Ladies and gentlemen, thank you for standing by, and welcome to the KAR Auction Services Quarter 1 2021 Earnings Conference Call. Please note that today’s call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Mr. Mike Eliason, Treasurer, Vice President, Investor Relations. Mike, the floor is yours.

Thanks, Jay. Good morning, and thank you for joining us today for the KAR Global First Quarter 2021 Earnings Conference Call. Today, we will discuss the financial performance of KAR Global for the quarter ended March 31, 2021. After concluding our commentary, we will take questions from participants. Before Jim kicks off our discussion, I’d 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 last night, which is also available in the Investor Relations section of our website. Today on the call, we have Jim Hallett, Executive Chairman; Peter Kelly, CEO; and Eric Loughmiller, CFO. Now I’d like to turn this call over to KAR Global Executive Chairman, Jim Hallett. Jim?

Great. Thank you, Michael, and good morning, everyone, and thank you for joining today’s call. Consistent with our announcement earlier this year, Peter Kelly has transitioned into the role of CEO of KAR Global beginning April 1. So in a few moments, I will be handing the remainder of this call over to Peter and to Eric Loughmiller, our CFO. As Executive Chairman, however, I wanted to take the opportunity to thank all of you for your support over the years. It has been my pleasure getting to know so many of you and sharing KAR’s story with you. I also want to congratulate Peter Kelly and all of KAR on what I would call a seamless leadership transition. Peter has been an inspirational leader in our company for over a decade and is a true industry pioneer. He has been the architect of our digital transformation and has a clear bold vision for KAR’s future, which I know he will begin sharing with you today. This is the right time for this transition, and Peter is the right leader for our customers, for our investors and for our employees. So with that, I’m very pleased and very proud to pass this call to KAR Global CEO, Peter Kelly. Peter?

Well, thank you, Jim. I appreciate that, Jim. Thank you very much, and good morning, everybody. I’m delighted to be here this morning with all of you for my first earnings call as CEO of KAR Global. On today’s call, I plan to speak to our first quarter results. I will then provide some insights on the dynamics in our industry and what I believe we can expect to see over the rest of this year. But I plan to spend most of my time focused on my vision for the future of KAR Global. I’m going to start with the first quarter. I was pleased with our first quarter performance. Despite operating in an environment of constrained supply across our industry, we achieved the following results. We facilitated the sale of 753,000 vehicles, representing gross auction proceeds of $11.4 billion. We generated $582 million in total revenue and $489 million in net revenue. We generated a total gross profit of $251 million, representing 51% of net revenue. And we generated adjusted EBITDA of $123 million, an increase of 39% versus Q1 of last year. Perhaps even more importantly, we saw our strongest performance to date by far in our digital dealer-to-dealer marketplaces, BacklotCars and TradeRev. We completed the migration from TradeRev to BacklotCars in the U.S.in the first quarter ahead of our schedule. On a combined basis, we facilitated the sale of over 100,000 vehicles on these marketplaces within Q1, representing growth of 81% compared to Q1 of 2020. This is very encouraging. Eric will provide more detail around these and other financial and operating results later in the call. I would now like to speak to what we can expect over the rest of this year. I mentioned that in Q1, we were operating in an environment of…

Thank you, Peter. And let me start by stating our results for the first quarter were much improved over the fourth quarter despite continued supply constraints. The results were driven by our focus on controlling costs, both direct and SG&A and taking advantage of the full suite of KAR Global offerings to optimize performance across all of our digital marketplaces. In addition, we realized the benefit from minority investments in early-stage auto retail businesses. I will talk more about the strategy behind these investments in a few moments. We are pleased with the increase in auction fees per vehicle sold, increasing 6% to $313 from $296 last year. This metric was also up sequentially from $304 in Q4. The auction fees per vehicle sold reflect the increase in the average selling price for vehicles across all of our platforms. I consider this quite an accomplishment given the strong performance in our private label platforms that have the lowest auction fees per car sold. Another positive that I don’t believe is obvious is the sequential improvement in services revenue despite the continued shortage of supply on our on-premise marketplaces. Not surprising, services revenue is down 21% from the prior year, but on-premise volume was down 25% for that same period. I will admit that high wholesale used car prices and low supply do put a premium on time to market, which often results in lower attachment rates for ancillary services. However, we have offset some of the negative impact of these factors by increasing our revenue and services provided to buyers of wholesale used vehicles. Many retailers are using our reconditioning services to prep cars for retail sale or delivery, as our capacity and service capabilities provide a faster, more cost-effective reconditioning capability than the alternative’s retailers may have available internally…

[Operator Instructions] Our first question comes from the line of Ryan Brinkman of JP Morgan

Maybe starting with last quarter, there was some discussion that maybe some of the smaller independent auctions were moving more toward reopening to physical in-person bidding. Are you able to comment on how that trend may have tracked in the first quarter? Do you suspect that it may be that the independents are doing this more because they do not have as established online capabilities? And then I think there was some observation too that Manheim was looking to maybe respond more in kind and some speculation that, that could necessitate a response on your end? And just wanted to check in again on what might be happening on the ground competitive wise and how that plays into the sustainability of some of the margin benefits that you’ve been enjoying?

Yes. Thank you, Ryan. I appreciate the question. At this point, I would say most independent auctions have returned to the traditional format of running cars in lane. And I did speak a little to that in my remarks. But -- and I do think perhaps their -- the relative lack of digital capabilities relative to somebody like us might be a key factor in that decision. And as regards Manheim, Manheim I believe, has returned to running some cars at most of its sites, but by no means all of the vehicles. So Manheim is probably more akin to us, although I would argue we have superior digital capabilities in many key areas. But in terms of our approach, as I said in my remarks, Ryan, we do not plan to return to running cars in lane. We obviously are in close dialogue with our customers. We closely analyze our performance and our relative performance. And we believe that a digital model and the model we have can generate very strong outcomes for customers, very strong conversion rates and represents also the model for the future and clearly the model that customers are transitioning to over time.

Okay. And then just my last question is, obviously, a very strong quarter volume-wise at BacklotCars. And I understand you’re not wanting to call out profitability specifically each quarter. But are you able to comment on anything or generally on -- relative to the cost savings post integration or maybe on the gross profit per car relative to some of your targets? And then just more generally, thinking about the offering relative to ACV, I think with that firm now being public and communicating with investors how they think that their offering compares to yours, I don’t know if there’s anything you want to say relative to the customer feedback that you receive, different aspects of your offering that you think might be more appealing than ACV’s or alternatively, areas where you expect to maybe become more competitive over time?

Thanks, Ryan. Well, yes, like you, I was very pleased with our performance in Q1 with the integration and the volume growth that we saw in that digital dealer platform and the migration from TradeRev to Backlot in the U.S. 80% volume growth, the integration completed ahead of schedule. But maybe even more importantly, just very, very strong feedback from our customers. We introduced the concept to our customers early in Q1. I would say we’ve migrated essentially all of those customers with no loss. We had a record performance in the first month post migration. And as Eric alluded to, we really didn’t get the benefit of any cost synergies within Q1 because it really was the end of February when the migration was actually completed. So very positive feedback. And I -- we liked the Backlot model pre-acquisition. And I would say it has lived up to our expectations every month since. Customers really like the simplicity of the platform, the user friendliness of the platform. We see an increased level of engagement from the customers in the platform directly without us having to be in the middle of facilitating the transaction, so to speak. So just a lot of strong points. And I would say a lot of positive differentiation versus the alternative platform that you mentioned. I think -- frankly, I think we’ve got the best platform in the industry. The focus is on growth and market share, as I mentioned, particularly in that category. But the unit economics within that platform, even though we’re not going into detail on this call as to what those specifically are, are strong. And I think one of the attributes of Backlot pre acquisition was its relative capital efficiency. It had achieved substantial scale and a substantial growth rate with limited capital invested. And I think that aspect of the platform continues post acquisition as well. So we’re very excited and very focused on really taking that to our customers so they can all benefit from that very, very strong platform.

And Peter, let me add, Ryan, you asked specifically about performance. In the first quarter, it was a modest loss, less than $10 million in total, and that includes a full allocation of our global sales cost to that unit. And also, I’d like to highlight the gross profit there, we’ve talked about at maturity, achieving something near 60%. We’re already very close to 50%, just under 50% gross profit on that channel. And I’m very pleased with that result because that’s including all costs, and that’s before any synergies are realized going forward. So that’s a very strong performance, in my opinion.

Next question comes from the line of John Murphy of Bank of America.

Congratulations, Jim, and congratulations, Peter. I just wanted to get into, Peter, as you’re thinking about the business here, I mean, there’s 2 competing forces. There’s the short-term disruption here in supply and at the same time there are these secular changes that are occurring, both of which seem to be creating some disruption in your business or pressure. Which one do you think is a greater force at the moment? I mean an optimist could argue, hey, the supply constraint will ease as we get into next year and you’ll handle this digital transformation very well and it might not be going as fast as people are thinking and a pessimist might say, "Hey, listen, the supply is what it is and this disruption on the secular digital transformation is something that you’re not handling that well and there might be increased competition. I mean how do you parse those out and think about the strategy going forward?

Thanks, John. I appreciate the good wishes, first of all. And to your question, obviously, there has to be a focus on near-term considerations. And clearly, there is a supply constraint, particularly in commercial vehicles, that is industry-wide, but it affects us as well as our competitors. And that’s just a reality we have to deal with. It is temporary in nature. And I think the time line you talked about is probably a reasonable assessment. So we’ve got to manage through that. And I think we’re doing a good job of managing through that. And I think our Q1 is a good evidence of that. And as I said in my remarks, I believe when that volume starts to return to normal, we will be a very strong beneficiary for that because, as you know, we tend to lean more heavily into the commercial segment in our business overall. But I’d say the bigger focus is on the longer -- the secular trend that you mentioned, which is taking place over time and has obviously been accelerated through COVID. And to be honest, I suppose that’s something I’ve been really part of now for all my career in this industry being an early digital disruptor in some respects with OPENLANE. But there’s been a secular change. It has accelerated through COVID. I like to think of it as an opportunity. I think we’ve just seen a quarter where more than half of the vehicles we sold were off-premise. That speaks to an opportunity we have built for KAR, where historically, all those vehicles had to come to our auctions for us to sell them. That’s no longer the case. We now can address vehicles anywhere, anytime for any customer. So I think there’s a tremendous opportunity, and we talked about the increased addressable market and the chance to grow into that. So I think we have to stay focused on the longer-lasting secular trend and on the opportunities that, that provides our company, which I think are really, really substantial.

And John, if I could add, you were around back then, you and I have been working on our business for quite a while. In 2011, when we acquired OPENLANE, volumes were down. We were in a position where there’s a secular shift in supply to our marketplace that lasted in the commercial space until about 2015. And yet at the time, we said this is -- when it comes back, they will be used to the digital transactions, and we have never looked back on that, as you know, John, on the success of OPENLANE. I’m expecting something similar here. Good habits are formed in difficult times and the good habit of spending less time at the physical location, more time transacting online, I expect to continue.

And maybe just a second question, a follow-up to that. I mean traditionally, in a very simple then way, you kind of always think about 10 million units, give or take as the physical auction opportunity set. But Peter, as you kind of alluded, there’s 20 million when you throw in dealer-dealer and what’s going on with wholesalers and some of the consumer stuff. As you look at that doubling of the potential market that you’re going after, what’s your right to play in that second half of that incremental $10 million for the competition, how fragmented is it? And as long as you go in there and operate well, is it kind of just like taking candy from a baby because it’s such a fragmented market that’s disorganized and not well run that you have a huge opportunity. I’m just trying to understand -- it seems like there is -- if you can break into it, you’re going to break into it pretty hard.

Well, John, I think, first of all, I always tend to have a healthy respect for my competition. I never take anything for granted. I would say historically, you’re right, it has been fragmented and low tech, a lot of relationship selling within that segment of the marketplace. But obviously, the competition -- you know who some of the competitors are the likely competitors in the future. There is a substantial opportunity for growth. I would argue, frankly, in Canada where our business has been a little bit more established in this digital footing for longer, we’ve seen us continue to grow and frankly, the growth accelerate into that segment and grow our total volume of dealer consignment. And now I see the same trend starting to become evident in the U.S. So there’s a lot of opportunities for growth, but I would not characterize it as taking candy from a baby. It’s a competitive environment. But within that, we have a very compelling offering. And at some level, what does KAR have here, as these marketplaces mature, and I think we’re on the cusp of that right now, we’ve got an engine [indiscernible] any vehicle in any location into cash in the shortest amount of time possible with a full set of services wrapped around that transaction for any customer. And that’s a really powerful engine that can be brought to any wholesale vehicle, it can be brought to enabling a retail trading transaction on behalf of our customer. There’s a lot of potential advantages that, that brings to bear. So that’s part of the opportunity that I see for the future of KAR.

And I’m sorry. And then just one last one, Peter. And I’m not sure if it’s a fair question right now, and we might need to get into it at the Analyst Day. But I mean if you look at the physical locations, is there an opportunity to get back there? And then also, if you think about the international operations, what are truly the synergies back to North America? I mean, it seems like a whole other vertical or sleeve, even though you might argue it’s a similar business. Is the opportunity set so great in North America that building Europe might not necessarily be necessary at the moment, might be more of a capital and human capital distraction?

So on the first question, the footprint. Obviously, we continue to evaluate that, and I talked in my remarks about how we see I’ll call it a vehicle logistics center model in the future. I think the physical assets, as I said, are a positive differentiator for our company. They provide necessary services to many customers, historically and mainly to our commercial seller segment, but obviously tremendous value there and underpin some of the key relationships we have with that segment. And as Eric alluded to in his remarks, increasingly, we are using -- are being asked to provide reconditioning services for companies that are then retailing those cars direct to consumers. So dealers, franchise dealers, independent dealers and large used car, used vehicle retail operations. So the facilities have real value, but the activities that take place at those facilities change. So again, the most obviously, we’re not running cars today. But with a more digital model, there’s a different set of activities that will take place in the locations versus will be sort of centralized and handled through centralized service provision and through technology. So that’s an evolving picture. We have a team evaluating that day in, day out in our business, and then we’ll continue to manage that. As regards to the international business, what I like about -- one of the things I like about international business is, it is an asset-light digital-only model that we have in Europe. It is demonstrating very strong performance, as I mentioned, in terms of gross profit per car sold. Your observation is correct that the synergies between North America and Europe, they are fairly limited, right? It’s not that vehicles are really transacting across that ocean in our segment because there just isn’t an economic driver for that. But there are some synergies on the technology and in terms of some of the customer relationships. But it’s a business I like and for sure, it’s a growth opportunity. And I do think that the more digital our business becomes the greater its potential to be a globally extendable business. You don’t have to go in and build the physical assets globally, you can go in with technology. So that is an opportunity for our company. But I would say that my personal focus has, for sure, been more on our North American operations here in my first month on the job.

And Peter, I received a couple of questions overnight on e-mail. When we talk international, I’d like to turn, John, to a subject that’s confused at least a couple of people. Our contingent consideration recorded as an add-back in the first quarter, a big portion of that relates to our international acquisition of CarsOnTheWeb. As a result of their performance, when we did the purchase accounting, we used a Monte Carlo simulation model to calculate the ultimate contingent price and added that in. Our performance has exceeded what the probability was. And so we have had to record that. Those are payments to the former owners. They’re not related to compensation to employees. We also had the same thing happening with our TradeRev platform. Our contingent consideration is going to exceed what we originally calculated, demonstrating the strength of these digital marketplaces, probably in part by COVID. There was a minor offset. We acquired Dent-ology where we’re going to pay less than we anticipated. And all those were netted and recognized in Q1 in the $11 million add-back. I added that, you didn’t ask, but I had several questions last night and thought this would be a good time to explain it.

That’s incredibly helpful. Eric, what’s the tail on that on those contingencies just so we can think about that going forward? When do those run out?

Ironically, all of them run out in 2021. So we’re at the end of the cycle, which is why you have these adjustments, you’ve got great visibility into what the ultimate payment is going to be.

Next question comes from the line of Craig Kennison of Baird.

Congratulations, Jim. Peter, your prepared remarks, I think, were really helpful. So thanks for that. I’m not sure that we have all of those metrics on a quarterly basis going backwards. So I would make that request as well. I’m wondering if you could shed a little bit more light on the cyclical pressure your more cyclical businesses are facing? Share with us some metrics, such as your off-lease business and what kind of residual values you’re seeing in that channel? And what will it take for those cyclical pressures to become more of a tailwind?

Thank you, Craig. Good question. So I guess, in terms of some of the cyclical pressures I mentioned how they originate in the pandemic, if I look at, say, the off-lease segment, which there’s a -- still, at least on the book, a large supply of maturing off-lease vehicles this year. But what has transpired with I’d say the lack of new car supply from the chip shortage and high retail demand driven in part by economic stimulus, there’s been a sort of a mismatch between consumer demand and new car supply, which has led to a very, very significant appreciation in used car values. And what that has led to is a lot of vehicles in equity, which means less is -- less likely to return them, or when they are returned, very, very high conversions on the upstream platform. So for example, OPENLANE, and again, we’ve got a lot of share here had its all-time record high quarterly conversion of off-lease vehicles within Q1. And if anything, it has strengthened since then. So conversion rates upstream very, very high. Those count as transactions for us. But they’re not as lucrative, let’s say, as downstream transactions in that segment. Craig, I think the first thing that needs to happen is we need to see some return to more normal on the new car production side. And you guys have probably as much data around that as I have, but it’s something we continue to watch closely and talk to our customers about. So return to more normal new car production. And probably a return to some of the stimulus having made its way through the economy and a return to more normal economic environment as well, would probably be a positive, in my view, for our business. So the time line on that, I’m not making firm predictions, but I do think these are temporary phenomena. There still are a lot of off-lease vehicles on our captive finance company’s books, which now extend out another 3 years into the future. We have visibility into that. So those vehicles are there. We expect to see repossessions return to normal over time. They’re still below normal, and we’ve got high market share in the repossession category. And rental cars, I think, will take a little longer. It will take time for us -- I think people are starting to travel. I’ve heard rental companies are back lease leading, buying into fleets again, but it will take a period of time for those vehicles to enter a remarketing phase. So anyway, that’s -- for all those reasons, as I said, we’re continuing to be prudent about our expectations in managing our costs and all the things I talked about in my remarks.

That’s great. And Eric, if I could follow up with you. From a capital allocation standpoint, could you put brackets around the amount of capital you’d be willing to deploy for share repurchase?

Well, we -- Craig, the bracket I’ll put around it is we have a $210 million authorization by our Board of Directors. So that frames what we would be authorized to do. But that’s over a period of time.

Next question comes from the line of Daniel Imbro of Stephens Inc.

And Peter, I’ll add my congratulations on the new role. I want to start on the guidance. Just to clarify, so did the original guidance include the $17 million gain on investment you called out in the quarter? And if not, I think, Peter, in your prepared remarks, you mentioned a few times you expect supply will remain constrained for the rest of the year. So, if we back up that $17 million, can you maybe talk about what’s going to drive the implied ramp to get to the full year $475 million in adjusted EBITDA?

Daniel, we were aware of the gains we had on these transactions, and we did expect to realize some gain in the current year that would become adjusted EBITDA in the form of cash, which is in part why we said at least $475 million. We don’t know how much it will be, how much we will realize in cash throughout the year of that $43 million that remains unrealized. So again, the nature of our guidance, we did not give an upper end to this, but there was a contemplation there would be some gains in that number. Relative to the ramp, again, we don’t give quarterly guidance. I would suggest that we continue to believe we can run a very profitable business with strong unit economics, the current supply environment if it were to continue through the end of the year, Peter and I talked about this at length, would permit us to achieve a $475 million or better adjusted EBITDA without seeing a recovery in supply back to improved levels over what we see today. It will be a tough road for anybody in this environment, but we’re up to it.

Got it. And then just 2 clarifiers on that. So last year, were there any gains on investment in that EBITDA number or not?

No. If they were, they would have been less than $1 million or something. Daniel, I’ll just comment. The recent activity with IPOs and SPACs has caused some of our small investments to become public enterprises. That’s what’s causing this, not anything else.

Okay, got it. That’s helpful on the guide. And then just on BacklotCars, you touched on this earlier, Peter. But I’d be curious, how are dealers responding to your change in the auction format? You went from a timed auction to a 24/7 kind of 3-day bid platform. Can you maybe talk about the dealer reception to that, whether it’s driving more bids per car or kind of what you’re getting in net proceeds? And then have you seen any competitive response to your removal of a seller fee. I think TradeRev removed the seller fee late last year. Obviously, BacklotCars has no seller fee. Can you maybe talk about any competitive response to that?

Yes. Good question, Daniel. Thank you. I guess, first of all, I’d say we saw extremely strong performance in both TradeRev in Canada and Backlot in the U.S. in Q1, both in terms of total volumes and growth. So pleased with both. Yes, the BacklotCars format is different, and you mentioned the 3-day cycle. It is, in theory, a 3-day cycle, but vehicles typically sell in about 24 hours, okay? So it’s really a 1 day to convert the cars into -- the vehicles into cash. Backlot started, I would say, in the lower value segments of the market, which I actually think is a good place to start as a digital disruptor. So has -- our analysis of the data says Backlot delivers extremely strong performance on that lower-value sub $7,500 vehicle, let’s say. But we’re also seeing with the integration of TradeRev, the average price -- sale price of cars on Backlot has now started to go up market to a materially higher number while maintaining really, really strong conversion rates. I think that is another feature of Backlot. The conversion rate is absolutely higher, materially higher than it was on TradeRev. So I really look at the conversion rate as a key success factor for both the buyer and the seller. If you think about what those customers want, both of them want very, very strong conversion rates, and we’re delivering that. And I think that feeds into the customer feedback being very, very strong. And I mentioned that earlier. In terms of competitive response to the pricing model, I haven’t seen a sort of a direct response. I know our competitors are in market with their own offers and their own programs, and that’s kind of their business. We’re kind of focused on our business. But we have -- again, as I said, we feel good about the model we have. We feel great about the customer feedback we’re getting, and we’re excited to continue to grow this business going forward.

Our last question comes from the line of Bob Labick of CJS Securities.

I’ll try to be quick. The gross profit dollar per unit, the $264 you quoted is a record as far as we can tell, looking back quarterly for 7 or more years. But there obviously has been significant volatility in the metric. And Eric, you pointed out Q4 versus Q1. I was hoping if you could kind of go back and clarify some of the volatility. And then the question is, is the $264 or $260 to $270 or whatever that a reasonable number going forward to expect for profit dollars per unit?

Good question, Bob, and you’ve gone further back in your analysis than I have, but it is a strong number even on the shorter time frame that I looked at. So yes, good observation. It is a strong number. It was helped by strong conversion rates in Q1, tight supply environment, strong conversion rates helps gross profit. But even with that, I think there’s a focus on gross profit, and there’s a focus on managing direct costs. And I would like us to try -- seek to maintain and maybe ultimately grow, but I’d say something in the $250 to $265 range is a good range, a good performing range for our business. And I do think some of the volatility of prior quarters, there was obviously some one-off situations in various quarters. But I think we’ve got maybe greater opportunity looking ahead to manage this number more closely. I think a digital model gives us maybe a more -- a greater opportunity to scale our costs up or down more quickly with volume and manage the gross profit more effectively. So we’re focused on doing that, and that’s one of the reasons I view it as a key metric for the business.

And Bob, if I could add a little flavor. The third quarter of last year, I think we were at $249 is the number I recall. That was also much higher than we normally have. We’re sustaining that. Mix does impact the number a little bit, which is why a $255 may be just as strong a performance as a $269 or $264 in another quarter, as it relates to the number of cars sold. When that denominator gets bigger, it will change it, but the mix will be strong, and we expect it to be stronger than what you saw over the 7-year period prior to the third quarter of last year.

Okay, great. And then just looking forward on a long-term basis, last one, promise. How should gross profit per dollar per vehicle change as the mix goes to more off-premise versus on-premise? And in the short term and in the long term, how does that impact that -- how does the mix shift impact gross profit per vehicle?

Well, Bob, as I mentioned, the revenue structure is different in both of those, but also the cost structure. So I think managing the gross profit per car sold is an important metric for us, and it kind of speaks to a whole bunch of factors, how we’re managing the revenue profile on both sides of that mix and how we’re managing the cost structure on both sides of that mix. And I think we’ll be able to do that. I would say that when I think of the digital off-premise model, scale becomes really important. And I think at scale, you get a number of -- and we see this in digital marketplaces across multiple industries. When you get to scale, you get improved economics, improved unit economics, increasing returns to scale, both on the revenue side and on the direct cost side of that. So I don’t think that our current gross profit per car in the digital off-premise model, even though it is strong, I don’t think that is where it will be in the long term. Assuming we can continue to gain scale and have a strong market position, I think we’ll be able to improve that number over time, and that will be favorable to the statistic.

And Peter, I’ll add, he commented there’s a real focus on attachment rates of all of our services. That’s what’s going to help drive that number up. We do not include the AFC gross profit in that number. I want to be clear. And that’s one of the things we think we can do. But all the other services do end up. And as they generate gross profit, whether it be for the buyer who acquires a car online then has us recondition it, transportation all creates opportunities for us to continue growing gross profit and not adding an additional cars sold. So that’s how the attach rate will be a key contributor to this, right, Peter?

That’s a very good point, Eric. That’s a very good point. So Well, thank you, Bob, for that. So I think we’re at closing remarks. So Jay, we’ll have to not take any more questions. Thank you, Jay, and thank you, ladies and gentlemen, for your time this morning and for your questions. On a personal note, it is a real privilege to take over from Jim as CEO of KAR Global, and to have the opportunity to lead what is a great company. I’m excited about the opportunity ahead for our company, for our shareholders and for our employees. I am looking forward to get to know you better and hopefully getting to meet many of you at some point. And Eric mentioned our upcoming Analyst Day, that will be a good opportunity to start to do that. I just want to close out my remarks this morning and just reinforce what I’m going to be focused on in the coming months here. First of all, we’re a digital marketplace business. I’m going to be focused on building out our platforms, our capabilities and our skill sets to be a true digital marketplace leader when it comes to wholesale used vehicle category. Secondly, we have a significant opportunity in front of us with the growth in our off-premise volumes. We will seek to build on the strong volumes and growth rate that we demonstrated in the first quarter. And third, I’m focused on simplifying our business, making it easier for investors to understand, making it easier for our customers to understand and engage with and also matching our cost to our volumes and the mix shifts and making sure we continue to demonstrate strong unit economics and strong overall performance going forward. So with that, we’ll end this morning’s call. Thank you all very much.

And again, ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Have a great day.