4 by about 60%. So I'm not going to give you a specific number, but that is the actual growth rate. And looking at volume and that's in a period where I think our markets were wondering what we were going to do with the combination, because we closed the deal on November 12. So, we were very pleased with that combined performance. And that's combined two platforms compared to the prior year as if the two platforms were combined at that point as well. That's not year-over-year growth with Backlot zero the year before we used their actual numbers.

Got it. That's really helpful. So I guess the going of off that, that means that the other component to this business would be primarily OPENLANE, which means it must have been down pretty materially in the fourth quarter. Is that just -- anything beyond either are there delays there? Or do you think there some of that's going to roll off in the beginning of this year? Or was this just all the dynamic of the dealers, grounding dealers, keeping those vehicles kind of maybe what happened with OPENLANE between 3Q and 4Q then?

Yes, OPENLANE had fewer listings. I mean, the bottom line is fewer cars came onto the network, and the conversion rate remained reasonably strong, pricing was very strong and it was just fewer listings. And that's a function of dealer behavior, buying out leases, buying at the grounding dealer. Not all grounding dealer transactions come through to us. Some are processed on their own, that -- so that can impact our numbers. And we just saw lower volumes listed on the OPENLANE platform in the fourth quarter. And we somewhat expected that, given the strong pricing environment.

Yes, I think, Stephanie, and I'm not sure if Eric mentioned this or not, but with the strength of price in the market, many of these cars are returning off-lease in what we call in the money. So the cars are actually being bought below the residuals or below the wholesale value that's being realized in the marketplace. So in many cases, not only the dealers taking them, but in other cases, the consumers buying the car, knowing that they're buying the car at less than market value. So I think that's been a takeaway from OPENLANE.

And just to give you an example, I happen to see a third-party report on this very recently this week. Current residuals on 3-year old vehicles are running at about 54% of MSRP at the time, 3 years ago, up from 48% at the beginning of this year. That's a specific number that is provided by third parties that track residual values for the leasing industry.

Absolutely. And then just a follow-up to Ryan's question at the beginning of the call. I believe, Eric, you called out some annual incentive payments that you didn't accrue for the majority of the year, but eventually you had to pay all that out in the fourth quarter. Can you give us the breakout of what was between SG&A and cost of sales? I think you gave the total incentive dollars, but just a rough breakout, either dollar or percentage wise?

Yes, it's going to be about 80% SG&A and 20%. I'm doing that back of the envelope, Stephanie. But that's roughly the breakout. 20% goes to direct.

Got it. And then lastly, more strategically, as we move forward, how would you look at your appetite for any additional acquisitions as you kind of look through 2021 and 2022? And then kind of even off on a prior question, if you were presented with a takeout opportunity as well to go private, is there anything from a tax consequence that could keep you from participating or engaging in those discussions?

Well, let me talk about acquisitions. That will be the easy part. I would say, we're very focused on our strategy. We have a very defined strategy. And we have a defined strategy of continuing to build a digital company and transform this industry to fully 100% digital and continue to make that stick. That's the future, and that's where we're going here. In terms of any -- in terms of our capital allocation and our investments, I think you should expect us to continue to invest in our strategy and supporting our digital initiatives, our digital platforms, and what we're doing in the area of our digital commitment. In terms of acquisitions, I'm not suggesting that we would not do an acquisition. But I would suggest that that's not a priority, and there's nothing on the board that I could speak of today. But more importantly, if you see us spending money, you should see us spending in the area to support our strategy.

And, Stephanie, relative to your tax question, I'm not -- there is -- and I know you're specifically referring to the tax free spin that occurred in June of 2019. There is nothing that would be proposed that I see would have any impact on the tax free treatments. So I see no tax issues that would be a limitation on opportunities for the company.

Got it. Thanks so much, guys.

You're welcome.

Your next question comes from the line of …

Probably --- Jerome, we probably have time for just one more question.

Okay, sure. Your next question will be -- comes from the line of Daniel Imbro with Stephens, Incorporated. Your line is open.

Yes, thanks. Thanks for squeezing me in here late. I wanted to ask a broader question on competition. During 4Q, Jim you mentioned some of your traditional competitors brought physical auctions back online. And you said there's no difference in the returns, in your opinion. But do your customers share that view? Did you see any share shift during the quarter? And then additionally, you have some online only competitors. Obviously, the salvage auctions are talking more about whole car channels. Do you think that is posing any challenge to your volume? And any kind of incremental thoughts on competition would be great.

Yes. So, Daniel, anytime anybody takes a car away from me, they're a competitor, right? No matter if it's one car or not. Listen, there's no question that our competitors are running cars. And I will tell you that in some cases, our commitment to going digital, we probably have lost some vehicles, some people that just haven't been able to make the transition to digital. But we don't expect that to be a long-term issue. We expect it to -- we expect that it's our job to get out there and to provide the evidence that that the digital way is the way the future. We can show through our data and through our analytics, that this is an anecdotal information. This is real, that we are able to show that we can get a better economic outcome, at least equal to or better. And I think we continue to gather data with the continued sales that we're doing. We continue to be able to share that information with our customers, both on the commercial side and on the dealer side. And at some point in time, again, I continue to say this is the way that the world is going. We believe it's the right direction, we're committed to the strategy. We're going to stay the course. We don't want to go back to the old way of doing business. And yes, we have competitors, whether it's the salvage guys that are selling the low end cars, that's always been in the marketplace. I think those guys have continued to sell some of the low end cars. We have a major competitor, obviously, on the dealer-to-dealer digital side, which we have talked at length about here. And we think that we're closing the gap there, and we're going to be in a position to take a leadership position there. So there's always going to be competition. We've always dealt with competition. Our job is to make sure that we're staying in front of the competition. And our strategy is leading us in the right direction, even though we might be taking some short-term pain, as they say, for some long-term gain.

Got it. That’s helpful. And if I could ask a quick follow-up. You added a sentence in the supplemental that says something to the extent of vehicles on site use services at a higher rate for the shift to offside is hurting that. How do you think if the business continues to shift to more off premise sales? How do you think about utilizing your physical assets, given the scale you guys have built over time?

Well, I'll let Jim talk about the land. Let's just tell you that we think the shift is temporary, because of the high values of vehicles. And this happened in the previous cycle in 2009 through 2012, where you sell cars quick, it's much easier not to use the services on-premise. And that is, of course, having the inability to run with groups of people. I mean, nobody can run with large groups of people in their auctions legally right now. So, I think it would apply to the whole industry that there's fewer cars showing up on site, even for those that are running vehicles through lane. Jim, why don't you talk about our land utilization and focus there.

So I've always maintained that our brick and mortar, our land and real estate is one of our critical assets. It's a differentiator, quite frankly, that few have. And as I say, especially, you think about these dealers, especially in the urban areas, when they've decided they're going to wholesale a car, they need that space, they need the car off their property right away. We need to get the car to auction, we need to get at inventory, we need to get it imaged. In some cases we need to get it reconditioned, and the auction is going to continue to provide these services. Now, with all that said, I think what’s really important, I think it's really important to have the right land in the right location in the right size, right? That's not to say that we would never divest some land. As a matter of fact, there was a small auction, I think we -- I know, there was a small auction that we did exit. And the other thing is, I would tell you, we would probably rather own the land and lease it. And I think you'll see us continue to differentiate ourselves with land because nobody else can provide this, there's only one other major competitor, we're still a duopoly in a holistic sense that there's only one other competitive that that can provide these kinds of assets. And I say that when you look at these digital platforms, you have to have more than just a digital platform with a buyer base. You have to be able to offer these other services that we talked about, when you think about inspections and you think about transportation and logistics and finance and reconditioning right on down the line. As I say we're unmatched. We're unmatched in terms of our assets. And at the end of the day, that's why we're going to win.

Got it. Thanks. Best of luck.

You’re welcome.

Thank you. That's -- thank you. That’s the end of the Q&A session of today's call. I'll now turn the call back to our Chairman and CEO, Jim Hallett, for any closing remarks.

Okay. Thank you, Jerome and ladies and gentlemen, thank you for being on our call today. Obviously, fourth quarter was tough quarter, one that's not easy to report. But what I want to leave you with as much about a repeat of what I've said. Listen, make no mistake, we are a digital marketplace business that utilizes data and analytics and value added services. And we are committed to this direction. We are not interested in running cars. We are interested in moving this industry forward. And we believe just like so many other businesses around us that this transformation is taking place. And it's not something in the future, it's something that's happening now. And we believe that we're leading that. And yes, we have taken some short-term pain here. But we will take the leadership position as we go forward. The other thing I would tell you is I will go back to our cost structure. You heard, we've now right sized the company over 5,000 jobs that we've permanently taken out of the organization. We've got it right sized. We believe that we can add volume without adding costs. And that is sustainable and we can continue to take it forward. Next, I would say this combination of being able to put BacklotCars and TradeRev together, that truly makes us the leader, and makes us the leader here in the U.S., it makes us the leader in Canada with TradeRev. We feel that we're going to have huge gains on the dealer-to-dealer segment of our industry. And with that, we also spoke about our strong balance sheet. I think we're in a very good position to have a strong balance sheet to be able to take advantage of opportunities that support our strategy as we go forward. So with that, we're looking forward to coming back to you next quarter. And we'll have more information to share with you on some of these transitions that we're making. And thank you for your interest in being on our call today.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.