Q1 2021 ACV Auctions Inc Earnings Call
[music].
Good day, and thank you for standing by welcome to the H D. D first quarter 2020 One earnings conference call at this time, all participants on a listen only mode.
The speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like day on the conference over to your Speaker today, Tim Fox Vice President of Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for joining <unk> conference call to discuss our first quarter 2021 financial results on the call today are George from own Chief Executive Officer, and builds a roller chief financial officer before we.
We get started please note that today's comments include forward looking statements, including statements regarding avenues for long term growth and total addressable market expansion, our financial guidance for the second quarter of 2021, and the full year 2021 and opportunities for margin expansion.
These forward looking statements are subject to risks and uncertainties and are all factors that could cause actual results to differ materially from those expressed or implied by such statements.
<unk> of these risks and uncertainties.
Contained in our final prospectus filed with the SEC on March 24th 2021, and our quarterly report on form 10-Q for the three months ended March 31, 2021 that will be filed with the SEC. Following this earnings call.
In our remarks during todays discussion should be considered to incorporate this information by reference.
Also during this call we may present, both GAAP and non-GAAP financial measures reconciliations.
Reconciliations to the most directly comparable GAAP financial measures are available on our earnings release, which we issued a short time ago.
The earnings release is available on the Investor Relations page of our website and is included as an exhibit in the form 8-K furnished to the SEC.
Lastly, we will be referencing our earnings presentation today.
You can find posted on our IR website and with that let me turn the call over to George.
Thanks, Tim.
Good afternoon, everyone and thank you for joining us on our first earnings call. It.
It's great to talk to all of you again now as a public company.
<unk> IPO was a significant step in our journey to build the most trusted and efficient digital marketplace for used vehicles.
We accomplished this through a lot of hard work by many people.
I want to thank my Ace III TMA for achieving this milestone.
We are very proud on how far we've come since ACD was launched in 2015.
And we look forward to building on our success in the years ahead.
For our call today, let me begin by providing some context on the HIV story by briefly recapping our 2020 results.
Then touch on first quarter highlights.
And finally discuss our strategy to deliver long term shareholder value.
And 2020, we transacted over $3 billion of DMV and nearly 400000 vehicles on our digital marketplace.
That's produced over $200 million in revenue, a 95% year over year growth.
As you can see our momentum continued in the first quarter of 2021, where.
Are we transacted over one $3 billion of G M B and nearly a 130000 vehicles on our digital marketplace.
And we delivered strong revenue of $69 million.
Which generated 64% year over year Roe.
Our performance in the quarter was driven by continued adoption of our platform.
As we attracted new dealers into our ecosystem and.
And gained wallet share within our existing dealership customers.
We also saw continued adoption of our suite of solutions.
Further enable a seamless experience for our dealers.
Similar to other companies in the used vehicle sector.
Benefited from favorable market conditions, which drove strong customer engagement on our marketplace.
And favorable unit pricing.
We have been able to drive significant growth despite the supply headwinds that our franchise dealer space selling fewer new vehicles, and having less used vehicle supply.
Turning now to price strategy to drive long term shareholder value, let me frame it by focusing on the three top level element of our strategy.
Marketplace growth.
Tam and product expansion.
And operating scale.
Marketplace growth is all about leading the digital transformation of the dealer wholesale market with our robust data driven platform.
We serve a large and complex addressable market.
And as Bill will discuss later, we are ramping our investments to continue capturing market share.
And further differentiating our digital platform.
Next we are expanding our total addressable market and creating exciting new growth vectors for HIV.
They include delivering on expanding suite of innovative products and services into the dealer wholesale market.
And over time entering new domestic and international market that we believe can significantly expand our Tam.
The last element of our strategy is continuing to deliver operating scale.
He is a proven business model that is delivering growth at scale with very attractive unit economics with structural operating leverage that we believe can yield significant margin expansion over time.
Before turning it over to bill to discuss financial details on the quarter and guidance.
To provide a background in ECB for those who are newer to our company.
This is our first call together, we have many listeners who are just getting to know a T V. I will spend a bit more time on the company overview.
With that let me begin with AC vs mission.
Our mission to HCV is to build and enable the most trusted and efficient digital marketplace for buying and selling used vehicles with transparency and comprehensive data. It was previously not possible without our investment in technology and people.
Some of you have previously heard my Diamond analogy.
Basically imagine buying a diamond on the internet without knowing the foresee a color caught clarity and carat weight.
Used vehicles are also extremely complex and the value of used vehicles and fundamentally on the condition.
Hey, Savi has fundamentally changed the used vehicle industry forever.
Because of our investment in technology and people.
Exiting 2020, our digital marketplace had over 16000 active participant operating and 125 territories across the U S.
As I mentioned earlier, we are aggressively investing in growth.
And we made great progress in the first quarter towards achieving our goal of 160 active territory by year end.
Turning now to automotive the market we operate in today.
Which is extremely complex and fragmented.
Our flagship product it used to be auctions targets, the wholesale market, which accounts for over 20 million units sold annually.
This includes 14 million units from dealer wholesale and 8 million units from commercial wholesale.
Our terrific data product is positioned to serve the nearly 30 million retail units the dealers sell to consumers.
And given the unparalleled transparency they truly 60 offers retail buyers, we see significant opportunity to expand this offering.
In addition, our terrific 60 operating serve the 8 million vehicles that commercial accounts sell to dealers.
Now, let's put some numbers behind the market opportunity.
We view, our addressable market in terms of our near term and long term opportunities.
Today, we focused primarily on the U S wholesale market, which has significant runway.
At an average fee of around $500 per unit, we estimate the Tam to be approximately $10 billion in fees for our core marketplace.
This would include transportation and other value added services we offer.
The $200 million earned in 2020 represents a small fraction of the opportunity.
The majority of our current transaction come from the dealer wholesale segment and we are just now investing in the commercial wholesale opportunity.
Multiyear commitments.
Additionally, our data services, such as <unk> have the opportunity to address transparency on approximately 40 million vehicles, including dealers of consumer and commercial to dealer.
Longer term, we believe our platform approach will resonate outside of the U S.
And we also plan to continue developing products that help dealers purchased and trade in vehicles from consumers.
And over the long term when you see the opportunity to expand beyond used vehicles.
Bottom line, we believe we have a significant untapped opportunity for growth.
Now, let's dig into AC needs the auction experience.
Our team of over 750 vehicle condition sectors Ghost vehicles.
Wherever they may be add dealerships or consumer driveway.
We inspect vehicles with our proprietary tools, then launch them into a 20 minute auctions.
The reason, we can tell of vehicles so quickly.
We have our buyers profile informed by their favorite search it including any customization, they're filters, which enables us to send notifications to dealers when vehicles match their needs.
The notifications include a link to view the vehicles condition and he used to these market report to get pricing guidance from similar vehicles.
Dealers on conveniently finalize their transaction, where they can purchase our value added services.
Like HCV transportation, an ACB capital.
Every step of the transaction journey on our platform is powered by data and technology, which drives trust transparency and efficiency.
Turning now to our technology.
Our platform Leverages data and technology to power, our digital marketplace and data services, enabling our dealers and commercial partners to buy sell and valued vehicle with confidence and efficiency.
Atheist platform.
It's comprised of our digital marketplace product and our data service products, which are underpinned by the ECB technology and data platform.
Additionally, our back end technology, Leverages machine learning to reduce manual effort and post transaction processing.
Which continues to enable greater operational efficiency.
So how does this all translate into our marketplace offering.
We deliver a comprehensive suite of products to help create a seamless experience and remove the challenge our dealer space during the traditional wholesale profit.
This includes our flagship product ACP auctions, which facilitates instant transactions of wholesale vehicles.
Are dealers transact on our digital marketplace every day.
Libra appraisal is used by dealers prior to owning a vehicle to quickly assess the value of a consumer's vehicle without taking any risks.
Within 20 minutes of dealer can auction a consumer's vehicle while the.
The consumer is in the dealer showroom.
Bringing efficiency and trust to the transaction.
We pioneered go green, which is a wholesale markets first stellar assurance services.
Go Green provides a seller with a guarantee against claims of defects and vehicles that are not disclosed in our condition report.
With HCV transportation, we help our customers manage the entire transaction journey by delivering vehicles to the front door of the buying dealer.
And finally with ACD capital, we are becoming.
Partner for independent dealer by providing a credit facility, which is creating both liquidity and stickiness to our marketplace.
Moving on to our data services.
We offer data services for our dealer and commercial partners that bring transparency and insight into the condition and value of used vehicles, both on and off our marketplaces.
With triggers ex dates we provide a detailed vehicle report, including cosmetic and structural assessment.
<unk> enables us to extend the reach of our product to the dealer retail market and some of the largest dealer groups in the U S are starting to use Truecar six day.
Our reported are integrated into dealer website and included within the leading vehicle history report providers.
Our commercial partners are also leveraging detailed currently 60 inspection reports to better understand the value of their vehicles and sell their used inventory.
And through our ACG market report, we provide transaction data and condition detail to help dealers assess the value of used vehicles.
This gives dealers another tool to determine pricing strategies for their vehicles.
Let's now look at how our marketplace data and technology combines the power significant network effects.
As more marketplace participants join our platform, we can provide greater liquidity and a better experience.
Adding to greater scale.
This in turn enables us to collect more vehicle and market data, bringing a greater efficiency and more products.
These reinforcing firewall effects continuously improve our digital marketplace and data services for our customers.
Ultimately this drives greater liquidity greater scale and greater efficiency, which is demonstrated in our attractive unit economics.
With our continued investment in technology and people. We believe we have significant avenues to drive long term growth.
Within our marketplace, our growth will continue to be driven by adding new territory in the U S and further penetrating our existing territory by attracting new participants.
While gaining additional wallet share from our customers.
And some of our more mature territory with our longest running customers, we see dealers that drive up to a 100% of their wholesale traffic through a T V.
We've already made strides introducing ancillary services line.
A C V transport and a semi capital.
And there's a long runway of growth in these areas.
We see opportunities for more on the data services side, we're focused on helping dealers navigate the use automotive landscape by providing trust and transparency and services they need to compete in the digital world.
Everything we're doing represents incremental opportunity to provide more value for our dealer and commercial partners.
And we think this opportunity extend internationally.
Lastly, M&A can be an accelerant to all of it if we find businesses that match our objective.
Let me wrap up with our ACB leadership team.
We found it a C V with a core principle of investing in people and technology to bring trust and transparency across the entire used vehicle market.
We have a unique blend of talented teammates with a broad section of background and experience and I'm excited to have them by my side as we continue on the C V journey.
With that let me turn it over to Bill.
Thanks, George and let me also extend my welcome to our first earnings call.
I'll begin with a review of our first quarter results.
We are very pleased with our performance on the quarter.
We delivered strong revenue of $69 million.
Which generated year over year growth of 64%.
Adjusted EBITDA loss of $12 million or 18% of revenue.
It was a significant improvement over our Q1 'twenty results.
This performance was driven by our strong revenue growth significantly outpacing our total operating expense growth, which underscores the inherent leverage in our business model.
Cost of revenue as a percentage of revenue improved by approximately 200 basis points year over year.
Which was driven primarily by an increased mix of high margin auction marketplace revenue.
Total operating expenses, excluding cost of revenue as a percentage of revenue improved by approximately 2800 basis points.
To put this in context we.
We delivered 64% revenue year over year growth on essentially flat SG&A expense growth.
Once again, highlighting the leverage in our marketplace business model.
Okay.
Let's turn to some additional detail on revenue.
We have a diverse mix of products and services.
Our auction marketplace revenue comprises about half of our revenue today.
With our customer <unk> offering and our emerging value added services.
On the other half of our revenue.
We had very strong performance in our core auction marketplace business.
With 92% year over year revenue growth.
This strength was driven by a combination of strong unit growth.
And the attractive pricing environment George highlighted in his remarks.
And this business continues to deliver very strong profitability.
Okay.
Moving on to some additional operating results.
Our business model has delivered some impressive growth over time.
And despite the larger scale of our business today continues to deliver strong unit growth and marketplace G. M D.
Okay.
To help illustrate the underlying growth dynamics and efficiency of our business model, it's useful to view our historical charge for performance.
As you can see on the first chart.
Our church, where as mature our unit production grows exponentially.
This is a classic land and expand model and we believe we're still in the very early innings here and there is significant room to grow in our newer charge force.
And then second short we illustrate the cost efficiencies we've experienced as our church was mature and gain significant operating leverage typically reaching breakeven in year three or four.
To put a finer point on the operating leverage on our business, we're showing historical adjusted EBITDA margin.
In 2020, we had our first positive adjusted EBITDA quarter in the third quarter as demand for used vehicles significantly outpaced supply.
This drove strong growth in customers and units sold.
We benefited from significant operating leverage in our business model.
As I will discuss in my guidance commentary, we are ramping our growth and technology investments this year, which will of course impacts our adjusted EBITDA margins.
However, we think it's important to recognize the underlying operating leverage in our business model that we believe over time can produce significant margin expansion.
Now I will turn to guidance.
For the second quarter of 2021, we're expecting revenue of $72 million to $75 million or.
A growth rate of 60% to 67% year over year.
And on an adjusted EBITDA loss of $20 million to $22 million.
For the full year 2021, we're expecting revenue of 307 to 313 million.
Our growth rate of 47% to 50% year over year, and an adjusted EBITDA loss of $79 million to $82 million.
Our guidance assumes that the favorable market dynamics driving strong demand and higher unit prices will continue in the near term.
But it would be prudent we've assumed a more normalized environment later in 2021.
And finally on guidance to my earlier point about our investment plans.
We're expecting total operating expense growth of 62% to 64% from our full year 2021.
Okay.
To wrap up my comments, let me highlight our strong capital structure.
Following our recent IPO, we ended the first quarter with $616 million in cash and equivalents and $7 million of long term debt.
Please note that $98 million of cash is associated with the flow and our auction business.
Specifically, we generated $46 million of cash flow from operations during the quarter due to an increase in the flow on our marketplace of $53 million since December 31 2020.
The amount of float on our balance sheet can fluctuate meaningfully driven by business trends and the final two weeks of each quarter.
With that let me turn it back to George.
Thanks Bill.
Before we take your questions, let me summarize.
We are extremely pleased with our execution in the first quarter, which illustrates the momentum we're seeing in the market for our leading digital platform.
We've made significant progress in redefining the wholesale vehicle market, but we're still in the early on it.
And we have a number of exciting growth opportunities that we believe can meaningfully expand our addressable market.
Data and technology is core to our advantage and will remain a strategic priority as we deliver new and enhanced services to the market.
We have a proven business model that can deliver scalable growth with attractive unit economics, and structural operating leverage that we believe will drive significant shareholder value.
With that I'll turn the call over to the operator to begin the Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone so.
So let's try a question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question comes from Ron Josey with JMP Securities. Your line is now open.
Okay.
Yeah.
Ron If your line is muted please on mute.
Yeah.
And the next question will come from Michael Graham with Canaccord. Your line is now open.
Hey, thanks, so much.
Appreciate all the color on the call and congrats on the on the on the quarter.
I wanted to ask two questions if I could one is.
Your territory expansion is tracking well and you have improving economics.
In your more mature territories, but then you know that has to be balance I guess.
Against when you when you go into new territories. The economics are a little bit you know kind of compressed. So can you just talk about the balance between those two factors.
And then the second thing I just wanted to ask is you know any any plans you can share regarding ECB capital and just sort of like you know.
Milestones to expect there.
Yeah. Thanks, Michael I appreciate the kind.
Remarks.
First on a territory expansion and how it relates to building up the teams.
So first keep in mind, we've been asked that says you know for over four years and we have a playbook. When we first open up a territory we are on.
Obviously, we don't have any customers when we hire our vehicle condition inspectors. So at that point in time.
You've got the cost is in essence.
You're building up your your your customer base.
While you're while you're opening up the market the fast forward, let's say four years later, Michael as you know at that point all of a sudden just for example purposes youre selling 1000 cars plus a month.
And your inspectors are getting very efficient youre getting.
Quite a few vehicles per dealer per stop.
And that's why you see when we went through the road show when we describe their model described how the model scales.
We rarely go from a territory, it's early days, where youre basically less efficient until you know winter three four years out EBITDA I'm extremely efficient in the model.
Hopefully that answers your first question on your second question.
From an ACB capital, we we achieved our goals in the first quarter with pretty significant.
Significant dealer adoption attach rates, where we're very excited about ACB capital.
We're focusing the product on bringing transparency.
To the Fintech side of the business, if you would meaning.
While a dealer is transacting in buying a used vehicle they know what it's going to cost them for capital.
And dealers love that the traditional models were a little complicated trying to determine between all the various fees what it actually cost for capital.
Our model is very transparent, while you're bidding and while you're buying a car you know what it's costing you you also get the broader ACB service model.
So so far so good and we we achieved or exceeded our goals is really a day UCP capital for Q1, and very excited about what's coming up next.
Michael I answered both questions.
Thanks, so much George.
Your line.
Yes.
Thank you. Our next question comes from Matt Schindler with Bank of America. Your line is now open.
Yes, hi, guys and congratulations on your first quarter as a public company George you alluded to macro concerns on the market. We've heard from your offline competitors of the challenges of new car dealers not wanting to sell off their used cars to come in because we just don't have enough.
New cars to replace them with so they have space on their lot.
And thus fewer cars coming into the auction.
Obviously, that's not really affecting you guys that much.
Given your results, but accelerating results, but can you walk us through.
What has been happening on the macro side and how you think this will evolve over the years. This spin.
Specifically when we're hearing that the.
The manufacturers on likely be even be up to previous production levels until Q4, So probably supply of new cars is not gonna be up until later into 2022, So how would you.
See this.
Evolving over the course of the year.
Yes, certainly that thank you and thanks for the kind regards much appreciate it.
I'll try to describe this for you.
Sort of in the way dealers are looking at debt, obviously, which the majority of our supply today comes from from dealers.
And this trend I would say started in and really Q4 of last year.
Generally our R. D. Our franchise dealers are new car dealers.
Selling less cars selling less new cars are selling less new cars.
Now they had less trades coming on.
For those new car sales.
Some of that was made up by the increase in used cars for some dealers, but not for others, meaning the total car sales.
With any one dealership when you look at new plus used may have been.
It may have been lower for some of them.
Because of the fact that they sold are sold are less new cars. Some made it up by the used car side either way.
Less trades.
With less trades to your point some of them have decided to keep some of the cars that would've been traditionally wholesale.
I know that mix was already happening to us in Q4 of last year. It was already happening in Q1 of this year.
So you've seen us have tremendous growth.
While facing.
These are this is sort of change in the market.
On the franchise dealers really needing more inventory.
And what we're also seeing.
As you've also seen R. R. G M B increase.
It is a S. P segment that has increased.
Partially cause franchise dealers are also buying on our platform now.
They need vehicles.
So it's really interesting, but I would say so on your first part of your question. Yes vs have been challenges for dealers Oh, we've been in a great spot because we're both on the supply and the demand side. So as these macro things are going sometimes that help them supply sometimes it helps on the demand either way, we've been able to grow through this very significantly.
When we look out.
We.
What we're thinking is.
You'll hear trends of new car supplies will return back to normal by Q1 of next year.
But whether it ends up being Q1 of next year when weather ends up being Q4 of this year or sooner.
We're gonna be prudent on our on how we think about the year.
And as we think about how the supply from having more on new cars and overall more cars in the inventory.
Dealers will face pricing challenges as it relates to used cars.
We think they should really consider using a C V auctions because with a C. V. You know the value of the vehicle, you're not making any guesses on the vehicles. So we think we're on a great spot to help them with these fluctuations with used car values.
And really in each of these cases, where on a really good spot to benefit from these macro changes does that answer your question on that.
Oh, Yeah, Unfortunately, and also well, though looking at going forward one on things it's clear that these macro changes are causing.
Kind of pricing to increase on used cars as you alluded to as well.
If that helps you on your auctions as well, but is your auction more levered to.
Price.
Or volume.
Or neutral so would it be better if you were getting more units.
Then getting higher prices.
Yeah.
You know it.
Being in the marketplace.
You basically become that the equalizer right. So we.
Now having more supply.
You know obviously gives you an opportunity.
Two two.
She also theoretically sell more cars.
The.
The the benefit on.
Less cars in the marketplace gets reflected currently.
By having a higher G M b because dealers really are expanding the types of cars, they are buying and selling on ebay.
So on that one of the things that are interesting benefit is during the road show, we talked about our G M b getting to the 10 to $11000 range.
A few years from now.
And one of the things that's really fascinating about Q1, because we got a little glimpse of the future.
Where where dealers are both buying and selling.
On a broader amount of inventory on a T V.
So I would say in the current term by having less supply we're benefiting we're benefiting in effective rate or sell through in the platform we're benefiting.
And N G M B and other factors.
Whereas at the end of this year or early next year. If they used car supply starts to tick up will benefit by having more cars since backed.
So theres really pros and cons to both side hopefully that answers your question.
It doesn't could I just one quick more for bill just so he doesn't feel left out.
[laughter] Thanks, Matt.
Yeah.
Bill just looking at your guidance it looks like your you incrementally about $4 million of revenue, but incrementally about 9 million more EBITDA losses, obviously, you said something about the increased investment.
How much though of that.
Different from Q1 to Q2 in the spending side, it's going to be something more prosaic like.
Cost of being a public company.
Yeah.
Hey, Matt so so so a couple of things. So first on that just just to get back to your previous question I'll give you a little more context on pricing versus unit volume.
So if we look at our auctions plus assurance revenue in total.
About three quarters of the increase in revenue is volume based.
And one quarter is pricing based so that gives you a little bit of context on the pricing side versus the unit volume. So it's obviously the vast majority of our revenue growth is being driven by unit unit volume growth alright. So just.
I want to cover that fresh debt okay.
<unk>.
So in terms of in terms of our investments going forward.
So we we increased quarter on quarter in Q1, our operating spend this is excluding cost of revenue a little north of $10 million sequentially.
Right.
And as you know we're in investment mode across the business. This year, you know as we look to to kind of drive.
Long term long term value and market share gains. So in Q2 were basically dirt.
Directionally looking at a similar absolute increase in Opex spend.
Hey.
Slightly tilted towards SG&A, but.
For the most part evenly distributed.
We've talked in the past about continuing to make investments in product and tech.
You know, which which we're continuing to do and again, increasing our footprint on the go to market side. There of course is some increase in public company spend but I wouldn't consider that it's likely to be a significant driver.
All of those costs were previously anticipated. So so if we think about Q2 and the rest of the year in terms of the Opex envelope, it's pretty consistent with what we expected previously.
No dramatic changes.
Obviously for our full year guidance, we're flowing through the benefit from Q1 since our Opex was.
It was about $7 million low.
Than we expected.
Even though we're ramping internal resources and talent acquisition of SaaS SaaS as possible on where we're tracking really well there, but hopefully that gives you a little bit of color in terms of the go forward.
Your go forward view in terms of what we baked into our guidance.
Great. Thank you very much.
Okay.
Thank you on our next question comes from at least a day with Guggenheim. Your line is now open.
Hi, everyone. Thanks for taking my questions. So I guess as a follow up to the last question on the market trends it sounds like the dynamics, you're describing on the supply side were a headwind to your volumes in the quarter, but a tailwind to G. M V. So when in your guidance you talk about favorable market dynamics continuing in the near term before.
Normalizing later this year are you specifically talking about tailwind to G M D and revenue per unit.
Yes.
I would say that that would be one of the primary.
As we look right now at Q2.
First thinking about.
Q3, and Q4 as is.
We are ahead of schedule as it relates to revenue per unit and we're ahead of schedule as it relates to G. M P.
So.
And yes at this moment being prudent.
Whether it lasts longer are not you know.
At this point is it really seems like it makes sense for us to stay prudent on the spill on arent going to ask but at a low mark left.
No.
Australia is what we're trying to be balanced in terms of how we you know.
God you guys for for Q2 I'm on.
On the rest of the year.
I mean, you're right in some sense from Q1 that you kind of both headwinds and <unk>.
At the end of the day, we kind of came out on the positive side of that.
I'm just kind of bear that out. So we're just we're just trying to be balance in terms of how we how we think about things from a guidance perspective.
Okay that makes sense and just a follow up here on you you've talked about investments on the commercial side of the market, which seems like a big and largely untapped opportunity for the company most of those cars, particularly the off lease cars are sold on private label digital auction website utilized by the OEM been coast. So it's a bit different than your curve.
<unk> dealer wholesale business platform can you talk a bit about the products youre developing to target that commercial market, specifically within the off lease category and how you're hoping to maybe differentiate yourself from the incumbents given that market is already largely digital.
Yes, certainly.
I'll describe it maybe at a high level, because we do have some upcoming announcements as it relates to our product strategy in this category.
Over the next.
Sure in the short term, but first one of the major investment areas is our inspection platform.
Within our inspection platform.
As you know we acquired.
In off lease inspection business and we also acquired another business.
That was helping to understand the integrity of the vehicle frame structural other elements.
So where where where are hard at work, creating what we believe is the number one inspection platform for commercial partners.
That product will be released towards the end of this year.
We're very excited about that investment it'll help us and help commercial partners.
Understand their assets understand the condition.
And help them really decide what they want to do from a pricing perspective with that specific asset.
So that's on the inspection side on the marketplace out of things moving.
You know we mentioned in the in the S. One that we have a private marketplace capabilities coming out later this year there'll be more to come on that topic, because we havent broadly.
We have not broadly.
Sort of market and about our upcoming products are but we do have.
Products coming out that will enable both dealer partners and commercial partners that we'd like to create a private marketplace for their own constituents, so more to come on that topic.
Great. Thanks for the color on thanks for taking my questions Yeah certainly.
Certainly thank you.
Thank you. Our next question comes from Ron Josey with JMP Securities. Your line is now open.
Great. Thanks for taking the question on apologies on on earlier, maybe two please bigger picture George.
Clearly a great quarter, and you're seeing more dealer sign ups can you just remind us or talk a little bit more as to what might be the number one reason or the top reason or so why dealers wouldn't joined the platform is it is it just a nursery things are working fine or maybe just walk through that please and then I don't know if I heard before but you talked about.
The ramping investments into I know you talked about that as well just if you could touch Canada, just things seem to be going really well and I wanted to see if there's any updates on Canada that I might have missed it. Thank you.
Yeah. Thank you. Thank you Ron.
First.
You know we.
We're really growing as planned so when you think about why are why a deal or would it be using US you saw that we took we took even we took significant market share across.
Across the entire sector.
Quarter after quarter, if you look back over the last four years, we've been growing very.
<unk> consistently.
Dealers historically have ways to sell their wholesale whether it would be a wholesaler whether it be the traditional auctions.
And you know theres relationships. These are long term relationships.
And so what we what we do is we go into a market.
We build relationships, we tend to get a few cars.
We prove ourselves.
And then we earn more and more wallet share and we'll get to the point you know over a period of time, where the dealer will end up giving us 100% of the wholesale.
And you know what you're really seeing here, we when you really focus on our metrics for the last four years. We've just been very consistent we just keep growing quarter after quarter.
And that growth.
Is that dealer adoption out in the field, helping them at their pace right at their pace dealer by dealer.
Just sort of moved from their traditional ways.
Of buying and selling.
Vehicles.
To this very transparent and trusted way on the ACD platform that becomes extremely efficient for these dealers we show up at the dealership inspect the cars for them, we take care of any arbitration or any issues, they're not on the hook for any of this as long as they buy our go green product and it becomes very efficient for our dealer partners. So I think what you're seeing.
As we've been we've had really exceptional and consistent growth quarter after quarter.
And we've done that.
Sort of cash.
Community after community across the country building relationships dealer by dealer.
But to answer your first question before I go to the Canada question.
Yes.
Yes. It is I mean, I I totally get the land and expand strategy and it's helpful to hear that thank you.
Okay.
Canada really no no update yet.
Our plan you know, we we alluded in the S. One that we come with the strategy.
Before before year end of this year [laughter]. So this would be a little early to come back to you all obviously.
We are so more to come on our goal is to come.
Come to market with a strategy for Canada before by the end of the year, So I would say.
I'm sort of sticking with that for now.
Got it. Thank you George appreciate it certainly.
Thank you Ron.
Thank you. Our next question comes from John Kernan Tani with Jefferies. Your line is now open.
Yeah.
Hi, Thanks for taking my questions wanted to dig a little bit more into the guidance. It looks like full year revenue guidance is primarily flowing through upside from the first two quarters at least according to our numbers. So you know.
We're expecting pricing in the wholesale market to remain elevated until 2022. So you know maybe you can talk about the key puts and takes of your expectations for growth in the second half in the context of a broader industry trends and how you envision E. C vs market share progressing within the digital sphere and I have a follow up.
Thanks.
Bill do you want to go first on this line and then Oh, Yes I can.
Yeah, I'll start and then you can add into purge.
So John.
Yeah as I said in my prepared remarks, we're assuming in the near term.
We continue to see.
Current dynamics play out.
In the market right and if you look at our Q2 guidance at the high end, we're talking about higher growth versus Q1 at 67% year on year.
For the second half.
Again.
Just trying to be prudent in terms of how we model out the business and we're we're assuming that these trends kind of moderate in the second half right. Obviously, you know we've already proven that to the extent.
The current market drivers persists, we're gonna benefit right.
Just not assuming that in our guidance right and obviously, if it does play out differently.
Potentially we can generate different results, but.
Kind of the underlying assumptions for the second half, we're just more balanced and and again assumed a market doesn't necessarily continue to persist with the same dynamics that we're seeing today.
So George I'll, let you kind of add a little more color on that on top of that if you like.
Yeah, John I guess first thanks for the question.
Kind of learn the a C V culture method, it's we really look back at our last four years to help us think about out quarters. We we've been this very predictable.
Company.
And when we don't we don't know yet what's going to happen with all these moving parts. We we tend to just look at our historical data and that's why you see us always do now could the market be more favorable as you net it seems like Thats your firm is.
Predicting them that.
That could be the case, but for now we rely very much on our historical data to predict the future and then we'll see what the market trends are at that point is that helpful. On on how we how we look out.
Yeah absolutely.
And just wanted to turn to our customer trends.
Can you help compare our retention and frequency of dealership customers that you've acquired since the wholesale market started to enter uncharted territory in the last three months you know maybe you could talk a little bit about engagement of those new customers.
And how that gives you confidence that you can and what about that engagement gives you confidence you can retain them once the wholesale market starts to normalize in the.
The second half.
Yeah, certainly we are seeing.
Very high success.
And our new seller acquisition, bringing on dealers, both selling and buying cars, where we're very excited about how our team is growing.
On the new territories that we've opened.
We're very excited with the results.
Obviously, we're not at this point, we don't we don't disclose all the data, but I'll say our internal expectations.
On.
The number of units for our newest territories. The territories, we just opened a week.
It just went into a state for example, and we are ahead of plan from our internal plan. So that's very exciting in and obviously it gives us the confidence to.
Look out.
And.
It would be very confident in the model, we're providing to you all because our seller acquisition.
Retention remains very very strong and very predictable.
So on the seller side.
It's going very well on the buyer side you know our MTS continues decline ahead of others in the sector.
Buyers, who would prefer to buy in a C V. It's more transparent.
Where.
We do we work very hard to ensure when a dealer buys a car in a C V.
They are treated fairly.
Every single car that car by car by car, whether it's transport buying et cetera.
That not only reflects itself in our M. P S and our increasing customer satisfaction, but then those buyers are willing to pay more for the car in D. C V versus other platforms.
So we're very pleased with our results so far both on from an acquisition.
Perspective on our new sellers as well as buyers and we're also pleased with the number of sellers that became buyers over the last quarter buying more of these oh, you'll hear is from frontline ready.
On sort of vehicles that the franchise dealers are typically buying or selling so all in all were very excited and so is it really exceptional Q1 and you're seeing us.
Forecast out additional market share gains over the next several quarters.
Great. Thanks for the questions.
Okay.
Thank you. Our next question comes from Rajat Gupta with GSK team on and your line is now open.
Oh, great. Thanks for taking the questions and congrats on the first quarter as a public company.
Just had a question here I just wanted to start off with the Opex you know the first quarter, our leverage was pretty strong probably go on.
On an absolute basis, it looks like the expenses, where once you better than interest would be unexpected.
I'm just curious after you know looking at the full year Opex spend you know the 63%.
Is that is that tracking in line with what you'd probably called before I mean is there like some change to that plan, where you feel like you need to do less well.
Or maybe you know where the spread that out over a couple of years I'm just curious as to if the spending year on the first quarter track, that's where after your expectations and Hmm is there like just from catch up to happen like later on.
Yes.
Hey, Joe It's bill.
Hey, so a couple of things. So yes, we did see a lot a lot more leverage on the opex side in Q1.
We basically came in at about $7 million less than we were originally modeling and we've kind of flowed that through to the full year. So that so the full year opex.
Ranges are actually.
Actually incorporates debt that favorable.
Performance in Q1, so you know what.
What we're assuming is that we basically continue on the track that we had planned through the rest of the year.
Even though we came in below.
Below on our model and in Q1, we're still tracking to all of our internal targets yeah on.
On a product and tech side in terms on operational investments that we're making the go to market side, we're kind of tracking really well and executing.
Well and we brought in a lot of people in Q1 and were continuing to ramp up our recruiting efforts to bring in more talent in Q2 and beyond so I would just say, we're we're pretty much on track.
But at the end of the year at the end of <unk>.
Full year, we'll end up based on our current expectations below what we originally modeled for total opex.
But despite that we saw.
Feel pretty good about executing against our internal objectives.
You know and as you know just as a reminder.
This is an investment year for US. We believe now is the time for us to invest back into our business and there'll be some deleveraging in our P&L as a result, but we believe it's going to set us up for you know kind of returns returning leverage next year and beyond as we continue to grow and get more scale and.
Our approach to profitability and beyond.
Got it.
Really helpful color.
Can you give us a sense of I know you're on plan to bring this out like every quarter.
But you know any any sense of what the penetration rates were you know and some of the ancillary stuff like transportation capital.
Any color you could provide on background.
Yeah.
Well in terms of attach rates I would just say we're tracking as planned.
R R.
Objectives are.
Gross RAC V capital business by increasing our attach rates, which are.
<unk> has essentially been on the low single digits. So we're we're still on the early days there but.
But as George mentioned, we saw a nice improvement in Q1, so we're certainly tracking against our internal targets transport as well.
We've talked during our IPO Road show about increasing our attach rates on the transport side in order to gain more scale, which will which over time will give us or put us on a position to generate some some margin improvement on that side.
A C V transport, we believe ultimately delivers a better SLA to our to our sellers.
So it's very strategic so I would say on both fronts, we're really tracking as planned if not slightly ahead of plan.
Got it got it just one last follow up on your for George maybe just.
Just on the commercial side of the business you know like what's the I mean, just trying to understand you know like you mentioned about like you know that the private.
The private label brand opportunity there.
Just one thing like penetrate that channel and that's that's a grill.
How does how does that change your your your your your auction art boom.
You know what you have currently with the dealer dealer channel because.
We never like on a coping lane I mean their auction.
Our revenue per unit is definitely like 100 Bucks or so and then obviously, there's like ancillary services on top of that so just curious as to you know.
Once you penetrate more into those channels like how does.
How does the ERP change on the economics change if it is meaningful.
Yes, certainly.
So I think.
The way to think about it as.
What how we've guided you on.
It doesn't at this point really include.
Private marketplace revenue opportunity.
I would look at this and you can see how we're where we're kind of looking at the market as there is kind of the current marketplace growth and then second is the sort of product and Tam expansion and as we go to market on.
On Tam and and product extension, we'd come back and help everyone. You know think about those new categories.
But a way to think about it is in the commercial sector. The revenue per unit from an open auction or an open sale.
Typically is.
The same as what we're making today on a revenue per unit and some of our competitors I would say from an in an open auction.
Anyone can buy the car and not just a private constituents the revenue per unit might even be higher than what we're getting today.
From a private sales as you know the revenue per unit tend to look more like.
A cloud service are very high margin cloud service.
So youre going to see very high gross margin. These are really fantastic products to be in.
But we're just getting started I mean, where where we're almost done building the product [laughter] well have to roll that out we will start to go to market with that product. So.
So look at products like that.
Our products for us to grow into over the next two to five years.
Look at that as sort of like the act two and act three of the company, where the act one right. Now is we're going to go out there this share and next year and just continue to grow market share we're going to we've.
Proven we've got what we believe the day the best product in the marketplace. We're going to continue to take share and then in addition, we're going to bring product in Tam expansion and once those products to the market. Once we're comfortable to start speaking to future attach rates on revenue for you and I will come back around and start to you know maybe.
Start the size up expectations in the future.
I really much of what we've guided you all for this year how to think about the core business is related to our auction product our transportation P. C V capital two or 360.
And then there'll be additional products and.
And Tam expansion that will come out over the next few years.
Got it great.
That's very helpful color. Thanks.
Thanks, and good luck.
Thank you I appreciate it.
Thank you. Our next question comes from Alex Potter with Piper Sandler Your line is now open.
Okay, great. Thanks.
So I wanted to ask a question I guess, you're on 125 regions now obviously, there's varying levels of maturity within each of them. Some of them you know you're just coming up the hiring curve now hiring very aggressively looking to get your first inspectors out there and some of them are on the other end of the spectrum I don't know if it's possible to quantify it in this way, but what P.
<unk> of those 125 regions would you say that you are sort of aggressively out there trying to add bodies.
And then the follow up to that would be in this sort of goofy employment environment that we're in right now.
I mean, it sounds like Youre, not having a difficult time finding people to do the work at least if the revenue growth is any indication, but I I'm just interested in any challenges or bottlenecks you might be having on the hiring front.
Yeah, Alex Thank you.
As many of you know leading our teammates when my.
One of the topics I love talking about the most so I appreciate the question.
You know where.
We're hiring I believe across if not all the majority of our territories none of our territories are fully mature.
Where we we still we've got a ways to go in hiring even in the territories have been operational for five years and you know we're selling a lot of cars and some of these markets, where then we're the number one provider in the dealer to dealer channel, but we are still hiring additional.
Additional talented teammates.
And so I'm not sure if it's every territory this month, but I would say that the far majority of our territory right now where we're hiring people.
And that will continue.
So on the first on the second part of your question.
We we we really are modeling our company.
To be one of the best places to work in America. So you have to be want to be the most transparent and trusted way to buy used car across wholesale retail and in and beyond but in addition, we're really here to build a team of culture, where we provide competitive salaries.
Sort of sort of.
Additional benefits.
Dark options.
We you know we provide health coverage because I think that's really important to take care of their team, we provide training and education to help them learn I mean, where where we're really over the top.
What happens when you take care of your team the word gets out. So so yes, I would say others out there are probably having a hard time.
On recruiting talent.
We we we get thousands and thousands of applicants and where we're doing our best to make sure where we're getting in there and an.
Interviewing and recruiting the right ones and then B when training those are amazing teammates across the country.
But we're doing well, we're doing well from a hiring perspective, we're doing well from a training and we're just getting better and better so very proud of the team's efforts hopefully the answers to your two questions.
Yeah that was perfect thanks and congrats.
Thanks, so much appreciate it.
Thank you. This concludes the question and answer session I would now like to turn the call back over to Tim Fox for closing remarks.
Thank you and thanks, everybody for joining us on the call today, so what used to be will be participating in a number of virtual investor events coming up this quarter. So look on our IR website for details on the coming weeks, we look forward to seeing you on the conference circuit in the coming months and again. Thank you for your interest in <unk> and I Hope you have a great evening.
Thanks Al.
Thank you.
This does conclude today's conference call. Thank you for participating you may now disconnect.
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