E Automotive Inc. released its third-quarter and year-to-date earnings results earlier this week, sharing increases in both revenue and vehicles transacted, among other highlights.

It has been a busy year for E Inc., parent company of the EBlock digital wholesale marketplace and EDealer custom dealer website provider.

For Q3, revenue was up 45.7% to $28.9 million from $19.8 million in the prior period. Company leaders attributed this spike to growth in vehicles transacted and more revenue per vehicle sold, as used-vehicle prices remain very high.

In fact, vehicles transacted were up by 16.5% to 48,914 this past quarter, sparked by newly acquired marketplaces and geographical expansion.

In the press release announcing the results, Jason McClenahan, CEO of E Inc., said, "Our performance in the third quarter demonstrates the value of our digital platform and the resilience of our digital-meets-physical strategy.

 “Despite the challenging macro environment affecting demand for vehicles and tight inventory conditions that have been impacting transaction volumes, we grew revenue organically as dealers continue to seek an easy-to-use digital platform that enables them to profitably and effectively manage their inventory.”

Even amid a tight used inventory environment, listings on the company’s EBlock platform listings are at “robust levels,” he noted, but the conversion rate of listings have fallen.

“As the market normalizes, we believe we will be well-positioned to earn more units per customer, more profitably,” he said. “With a focus on our four existing markets, Canada, the US West, Midwest and Gulf States, we will continue to prioritize achieving greater profitability, sooner."

During the Q3 earnings call, company leaders said that during the quarter they completed the integration of TradeHelper (an online car auction), with all sales running across the EBlock platform, enabling “the sunset of the TradeHelper platform.” 

They also continued the integration of FastLane Auto Exchange and Louisiana's 1st Choice Auto Auction, stemming from the company’s foray into the physical auction market.

Back in August when the news of the acquisitions were announced, McClenahan, also a trained auctioneer, told Auto Remarketing Canada that he sees the apparent downfall of physical auctions and its in-lane approach is “greatly exaggerated.”

FastLane Auto Exchange, located across the border in Mt. Morris, Mich., was purchased in February. McClenahan recently visited the auction to launch EBlock’s “Lane Meets Technology” strategy, pushed into the public this past summer. Earlier in the summer, the company bought Louisiana’s 1st Choice Auction, as well.

FastLane worked to strengthen the company’s wholesale marketplace in Canada and south of the border. And LAFCAA works to help launch the EBlock platform in the U.S. gulf states.

This past quarter, the company took focus on launching digital marketplaces around core physical locations as part of its “Digital-Meets-Physical” strategy.

This investment was made to allow its dealer clients to make the choice whether to transact online or in person.

Company leaders also explained there was a bit of Q3 restructuring taking place to address challenging macroeconomic conditions for the auto industry.

What does this mean for the company? Instead of a U.S.-wide expansion plan with a year-end 2023 target date, the digital wholesale marketplace will concentrate on its existing markets of Canada as well as the U.S. West, Midwest and Gulf states. The company entered the U.S. for the first time in 2015.

They followed up on this strategy on the recent call. E Inc. is also choosing to prioritize the Canadian, U.S. West and Midwest regions for a more targeted approach to long-term profitable growth, versus extreme U.S. expansion cited earlier in the year.

During the call, McClenahan attributed a lot of the company’s progress to new acquisitions, as well as a record number of participants on EBlock — and record numbers of vehicles listed.

“We continue to see contributions from our acquisition strategies including FastLane in Michigan and Louisiana’s 1st Choice in Louisiana, which we closed last quarter,” he said. “We also continue to grow revenue organically due to pricing dynamics.”

That said, new-vehicle production and supply chain disruptions continue to have significant outcomes on the industry.

“In my view, I believe we’ve hit the bottom. Some manufacturers finally started to increase production, but the majority are still showing significant strain,” McClenahan said. “I remain under the impression that production in inventory levels will continue to slowly improve over time in the coming year.”

As far as used-retail sales volume, execs on the call took note of the 11% decline through the first eight months of 2022, as compared to last year.

And higher used-vehicle prices kept unit sales in the industry “muted,  given consumer concerns about inflation, higher boring costs and threat of a recession,” McClenahan said during the earnings call.

In fact, used-vehicle sales have fallen below pre-pandemic levels. And the drop in retail demand is creating aged inventory on dealer lots, “for the first time in a long time,” McClenahan said.

Plus, fewer retail transactions mean fewer fresh trade-ins for wholesale marketplaces.

“The wholesale market continues to be in a stalemate between buyers and sellers. And what is normally a seasonally strong period, demand has slowed,” McClenahan said.

That said, similar to others in the industry, E Inc. is seeing declining rates of conversion rates for listings to vehicles sold.

“This decline was caused by reduced retail demand, as buyers are paying record-high prices, and sellers aren’t priced in the current market yet,” McClenahan said on the call.

That said, he sees it as encouraging that used-vehicle affordability is improving — albeit slowly.

“We believe declining used-vehicle prices will correlate to higher transaction volumes and conversion rates in the future,” McClenahan said.

And the company expects downward pressure on used prices to continue through the fourth quarter.

E Inc.’s digital-meets-physical strategy has been in full bloom this year, and conversion rates at physical auctions have declined only modestly, compared to digital. The company’s strategy includes adding profitable physical auctions to its digital dealer-to-dealer platform.

“These physical auctions and their established customer-base and these competitive marketplaces provide us with stable, even positive businesses and beachheads for our digital expansion into strategic regions,” said McClenahan.

And E Inc. is working to build the profitability of these businesses by adding field sales and operations staff to address the surrounding area, covering a wider area and geography than the physical auction footprint.

This strategy aims to target digital sellers not currently working with the company and to bring a net new customers for both channels — digital dealer-to-dealer and in-lane.

As the company continues to adjust its business plan to mitigate the impact of the current market conditions. Its U.S. expansion strategy is now focused on three core regions: the West, Midwest and Gulf States.

“This strategy is designed to help us achieve profitability two years earlier than originally planned,” McClenahan said.

E Inc. aims to leverage its acquisitions in these existing three U.S. markets to expand and increase the radius of its digital wholesale platform. The company will grow in these markets with a disciplined approach focused on achieving positive adjusted EBITDA by the end of 2023, the company said. 

As part of this strategy, the company has entered into non-binding finalized term sheets for the acquisition of multiple automotive  businesses  located in the United States. These purchases, according to McClenahan, sold approximately 50,000 vehicles in 2021. And combined,  these companies generated unaudited non-IFRS revenue of approximately $38 million dollars U.S.  and unaudited EBITDA of $11.5 million U.S.  in the 12-month period ending June 30, 2022. These acquisitions are expected to close by the end of the year.

In light of difficult market conditions, E Inc. took significant actions late in Q3 to mitigate the impact of lower demand — which has driven lower conversion rates. This included cutting 125 positions, and implementing new pricing strategies and cost reductions

In the future, the next “iteration” of the company’s vision will be bringing the new physical auction marketplaces it acquired onto the EBlock platform.

“We enable dealers to more efficiently move cars faster and improve their profitability while enhancing their customers’ experience,” McClenahan said.

“We believe this makes us an important partner to the dealers in this inventory-constrained environment, as they have the optionality of doing business the way that best fits them …. Supported by land and infrastructure in a massive market that's going through rapid change.”

E Inc. leaders contend that once prices normalize and inventory loosens, the company will be in a good position to benefit from higher transactions and lower prices.

“And these headwinds will become tailwinds,” McClenahan said.