John Murphy: And lastly, is there any potential upside in auction fees as we see the dealer business maybe strengthen in the coming years? Or is this $280-ish, your number kind of the upside — the upper limit? I mean, how much upside is it potentially from mix and even fee increases over time?
Peter Kelly: I think there is upside on price. We’re competitively priced, I believe, vis-à-vis alternative channels. it’s evident to me that buy fees at the physical auction side of the business have increased materially over the past few years. So, I think we’re well-positioned there. John, I’d say I like where we’re priced right now. I think we give our customers a great value proposition in terms of the speed of sale, the low cost of sale and also the outcomes they’ve achieved on their vehicles. And as Brad mentioned, well, you see our consolidated results, but our D2D business in the US was profitable. We did increase price a little bit last year in that segment. So, we’ve got some further opportunity to do that, but we don’t have anything immediately planned.
John Murphy: Great. Thank you very much.
Peter Kelly: Thank you, John.
Operator: Our next question comes from Gary Prestopino with Barrington Research.
Gary Prestopino: Hey, good afternoon everyone. Most of my questions have been answered, but — with the provision for credit losses going up as much as it did. Could you tell me was that more systemic to your Canadian business versus your US business? I know they’re having really a challenging economic environment up there. So, could you elaborate on that a little?
Brad Lakhia: Yes, Gary, it’s Brad here. Thanks for the question. I would say there’s nothing I would say that we’re seeing from a loss perspective that’s unique to Canada versus the United States or vice versa. There’s — it’s fairly — nothing systemic or unique. I would just answer it that way. I would say as we think about each market, and our underwriting and risk appetite in each one. We do look at them differently as we saw — as we said, the value — vehicle value declines in Canada, we’re a little bit more severe than what we see in the US. So, from our financing business perspective, that’s a factor we look at. And not only our underwriting environment for potential new customers, but also in our risk management processes.
Gary Prestopino: So, in this kind of environment that we are in now, have you done anything to increase your lot checks on a weekly basis just to keep tabs on these vehicles?
Peter Kelly: Yes. More activity there certainly have stepped that up, and that’s been true really throughout 2023, and we’ll continue. I would also just add Gary, we have really also driven a lot of advancement in our analytics over the past several years, and our analytics have better positioned us to allow us to move accounts that are signaling higher risk to move them into what we call a wind-down status, which allows us to significantly mitigate losses versus letting them go to a full delinquent status. So, our analytics, our risk management processes are allowing us to lean into some of those cases better than they historically have.
Gary Prestopino: Thank you.
Operator: Our next question comes from Bob Labick with CJS Securities.
Pete Lukas: Yes. Hi it’s Pete Lukas for Bob. Most of my stuff has already been addressed here. But just, I guess, as it relates to — just one question — to AFC, how do you see net interest income and spread and fee income per unit trending in 2024? And any color you can give there?
Peter Kelly: Yes. Thanks for the question. I think, Bob, I’ll start by just reemphasizing the point here, this business continues to be a strong performer. The portfolios that we have and our yields across the portfolio continue to be strong. If I go back to 2019 and through the years here, the overall yields have been, I would say, fairly consistent overall. That’s both on a fee basis and an interest — kind of a net interest basis. So, the portfolio continues to perform well. I would expect those yields into 2024 to not change materially at this point.
Pete Lukas: Very helpful. Thanks.
Operator: Our next question comes from Daniel Imbro with Stephens.
Daniel Imbro: Yes, hey good evening guys. Thanks for taking my questions. Maybe one, I wanted to ask about maybe on the unit economics side. As we think about the shift back to commercial, historically, those off-lease cars carry a lower revenue per unit, maybe a lower gross profit per unit if they get taken down with the grounding dealer. Curious as you think about the mix shift into next year, maybe a little more commercial in the first half, how do you think about that impacting revenue per unit, but really gross profit per unit, probably more importantly, given those changes in sources?
Brad Lakhia: Yes. Thanks Daniel. So, I’d say in commercial, particularly in our off-lease and those off-lease volumes, as those move down to what we would call the remarketing phases of the funnel, we do get more ARPU. But I would say from a gross profit perspective, it also is more accretive to our gross profits in that channel in that line. It’s a more fixed cost-based business for us. And so the incremental revenue that we get from that, particularly as it moves to the remarketing phase of the funnel is more accretive.
Peter Kelly: Dan, if I could weigh in, just sort of — I mean, every incremental vehicle is a benefit for our company. So, — and this part of our business has a very high gross profit as a percent of revenue, which I like a strong gross profit margin. But I guess at a high level, the opportunity here is significant because I’d say unlike the pre-COVID era, we now have much more liquid online buyer base than ever before. We have more active buyers, 24/7 in the Marketplace. I talked about the days to sale for the dealer segment of — on average about one day. High conversion rates in the dealer segment. There’s an opportunity to replicate that on these vehicles that enter the open marketplace on the off-lease side. Historically, the conversion rates there were lower.
