Mark Jenkins : So I think the easiest way to think about normalized loan sale volume is you approximately sell what you originate. That’s what we’ve done over the first many, many years of our life as a company. And so I think normalize is you sell what you originate. Obviously, there can be some timing shifts from quarter-to-quarter depending on market and other dynamics. As mentioned, we — for example, so less than we originated in Q4 as one example of that. So I think the — I think that’s the easy way to think about normalized loan sale volume. Some quarters will be below normalized, some will be above. But on average, that’s the right way to think about normalized. I think so far this quarter obviously have success selling and securitizing loans.
So I think feel good about that. I think other GPUs we view as one of the areas of strength in the business, along with some of the other areas that we pointed out on the rest of this call. So I think we’re feeling good about where we are.
Operator: The next question comes from Nick Jones with JMP Securities.
Nicholas Jones : Maybe just a follow-up on the cost reductions and maybe the impact on the logistics network. As you start to turn the corner and maybe starting to build inventory and ramping volume, have kind of the cost reduction efforts you’ve made potentially impacted your ability to kind of scale volume in logistics? Or how should we think about maybe incremental investment out the other side as you do start to build inventory down the road? And maybe what changes you’ve made in logistics today?
Ernie Garcia : Sure. So I’m going to answer it with respect to most of the operating groups, and I think logistics will fit in this framework as well. I think there’s efficiency and focus. There may be two different things. And I think we’ve clearly increased efficiency just because you asked about the logistics network. In the case of the logistics network, we’ve recently increased utilization of our logistics network, meaning the trucks are driving around with more cars on their back. We’ve decreased the miles. They’re traveling over time by something like 40%. I think even quarter-over-quarter, it was down by 12%. That’s taking many different forms that are driving those miles down. But — so it is just more efficient. And therefore, there is kind of less work done per sale.
And therefore, when it is time to grow. it will be less work to achieve the same level of growth. And I think that’s true across all of our different operating groups. And I also think that a huge part of that efficiency has been gained because we sort of removed the variable from the equation. We’ve aimed for lower volumes that we are confident we could hit. And by doing that, we were able to just really focus on costs and expenses and keep everyone focused on all the projects that were necessary to complete to drive down those costs and expenses. And I think as a result, we are not focused on growth. And growth is its own focus, and it has a lot of associated projects, and it requires time and effort and attention. And we’re not currently positioned to grow as quickly.
So I think if we decided to press the button and turn around tomorrow, we certainly know how, but there would be a lag time associated with that to be able to really grow the way that we have in the past, and that is not our plan. Our plan is to hit the first step of our plan next quarter to then move through that to significantly positive unit economics and then to move to growth. And I think between here and there, we hope to make more gains and efficiency across all of our operating groups and then to shift our focus to growth when it’s time. And that’s something that we clearly feel like we know how to do. We clearly feel like we’ve got consumer demand for our offering that we’ll be able to go satisfy when it’s time.
Operator: Next question is from Rajat Gupta with JPMorgan.
Rajat Gupta : Just wanted to follow up on the receivables question from Seth earlier. So if I look at the reported financials, I mean, I think in the first quarter — in the fourth quarter, you sell roughly $800 million lower than what you originated. In the first quarter, it looks like it was close to $300 million to $400 million versus what’s originated. So there’s like $1.2 billion of backlog receivables that need to be sold before you can go back to, like, an origination — to a similar origination versus sales run rate or a normalized run rate. How long do we — should we expect for that $1.2 billion backlog to get clear? Like is it going to be as soon as 2Q? Or will it take multiple quarters? And I have a follow-up.
Ernie Garcia : Sure. So I think you’re approximately right in the size of the backlog. And I think that the way that, that works in the business is we’ve got a couple of billion dollars of warehouses we can kind of house those loans prior to selling them. That does tie up capital. So that extra on the order of $1.2 billion of loans is tying up a pretty meaningful portion of liquidity when we relieve that or unlock quite a bit of cash. We probably have about $0.15 discount on average in our warehouses. And so that means with using your number of $1.2 billion, that would unlock about $180 million of cash by selling those receivables down. I think we plan to sell those down in the coming quarters in an orderly way. I think the benefit of carrying them is we actually do earn additional finance GPU because those are very yieldy assets.
And prior to sale, we are the ones benefiting from that yield. As Mark called out in Q1, we had some benefits there in finance GPU, but we do plan to catch up and sell them. I think the financial markets at least recently have been in a better spot. At the end of the first quarter, we had some elements of the regional banking crisis that caused the securitization market to be a bit choppy, and that caused us to push the securitization back that had been planned. We recently completed that securitization. It was our largest subprime securitization that we’ve done to date, and that actually went extremely well. We were many, many times oversubscribed across all classes, and we’re extremely pleased with the way that went. I think a big part of what has driven that is, I think, we do attract the customer.
We give them an experience that end up leading to very high-quality loan performance. I think the securitization market has recognized that. And so I think that, that’s something that has — we’ve been able to take advantage of as we’ve gone through this period. And so I think over the coming quarters, assuming that the financial markets were made open in the way they have been over the last several weeks, we will likely sell down those excess receivables, and that would be a onetime tailwind to other GPU when we do complete those sales.
Rajat Gupta : Understood. That’s helpful. And then maybe just a broader question on the liquidity profile. You mentioned in the past that your next avenue to shore up liquidity would be to leverage the ADESA real estate. Curious like if that view has changed at all over the last couple of months. And would you be open to considering alternate options outside of the exchange offer, which is ongoing, to reduce the current level of interest burden versus taking on more debt, maybe restructuring the existing unsecured bonds or perhaps even considering a debt for equity swap?
Mark Jenkins : I can take that one. So no changes to the way that we’ve historically thought about that. I think typically, when we think about financing sources, generally speaking, we favor asset-based or sort of — asset-based or secured financing, of which I think the biggest asset that we have today is real estate, have nearly $2 billion of total unpledged real estate assets. A little more than half of that is ADESA real estate locations and no change to our overall thought process there. I think we generally prefer asset-based on secured financing.
Operator: The next question comes from Alex Potter with Piper Sandler.
