Bret Jordan: In AFC, I guess, as we think about the loss rates and the environment that we see today with obviously, margin pressure for the independent used car dealers and higher floor plan expenses. Is there a risk that it would go above that sort of 2% loss rate in the short term? Or because the loans are short term enough, you can kind of pull the credit back and reduce your exposure to their pressures, I guess.?
Brad Lakhia: Yes. Thanks for the question. I think you nailed it with your latter part of your question. I mean our — they are short term. As you know, it’s about 60 days on average in terms of our portfolio tenor. And we have a lot of a lot of levers, a lot of options to be able to pull that back. I would also emphasize that more recently, over the last year, with those higher risk profile independent dealers, we’ve been more risk off with those on one hand. And then on the other hand, our credit monitoring and risk management processes have been, I would say, more tuned into them as well to the extent we do continue to have exposure. So but to answer your question, there is, as we said, the chance that periodically we could move above that 2% range. But let’s say here over the more immediate near term, we’re feeling pretty comfortable with that.
Bret Jordan: Okay. And then I guess the question, your comment earlier about the potential to gain share in off-lease. And again, then you followed to say that a lot of volume is still serving a hybrid model. Given that you don’t really have a physical option anymore, what is the proposition that you have to drive the share gain? Is it economic? Do you it cheaper? What is the off-lease seller getting when they’re not getting the physical alternative?
Peter Kelly: Yes. I think a lot of the benefit of the digital model goes to speed, efficiency and market efficiency, as well as network effects. Even before the pandemic, the conversion rate of off-lease vehicles in our upstream channel was, I think, on average, 55-ish percent among our U.S. customers. So it was already more than half of the volume was selling in a fully digital model. So and it had been trending up over many, many years, from 30% to 40% to 50% and then 55%. So it was already on a long-term upward trend. I think fundamentally, what you offer the seller is, “Hey, these are good quality vehicles for the most part, three-year-old, lower-mileage, single-owner vehicles.” You inspect them accurately, you put that up in a digital marketplace where you get a lot of buyers and you get true price discovery through a digital marketplace.
And once the car has been purchased, you do that very quickly in a very short space of time, like a few days, one day, perhaps but a few days max, and then you deliver the car immediately to the buyer. And that’s a very efficient process that enables us to transact a car at a very low cost, and the seller gets the benefit of network effects, nationwide network of buyers opportunity to sell the car to a franchise dealer network and to a broader network of buyers as well. So if anything, our capability there has just gone up because we’ve got. Honestly, a lot more buyers online today than we had in 2018 or 2019. So we’ve got a much more liquid marketplace. And I’d say, I also didn’t say, these sellers have kind of got accustomed to not sending many cars to the physical auctions over the last 3 years because they haven’t had a whole lot of vehicles making that far in the process.
So I think they have a preference to maintain the strongest possible upstream online conversion rate. Obviously, a lot of this remains to be seen, but I think the digital channel has some unique advantages here. And I think those will be very evident that these volumes recover.
Operator: And our next question comes from Rajat Gupta with JPMorgan. Please go ahead.
Rajat Gupta: Great, thanks for taking the question. Great. I had one question on just the dealer consignment volumes. It was up 3% year-over-year. I think you mentioned Canada outperformed that number. Would you be able to give us some color on what the U.S. industry did on the D2D side? And any way to characterize like what your market share growth might have been in D2D in the U.S. in the third quarter? And I have one follow-up.
Peter Kelly: Thanks, Rajat. I appreciate that. So first of all, when I spoke about Canada, I was speaking about Canada in the aggregate, commercial and dealer I actually think in the third quarter, our U.S. dealer-to-dealer year-on-year growth rate in our Canadian were very similar. In fact, I think the U.S. might have been slightly higher than Canada. Just to be clear, so if 3% is the average, I think the U.S. might have been slightly better than that. So the number I talked about was the aggregate commercial and dealer. And then we don’t break out the specific numbers by geography, Rajat. But the U.S. is the majority of our dealer-to-dealer volume for sure.
Rajat Gupta: Got it. And just like what — any way to characterize like what your market share might have been, growth there in the U.S. versus the overall D2D industry? The 3% would compare to like how much for the overall industry in the third quarter?
Peter Kelly: Rajat, there isn’t a number I can share on this call. We do track market share vis-a-vis. We track market share in lots of different ways. I mentioned the 70-30 physical versus digital. So we look at that and our component of that. In total, we also look at our share of just the digital piece. And I also think our competitors haven’t reported numbers for the quarter yet. So it’s — I don’t have the full set of facts for Q3. I would say that our share has been fairly stable over the past period of time. And obviously, we believe that as a segment, the digital dealer-to-dealer segment will grow, we think we are very well positioned to gain share as part of that as well.
Rajat Gupta: Got it. Got it. That’s helpful. And then just on the fourth quarter implied guidance, it implies over $50 million in EBITDA. I wasn’t sure if that is just like the seasonal drop that you’re expecting from third quarter? And any way to dissect how much of that is coming from the Marketplace versus AFC in the fourth quarter?
Brad Lakhia: Yes, Rajat, thanks for the question. I think, so yes, you have $50 million, it would imply $50 million on the low side. As I mentioned earlier, we’re feeling, believing that we would trend more to the high side. So call it, $50 million to $60 million. There is seasonality in Q4. So it does certainly reflect that. And what was, I’m sorry, the second or third part of your question?
Rajat Gupta: Just if it’s the $60 million, should we assume that the third quarter ADESA — sorry, not ADESA,, the Marketplace and AFC trends are similar sequentially? Or was that lower than that?
Brad Lakhia: Yes. I mean, Peter highlighted in the Q3 result, marketplace represented 40% of our total adjusted EBITDA. And I think you could model and assume something similar for Q4.
Operator: And our next question today comes from Daniel Imbro with Stephens. Please go ahead.
