Q3 2021 ACV Auctions Inc Earnings Call
Good afternoon.
Afternoon, ladies and gentlemen, thank you for standing by and welcome to the ACP third quarter 2021 conference call.
During todays presentation, all parties will be in a listen only mode. Following the presentation the call will be open for questions.
I'll now like to turn the call over to Tim Fox <unk>, Vice President Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining Atv's conference call to discuss our third quarter 2021 financial results with me on the call today are George Shimon, Chief Executive Officer, and builds the rollout chief financial.
Officer before we get started please note that today's comments include forward looking statements, including statements regarding future financial guidance. 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.
A discussion of the risks and uncertainties related to our business is contained in our quarterly report on Form 10-Q for the three months ended September 32021 that will be filed with the SEC. Following this earnings call.
Also during this call we may present, both GAAP and non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short time ago. The earnings release is available on the Investor Relations website and is included as an exhibit in the form 8-K furnished to the SEC.
And finally, we will be referencing our earnings presentation today, which 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 let me begin by thanking the team for delivering another quarter of superior customer service to our growing dealer network and further differentiating ACB in the market with highly innovative products.
As al will discuss in more detail later, the automotive industry is operating in unchartered territory.
With the macro factors, creating both tailwind and headwinds creating these business.
While navigating through these crosswinds, we have continued to deliver strong performance with our financial results again exceeding the guidance, we provided to you last quarter.
Moreover, in addition to gaining market share.
We're investing aggressively to extend our geographic presence.
Spanned our technology lead and position <unk> for sustainable long term growth as the automotive market normalizes in coming quarters.
Turning to slide three I'll begin with highlights of our third quarter.
As you can see our momentum in the market continued in the third quarter for Retrans acted the second consecutive quarter with $2 billion of DMV.
We sold 141000 vehicles in our digital marketplace, a 19% increase year over year and an increase of over 100% on a two year basis.
Revenue of $92 million was above the high end of guidance and represented 36% year over year growth.
Our revenue our performance can be attributed to three factors.
First we continued to execute on our proven playbook to grow market share by attracting new dealers into our ecosystem.
Second both ARPA and conversion rates after softening in late Q2, and early Q3 strengthened throughout the quarter.
And third attach rates of our value added services were well above our expectations.
Overall, we are very pleased with strong execution by the <unk> team and continued customer adoption of our growing suite of offerings.
As bill will discuss in more detail.
We have again increased our outlook for the year.
We're now expecting to deliver 65% revenue growth for the full year.
Full 25 points higher than our outlook at the beginning of 'twenty one.
To frame the rest of our discussion today, we will focus on the three top level elements of our strategy to drive long term shareholder value.
Marketplace growth.
And product expansion and operating scale.
Let me begin with marketplace growth.
On slide five let's cover more details on the quarter, we transacted 141000 units in Q3, which was 19% growth year over year and over 100% when compared with Q3 and 19.
Year to date unit growth is up 46% compared to 2020.
Okay.
The positive market trends I referenced earlier related to vehicle values contributed to <unk> growth of 79% year over year and consistent with trends in the first half of this year.
Local Mexican marketplace continued to move upmarket in Q3.
In fact since last year, the percentage of vehicles valued over $15000 doubled to nearly 40% during the quarter.
While elevated vehicle values will no doubt normalize over time, we believe this higher mix of frontline vehicles in Acp's marketplace is sustainable resulting in a long term tailwind for Arco.
Moving to slide six we thought it'd be helpful to provide context in the dealer wholesale market in relation to the broader automotive market.
As I mentioned earlier this is a case of competing cross wins.
The two charts on the top row highlight trends in the used vehicle market.
Sales of used vehicles remain elevated nearly 70% above pre COVID-19 levels.
Reflecting strong consumer demand.
And elevated retail values.
The chart on the right shows how this demand environment has translated into historically high wholesale vehicle prices.
Strong demand and pricing have been a nice tailwind for ACB.
But you will see reflected in record level ARPA this year.
The two charts on the bottom highlight the trends for new vehicles, which paint a very different picture.
The well documented semiconductor chip shortages in the automotive industry have resulted in a steep decline in new vehicle sales.
The latest SAR reading of around 12 million units is down one third from pre COVID-19 levels.
And Dave supply of light vehicles at franchise dealerships has contracted to around 22 days versus historical levels in the sixties.
So why does this matter.
Consumer trade ins for new vehicle purchases are critical input into the dealer wholesale market.
Historically, representing a significant portion of the annual supply.
With new vehicle inventories at such acute levels the volume of trades entering the wholesale market has declined resulting in a temporary contraction in the market we serve.
It's a temporary contraction because the chip supply picture will no doubt improve in the coming quarters.
And given the investments, we're making in both territory expansion and technology <unk> is very well positioned to benefit from the resulting recovery in the wholesale market.
Turning to slide seven.
Let me put a finer point on the supply dynamics in the market.
Based on wholesale transactions from a sample of one HCV franchise dealer rooftops.
We estimate that the dealer wholesale market contracted 10% quarter over quarter in Q3.
And 15% from Q3 19.
This market contraction effectively mirrored the decline in listings per dealer that we observed in our marketplace in Q3.
After increasing consistently through the first half of 'twenty. One this kpis decreased approximately 10% during the third quarter due to the market conditions.
And listings per dealer remained consistent with Q2 levels. We would have transacted approximately 150000 units in Q3 or year over year growth of 32% simply put supply headwinds cost us about 13 points of unit growth all else being equal.
Despite these transient supply headwinds our marketplace continues to attract new dealers.
We reached a record number of sellers on our platform in Q3, and the number of unique sellers increased by 34% year over year in the quarter.
The takeaway here is that while our industry is facing temporary supply constraints.
<unk> is gaining market share attracting new dealers at an impressive pace and delivering strong revenue growth, which bodes well for the eventual automotive recovery.
Next on slide eight.
We are pleased with the great progress our <unk> team is making on territory expansion.
Over the next 60 days, we will be opening the remaining territory to achieve our goal of 160 by year end.
Following each initial territory launch we execute on our proven go to market playbook by investing in our inspection capacity.
Attracting dealers to the marketplace, creating the powerful network effect that we've repeated over 100 times across the country.
By year end, we have increased our footprint by 30%.
And be positioned to engage with nearly all of the franchise dealers in the U S.
Moving on to slide nine.
Auction marketplace revenue growth was 22% year over year and greater than 200% growth versus Q3 dollars 19.
Note that the year over year comparison was against very strong Q3, 'twenty results, which benefited from pent up demand created in the early months of the Covid pandemic.
Turning now to slide 10.
Last quarter I highlighted our consumer sourcing offering live appraisal that has contributed to our strong unit growth this year.
We are an early mover in this category, enabling our dealers to offer consumers, an efficient and effective way to sell their vehicles and Suvs marketplace.
Labour appraisal has gained significant traction this year with over 110% unit growth year to date.
And it contributed a high single digit percentage of our volume in Q3.
This offering is being leveraged by dealers across the country today with <unk> sales in 48 States. This year and we plan to expand our offerings in the coming quarters.
Stay tuned for more on that front as we continue to penetrate this large market opportunity.
Let me turn to the second element of our strategy to drive long term shareholder value.
And product expansion.
Moving to slide 12.
I'll provide an update on our private marketplaces offerings that we launched in June.
This private auction platform Leverages acb's marketplace technology to enable dealers to optimize trades within their dealer groups maximizing both profit and speed.
Private marketplaces provides ACB with another avenue to engage with the largest dealer groups in the country.
Create new revenue streams and generate a seamless downstream supply for Acd's open marketplace.
Private marketplaces also lays the technology foundation for our commercial offering we plan to launch in 2022.
We are seeing strong initial demand with over 20 large dealer groups live today.
We're especially excited about our recent partnership with one of the largest dealer groups in the country operating hundreds of rooftops.
Following an extensive field test against the incumbent vendor <unk> was chosen to power their private trading network with.
We won this engagement based on the scalability and flexibility of our private marketplaces platform.
And the quality of our market leading inspection capabilities.
The initial phase of our partnership focused on supporting the dealer groups high growth consumer sourcing business.
We then expanded the scope to include other private network transactions like aged inventory.
This key strategic win with a market leader is a testament to <unk> core strengths around technology innovation customer engagement and inspection capabilities.
We look forward to updating you on private marketplaces adoption in the coming quarters.
Turning now to slide 13, we are also very excited about the market traction of our programmatic buying offerings.
It's the early days with this innovative way of enabling dealers to engage with our marketplace already contributed low single digit percentage of units in Q3.
Our buying API live today with dealers, who have technology platforms that integrate directly with Acd's real time Apis to generate bids in our marketplace.
We're engaging with a diverse set of customers that include large dealers rental car companies and a leading specialty auto parts supplier.
In addition, our programmatic buying user experiences in beta with eight dealers and we'll be launching by year end.
This offering will enable the rest of our dealer partners to participate in programmatic buying in our marketplace by creating inventory wishlist to automatically source their inventory needs.
These programmatic buying capabilities together with our nationwide inspection team enables <unk> to offer a highly efficient and trusted experience.
Which we believe will deliver superior results for our dealer partners.
Moving to slide 14.
We are making great progress with our Max digital integration.
The teams are fully engaged in the tech integration front, while developing joint marketing and sales campaigns.
Max Digital's pricing guidance merchandising and inventory management products are a natural complement to <unk> current data services.
Together create exciting growth synergies.
We look forward to sharing updates on Ecb's vehicle intelligence strategy in the coming quarters as we launch our integrated offerings in early 2022.
Turning to slide 15.
Let me wrap up this section with an update on our value added services.
We are making significant investments in the technology and resources to scale ACB transportation and ACB capital.
These investments are driving strong top line growth by delivering <unk>.
<unk> differentiated services to the market, while also creating efficiencies for both our partners and for HCV.
ACI transport continues to be a key enabler of attracting new buyers to the platform.
Our growing carrier partner network and fast cycle times resulted in attach rates of around 50% in Q3.
Recall that our initial plan assumed reaching a 50% transfer our attach rate within two years.
The transport team achieved this milestone in just three quarters.
ACM capital continues to gain traction in the market and like our transport business is tracking ahead of the milestones built into our long term targets.
Capital attach rates reach the mid single digits in Q3 with loan volume improving around 30% quarter over quarter.
The new finance offerings, we launched in June are translating into strong revenue per loan growth.
Which has increased over 15% since the beginning of the year.
We continue to be excited about the revenue and margin opportunities for our capital business with expected revenue growth of nearly 300% in 2021.
In summary, Q3 was another proof point that we have created exciting new avenues of long term growth for HCV by leveraging our powerful data capabilities expanding features across our technology platform and driving adoption across our growing suite of digital solutions.
With that let me hand over to Bill to take you through our financial results and also how we are driving growth at scale.
Yes.
Thanks, George and thank you everyone for joining us today.
We are pleased with our Q3 financial performance, having again delivered upside to both our revenue and adjusted EBITDA guidance. Despite the challenging macro factors George outlined earlier on the call.
Turning to slide 17, I will begin with a review of our third quarter results.
Revenue of $92 million was above the high end of guidance and generated year over year growth of 36%.
Adjusted EBITDA loss of 12 million or 13% of revenue was also very favorable relative to our Q3 guidance.
This performance was driven by our solid revenue results in the quarter and underscores the inherent operating leverage in our business model.
As expected cost of revenue as a percentage of revenue increased year over year and was modestly above our expectations.
The year over year increase was driven primarily by the mix of ACD transport revenue, which increased approximately 600 basis points year over year and exceeded our expectations.
Additionally, we incurred higher arbitration costs associated with customer assurance revenues in Q3. However.
However, we expect these costs to normalize in Q4 consistent with historical norms.
Total operating costs, excluding cost of revenue as a percentage of revenue increased by approximately 900 basis points year over year less than expected.
The year over year increase reflects our planned investments across our technology portfolio operations and go to market functions investments, we're making to fuel our long term growth strategy.
Turning to slide 18, I will cover some additional detail on revenue.
A diverse revenue mix with approximately 85% of revenue evenly split between auction marketplace in service revenue with the balancing customer shorts.
As expected auction marketplace revenue declined modestly quarter over quarter, reflecting constrained wholesale suppliers in the market, but was above expectations, primarily due to improved conversion rates throughout the quarter.
Year to date auction marketplace revenue was up 63% versus 2020.
Reflecting strong dealership acquisition and continued penetration of the wholesale market.
Profitability in our auction marketplace remains strong in the quarter and consistent with the high a percent historical rate.
Our services business continued to outperform expectations with strong results in transportation and capital <unk>.
Services revenue also reflects nearly a full quarter of Max digital.
Moving to slide 19, I would like to discuss the operating leverage in our business here.
Here, we're showing our historical adjusted EBITDA margin, along with our updated outlook for 2021.
As I mentioned earlier 2021 is a year of significant investment for HCV.
And as you heard throughout our discussion today, we are delivering on our territory expansion plans.
Launching new offerings to drive additional market share and investing in technology to scale our operations.
These investments translate into a 57% year over year increase in operating expense excluding cost of revenue.
And despite this increase our adjusted EBITDA margin is expected to be flat with 2020 again, highlighting the underlying operating leverage in our business model.
Now I will turn to guidance on slide 20.
For the fourth quarter of 2021, we're expecting revenue in the range of 83 million to $86 million a growth rate of 54% to 60% year over year at a meaningful acceleration over our third quarter growth rate.
Adjusted EBITDA loss is expected to be in the range of $22 million to $26 million.
For the full year of 2021, we are again raising revenue guidance.
We are now expecting revenue in the range of 341 million to $344 million a growth rate of 64% to 65% year over year, and an increase of $8 million at the midpoint from our previous guidance.
Adjusted EBITDA loss of $51 million of $54 million is approximately $11 million lower than our previous guidance.
Our guidance assumes that strong used vehicle demand will persist throughout the balance of 2021, creating a positive backdrop for vehicle values in the market.
We're also assuming that automotive supply chain challenges will likely continue to constrain new vehicle sales and associated trade in volumes, which in turn may pressure wholesale vehicle supplies in the near term.
And finally on guidance to my earlier point about our investment plans, we're expecting total operating expenses, excluding cost of revenue to grow approximately 57% for the full year 2021.
To wrap up my comments, let me highlight our strong capital structure on slide 21.
We ended the quarter with $600 million of cash and equivalents of $152 million of which reflects the float in our auction business.
Note that we generated $16 million of cash flow from operations during the quarter due to an increase in the float of our mark on our marketplace Since June 30.
The amount of float on our balance sheet can fluctuate meaningfully driven by business trends in the final two weeks of each quarter.
We ended Q3 with 500000 of long term debt associated with our HCV capital business, given our strong cash position, we continue to optimize our cost of capital and a current levels are self funding the ACB capital business and.
And with that let me turn it back to George.
Thanks, Bill before we take your questions, let me summarize.
We are pleased with our execution in the third quarter, while navigating through the short term supply headwinds.
We continue to gain market share by attracting new dealers to our marketplace and by gaining wallet share within our existing customer base, which positions <unk> for strong customer growth going forward.
We are executing on our territory expansion plans, our latest offerings are gaining traction in the market and.
And see some very promising growth synergies emerging farmer Mac's digital acquisition.
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.
If you'd like to ask a question. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue.
Thank you.
Yes.
Our first question comes from John <unk> with Jefferies. Your line is open.
Thanks for taking my questions How's it going.
So I wanted to start with share gains it looks like dealer wholesale was down 10% sequentially in <unk>.
Which means ACB continued to gain share maybe you can talk about how dealer wholesale trended sequentially last quarter in the context of ACB is nearly 20% sequential increase in <unk> just to give us perspective on how the trajectory of your share gains has trended over the past couple of quarters and.
I've got a follow up.
Yes, certainly John I'll start and then bill and Tim can chime in as accordingly, but first things for the question, yes, as we mentioned.
Wholesale to dealer wholesale overall as a segment, whether it be physical or digital.
Just the wholesale category for dealer was down about 10% as a category we believe.
And so.
We were our units were.
Obviously down less than that but as a category.
We saw that wholesale with all of the changes in the market that we described.
<unk> was down.
We intend that we've had significant gains obviously of new sellers record breaking new sellers.
We're launching our products taking more share.
So we did better than the overall market for dealer wholesale.
So very very proud of the results with really our ability to grab additional share ability won't add anymore.
No I think.
Yes, I mean, the only thing I would add John is that look these are estimates to the best of our ability to trying to.
Scope out and try to figure out.
The market has done over the last few quarter.
Quarters and year on year and what the trends have been so these these are our best estimates.
Based on the data that we can see on our side.
Yes.
Great.
Just wanted to ask a question about the programmatic buying tool.
Maybe talk about how quickly you expect to ramp it in <unk> and <unk>.
Q4, and how youll be marrying it with the auction platform.
And maybe you can talk about if you see it providing any day.
Gains to overall conversion rates on ACB.
Yes, certainly so yes conversion rates have been very strong on ACP. So we're very proud.
We've really.
A conversion perspective of the platform is operating extremely well.
Programmatic buying is just going to add additional capabilities from really ensuring our sellers are really getting the right value for these vehicles.
As you know there is two phases of our programmatic buying first the API and then secondly user experience.
And the largest sort of dealers and other types of buyers are are already integrating with and we're already starting to have.
Low single digit percentage of our buying is happening programmatically, which is obviously fantastic. These dealers are buying cars on the platform with computers.
Automatically based on their preference.
The user experience that's in beta right now with.
Yes.
Low LOE.
Handful of dealers I would say today, we're not broadcasting how many is going really well the dealers loved the product.
It allows them to really create their wishlist. So for retailers that don't have a technology team on our platform. We can integrate we have this programmatic user experience.
So far so good so I think we will see it make I think a more material impact more likely throughout next year, just because the rate of getting dealers trained getting them onto the system, but in the meantime.
We're already executing extremely well from a demand perspective.
Maybe if I could squeeze one more in can you talk a little bit about if you're able to talk a little bit about October.
Given wholesale prices have started to move back toward an upward trajectory beginning in late August maybe how has that impacted conversion rates and unit sales.
Since the end of Q3.
Thanks.
Hey, John It's Bill.
Yes.
We kind of look back over the last few months going to the beginning of Q3 as we talked about on our last call we saw conversion rates declining.
In July through August on our platform as a.
Basically prices started coming down.
Week over week.
What we observed since then there was an increase in conversion rates in September. So we start seeing really a lot of strength.
On our platform in September that continued through October and has continued through November so far. So we're certainly seeing a lot more stability in the market prices actually started moving back up a bit in September.
And I think you've heard probably similar comments from other companies in the ecosystem. So we observe the same kind of dynamics on our platform as well.
Thanks, John next question.
Yes.
Our next question comes from Ali <unk> with Guggenheim. Your line is open.
Good evening guys. Thanks for taking my questions.
So I guess on your fourth quarter guidance can you help us better understand what that Embeds, maybe for volumes and then GMB per unit, perhaps relative to the third quarter, even directional commentary would be helpful.
Yes, Haley it's bill.
So first on <unk>.
Assume it's roughly similar to what.
We have seen in Q3, so no dramatic shifts in that regard on DMV.
In terms of.
The other factors affecting guidance as I mentioned earlier, we've we've really seen strength on our platform in October and improvement in conversion rates. So more velocity on the platform that has continued so far in November.
That said, we know that Q4.
As seasonal factors associated with it as we get towards the holidays. So we have assumed those dynamics.
This quarter as in previous years, whether or not this year is different or not.
He knows but we've assumed that's kind of consistent with the same seasonal trend. So we've baked that into our unit.
Modeling. So you can expect that potentially there is some modest.
The decline in units quarter on quarter.
But the counter dynamic.
Dynamic that we baked into our numbers is the new number of additional sellers that we have on our platform as well so you've got kind of puts and takes but that hopefully gives you some sense directionally.
Thanks, Bill that's helpful and then as a follow up here on your transport attach rates of 50% as you mentioned you hit your midterm target in just three quarters, So where do you think transport attach rates can go from here.
Yes, I think over the between now and as we guide to our long term plan between now and let's say March I think we'll provide more guidance in this area.
Obviously, we need new goals.
Since we're already hitting our long term goals here I think what's really exciting is not only the metrics. We're heading I mean, we're really heading.
The kpis are going well.
When we look at actually.
<unk>, a little bit of money where.
Transports, starting to really turn into a fantastic business and we are still in the early days. We just launched this carrier App, we put a dedicated tech team.
For transport.
<unk> us turning around cars quicker and quicker youre starting to see all these dealers sending us.
Just unbelievable happiness like I can't believe I order the car. It was shipped to me within 24 hours. So we really just think about taking a step back and a 50% has been a great.
Accomplishment, we're making a tiny bit of money and that should just improve that's incredible the kpis are going well so.
I think we're really seeing within HCV is transport was almost looked at as additional value add but it's going to become a significant business. So.
Hopefully that gives you a little more color, but to your point, we're going to need updated goals and objectives since we've already had.
Our prior ones.
That's helpful George and that asset can squeeze one more in here on the launch of the commercial private marketplace platform. I think you said 2022 should we expect that in the first half of the year. The second half because I think originally it was your plan was to launch it maybe at the end of this year and it seems to have been pushed out a little bit and then.
As part of that are you beta testing that product with any spin closes it's being developed and do you expect that customers in place when that product is launched thank you.
Yes.
Kelly for bringing that up on the.
On the private marketplace for dealers, it's going extremely well probably going better faster than we were even expecting you probably saw as part of the updates are radio 20 dealer groups, where we're launching about a dealer group a week right now.
We shifted a little bit of our resources to focus on capabilities. These big dealer groups wanted this year and Thats why youre seeing us say, hey, we probably won't launch our commercial offering until probably now closer to Q2.
As you know whenever you're building. These things you really are prioritizing.
But.
The work, we're doing on the dealer group side.
Is just incredible.
And just to remind you all why you.
You end up getting first look at their inventory so the dealer groups will get a trade.
We get we get they get a trade or have an aged inventory it goes into our platform first.
And with that we end up getting a first look at the open marketplace. So we're still very excited about the commercial opportunity.
It's also been a good time to probably double down in dealer commercial as a segment. It is going to stay relatively low next year compared to prior years. So I think in the bigger picture of things.
Whether we end up launching in late Q1 early Q2.
Youre just seeing us prioritize.
What our dealer groups have needed this year and that has worked out extremely well.
That makes sense. Thank you.
Okay.
Our next question comes from Stephanie more with choice Youre line is open.
Hey, Stephanie welcome evening.
Thank you.
Actually just as a follow up on the last question, maybe and this missing something but.
With these new the new ACD private marketplace and getting these dealer groups engage.
The benefit to them to first start out on this private marketplace versus the original.
<unk> platform, I guess, I'm, not I'm, not saying that distinction and why they would do one or the other so just a clarification that would be helpful. Thank you.
Yes, certainly Stephanie so thank you.
Our open marketplace is a fantastic way for dealers to sell their wholesale cars right. So whether it's.
Whether it's a fresh trade, whether it's an age car and to your point, we've had that for the last handful of years as it is a fantastic solution, where private marketplace salts.
As for dealers to have a platform.
To first sell cars within their group.
Before letting those vehicles go into.
Open market place with the Cvs or any other option.
No.
Look at it as like the order of operations like what comes first dealers wanted to make sure. They are.
There are wholesaling, the right vehicles and Theyre not wholesaling vehicles that belong in their group.
So there's been a couple of I would say competing solutions historically that try to do this so we werent. The first I would say come up with the idea, but we were the first to execute extremely well in this category.
And so what it allows the dealer group to take whether it be a fresh trade or an aged car have their group bid on it. Another use case that's come out of this is dealer groups are buying cars.
For consumers at a group level.
And let's say I think by X hundred cars from consumers in a given month, they don't necessarily know where that car will land, whether Atlanta, there Ford store their Chevy store. So what some of these groups are leveraging HCV for again as they are buying cars from consumers. It goes in the ACI.
<unk> first and then if they decide not to keep it within their group it gets wholesale down SUV.
Absolutely no thats very helpful. And then presumably this could be something and I think you mentioned that this could this.
Could also be used for off lease vehicles that are.
Also traded ANZ dealer and we're giving them. The first luck with their other franchise dealers as well as that airplane.
Yes, Thats correct and as Elie was mentioning there is off lease there is other categories within commercial like fleet and other categories.
With those.
Companies need is a little bit more of a co brand or a white label solution with our current platform is within the HCV auctions proper.
So we've got a little bit more work to do there.
To really have more of a white label platform than sort of an embedded co branded solution and trying not to get too technical here, but there's just a little bit more.
Requirements that we need to deliver on before we can really matched what the commercial partners are looking for and then they'll also get the other benefits of ACD, which is our inspection capabilities more data per car. So think theres certain capabilities, we still need which we will deliver next year and then they also get the benefit from our other sort of.
Strong and differentiated capabilities.
Absolutely and then my other question just relate to being obviously very impressive operating leverage.
A slight the meaningful investments could you talk a little bit about maybe some of the scale benefits youre seeing in some of your older markets.
Whether at scale.
They'll be up.
The sales team maybe some improvements on the inspection team. So theyre just being more efficient and then also I'd love to hear your thoughts on as you are expanding into new markets, what youre seeing from a labor standpoint, being able to attract talent all.
That would be helpful. Thank you I'll start and then bill can also chime in.
Our mature markets are really really going as planned. So we're we've been able to hire the talent of our mature markets, we need able to.
Increased efficiency I mean, youre seeing we're using a lot less capital this year than we had originally planned throughout the year. So the business has become.
<unk> is really operated extremely well bill can add a little bit more there. In addition to what's going on in the field, our product and technology and I'm glad you asked the question when we haven't done updates.
So far in sort of our platform for inspections and other capabilities that maybe we will do in the next.
Earnings call, but we're really we're doing a great job of updating our inspections platform that helps in that efficiency helps.
And delivering suite more superior results, but I would just say at a really high level. So far so good.
Really delivering as planned.
Anything else.
Yes, I guess, what I would add Stephanie.
Again, this has been an investment year for us.
And we're investing frankly across the entire business.
And pretty much every way that we can right. So we're basically investing in order to be able to scale. This company.
As we get some much larger levels of volumes in a very efficient way.
And I think they are starting to see some of that.
I wouldn't say, there's any one particular area that I would point out it is kind of a broad based across everything that we do operationally in terms of running the business.
Again, I think over time.
These benefits will.
Get larger as we grow in scale, but you certainly are starting to see some of that flow through the P&L.
This year.
Great. Thank you so much.
Thank you.
Our next question comes from Alex Potter with Piper Sandler Your line is open.
Okay great.
Hey, guys.
Okay, I'm going to ask a question.
A little unfair, but I'll ask anyway, you mentioned, obviously, you've got richer mix coming in.
Clearly the GMB per unit is Super Super High right now, partially because of the market, but some of it.
More structural in nature more permanent in nature. So.
If you're in my seat and Youre trying to build sort of a long term model looking out past all of this COVID-19 disruption to something Thats more normalized where do you think GNP per unit settles out.
Alex It's a fantastic question.
Yeah.
[laughter].
I am glad you lead with it it's an unfair question.
Alright.
Yeah.
What did we model in out years Mike.
Yes.
Yes, I mean, we.
Alex I think it's a great question and the long term model, we provided you all.
We only had 12500 and the long term model.
So it really it's a great question I'm not going to answer it.
But I think what we're all fencing.
We.
We.
We are starting to hit metrics that we would have predicted we would hit in our long term model much sooner, we will need updated goals as we move along.
I think it's a very fair question.
But I don't think we're prepared to answer yet.
Only other thing I would add Alex and yes. It is a good question.
If you look at the five year model that we.
Gave everyone in the syndicate for the IPO right, we basically have already hit our <unk> projection for 2025.
Now in fact, it was $3 73 in Q3 could you go back to the long term model. We gave you guys 225, we had projected at $3 71.
In terms of auction only <unk> right. So.
And.
Jordan's point, we've already exceeded that.
Five year projection in terms of <unk> per unit so.
Certainly some of this is a result of elevated prices for used cars right.
And that will start to moderate over time, but.
At least versus the longer term targets that we put out there we're already.
Exceeding those.
I think one more thing I think while you are pointing this out is important and as you are seeing our confidence that the HCV platform is being leveraged.
For a broader segment of vehicles.
And youre seeing us lean in a little bit more that we're going to see we believe we are going to see a broader product mix on HCV because.
I think our buying experience from either the programmatic API. The filters we've added over the last couple of quarters the confidence the low arbitration ray the confidence really the ease with buying these unbelievable cars.
<unk> buying consumer cars flipping them on ACB. These fresh fresh units youre really starting to see our confidence that mix is here to stay.
Obviously, youll see some price declines or whatever will happen in the industry, but mix is here to stay and we're really excited so more to come on this as we start to sort of re update you all on our on our updated goals and objectives.
Okay, Great Thats actually really helpful answer.
Maybe one last one then on.
It's a transport obviously the attach rates, they're trending higher than expected that's all good to see.
That's all topline commentary it looks like profitability of that business is doing okay at least some non zero number.
Any I guess.
Commentary you can add.
Add on.
Profitability in the most recent quarter and then looking forward Greg to be transport would be helpful. Thanks.
So I'll start and bill can kind of chime in.
It's to your point efficiency across the business is going better than planned.
And transport is one of those areas, where we are ahead of plan.
So you ask why.
When we went public we only had a few people on the tech team devoted to transport.
At least we have left over a dozen so just in full.
Let's be very transparent we've been hiring scaling our Tac were now somewhere around 300, plus people on our product and tech organization across the board. So we've got the resources. We've got more resources were hiring youre seeing as planned in Q4 additional tech resources right Youre seeing us lean and we're doing a great job of <unk>.
Handing that team and transport is one of those areas are starting to benefit and we're just releasing some of these products and it will help not only turned us into a profitable business, but also just as important is great kpis for our dealers.
We're getting the cars faster.
We're starting to get more scale carriers are saying, great things about ACP, you've got carriers around the country, who their whole job right. Now is just fulfilling cars an ACB entrepreneur is across the country.
Literally how they make all their money.
And so we're really proud of where we're at and I think the tech investments along with the team. We put on this will create additional efficiency and additional scale don't know if I left anything out no I would just add.
I believe we spoke about this last quarter that we.
<unk> actually created automation in terms of.
Scheduling and arranging for transports.
Last quarter, we talked about 20% of all transport transactions were effectively fully automated right. So no no human touch.
That will just increase overtime. So another yet another example of <unk>.
Rich just shy of 25%.
24 point something percent almost 25% of our dispatches this past quarter were done in a programmatic way, where we had.
Our carrier ready so things still feel like that's just another area, where our team is just killing it.
Interesting okay. Thanks, a lot good quarter guys. Thanks.
Thanks, Doug.
Our next question comes from Rajat Gupta with Jpmorgan. Your line is open.
Alright, great. Thanks for taking thanks for taking the question.
Just had like a broader question around the competitive landscape.
We have backlog numbers.
Yes.
The flattish quarter over quarter slightly more down more in the U S.
Bar offering last night talked about a sequential at Macquarie.
So you mentioned the overall market outperformed the overall market, but just within the digital dealer to dealer landscape, how would you rate your performance.
Forces some of your peers.
And then just broadly on competition are you seeing some.
Some more pressures here.
On their platform start to invest more in E block is.
I'm going to come soon more rapidly in the U S.
Just broadly touch on competition and just your performance relative to that quarter any update on that would be helpful.
Hey, John its George Thanks, again for the question.
My generic answer without getting into any one of these hundreds of competitors we have.
We've had competitors from day one.
One of our competitors cells.
Somewhere around 4 million cars, a year, one sales of few million cars a year they.
The digital guys all of us in the aggregate.
We're still a small percentage.
And in but in a way to your point the whole category is growing.
So a way to look at last quarter as overall wholesale was down for the quarter more than likely for the category dealer wholesale.
And we had a record breaking new sellers I'm sure. Other folks are going to say they had a record breaking two salaries and the segment is maturing and I think the key is like any business what are you investing in.
First thing in technology, and do you have the resources to invest in tact to really create something differentiated solving the problems for our dealers and we love our roadmap we love our execution are you building the right culture, a building the right team and love My team I Love, what we're doing so far and are your dealers like raving fans of what Youre doing.
And I believe we've got that going for us as well so there's always going to be competition. We have had it from day one right. When we had very little resources to today, we've got tremendous capital to work with we've got great momentum, we've got a scaled tack and field teams. So we're feeling good.
Yes.
Great.
Follow up to that the Opex pick up here in the fourth quarter.
Is that just more trying to get ahead of.
Your investment.
This is going to be down quarter over quarter.
Just more alpha targeted bill can add in.
Yes over half of that is just us trying to hire more people.
Bill can get a little more fidelity to it but we.
We're we've got.
Dozens more of tuck folks are trying to hire few more sort of field resource folks on the sales side, we're trying to hire.
No.
This is we've mentioned, it's an investment in the area of investment, but over half of that is trying to expand.
On the people side, but bill I don't if theres any more fidelity, but can add to that.
Yes, I mean, what I would yes.
And with that I would say rich is that Youll look we're continuing to invest across the business as we had planned although that said those investments have been lower than previously projected so while we're investing in opex is expected to increase by 57% year on year. So this year.
That that dollar amount of investment is actually lower than we had modeled originally coming into the year. So we're we're kind of executing across the business on a lower level of opex spend.
But we're kind of continuing to invest into growth rate as we think about not just obviously the next quarter or two but looking out over the next several years in terms of driving.
New products and new technologies into the market and operational efficiencies and kind of improvement that we just spoke about but look we're spending less money on the opex side than we have previously projected.
Yes.
Got it.
Just one last follow up.
Yes.
The competition landscape.
Yeah.
Are you are you seeing any sort of like.
No.
Worry about discipline going forward.
Competitors come onboard.
The tablets that are investing in.
And how do you get around that.
When you talk about this programmatic buying that other competitors have talked about to some extent.
Just any color on the economics on that farm related to that.
Thanks.
Yes, our revenue per unit has been strong.
We've.
We are.
So to your point Theres been lots of competition out there Theyre always has been months competition our revenue per unit is strong.
We were adding.
A lot of sellers to the platform.
We're we're doing that obviously, even leveraging less.
Operating resources and planned right. So if you just look at this is like.
If.
If you look at this as like how is how are we performing amidst all this competition amid.
Amidst all of these changes in the marketplace, we're doing extremely well and so that.
You always have to be aware of your competitors you need to be.
Respectful, but I'm more focused on our plan. What we said we were going to do gather building relationships with thousands of dealers across the U S building great products building great platforms that we can grow the infusion.
Really hearing I'd say.
We're really outperforming our plan, even though there is X y Z competitors out there.
Got it.
The programmatic buying economics.
Versus just the traditional business.
Any quick thoughts on that.
Yes, there is two parts of programmatic you really heard me talk more about the buying side, which is.
Theres really no difference on the economics, it's just a way to buy the vehicle, we haven't really announced yet any programmatic selling capabilities, you've seen us be a little bit more quiet on that.
But but I would say at a really high level.
But were.
Those are all to me just features is a simple way to look at it and the revenue of Sal in bi.
In my opinion it won't go down.
There might be some opportunities over the next few years for some of these models too, but I don't want to lean in yet and create any expectations.