Q4 2021 ACV Auctions Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the <unk> fourth quarter and full year 2021 conference call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The call will be opened for questions.

I'd now like to turn the call over to Tim Fox Acd's, Vice President of Investor Relations. Please go ahead.

Okay.

Awesome.

Yes.

Thank you operator, good afternoon, everyone and thank you for joining <unk> conference call to discuss our fourth quarter and full year 2021 financial results with me on the call today are George Simone Chief Executive Officer, and Bill's Orela 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 involve 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 can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website.

During this call we will discuss both GAAP and non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our investor Relations 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 reflecting on Ecb's first calendar year as a public company.

Which was capped off by a strong performance in the fourth quarter.

In 2021, we transacted nearly $8 billion of Dnb on our marketplace.

Which is 140% year over year growth.

Pretty incredible when you consider ACB launched just six years ago.

As al will discuss in more detail later, the automotive industry continues to experience competing cross currents.

With increased vehicle values, while also resulting in less ecosystem supply.

Despite these cross currents, we delivered over $350 million of revenue.

Over 70% growth.

Well above the targets we provided during our IPO last March.

This was accomplished by having the broadest and most differentiated digital solution in the market.

Being delivered by the best team, enabling <unk> to expand our dealer network and gain market share.

As Bill will cover in more detail later, our plan for 2022 is to continue investing and driving strong revenue growth further differentiating our digital solutions and.

And scaling our operations.

All while delivering an adjusted EBITDA margin 600 basis points higher than our IPO model.

We remain committed to achieving adjusted EBITDA breakeven exiting 2023.

And we are excited to share details on our 2026 financial targets at our analyst day on March one.

With that let me turn to fourth quarter highlights on slide three.

As you can see.

Our market momentum continued in the fourth quarter, where we transacted $2 $5 billion of GMB.

Growth of nearly 170% year over year.

We sold 139000 vehicles on our digital marketplace.

A 35% increase year over year, and an increase of over 80% on a two year basis.

We delivered a record $100 million of revenue in the quarter, an important milestone for the ACB team, which was 86% year over year growth.

Our revenue outperformance can be attributed to three factors first we executed in our playbook to grow market share by attracting new dealers into our ecosystem and expanding dealer wallet share.

Second <unk> benefited from a higher mix of newer vehicles and strong used vehicle prices.

And third highest attach rates are value added services.

Overall, we're very pleased with strong execution by the <unk> team and continued customer adoption of our growing suite of services.

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.

Cam and product expansion and operating scale.

Let me begin with marketplace growth.

On slide five let's cover more details on the quarter.

We transact at 139000 units in Q4.

Which was 35% growth year over year.

And an 84% when compared with Q4 19.

For the full year, we transacted over 560000 units, representing 43% growth year over year, and 132% growth compared to 2019.

The positive market trends I referenced earlier related to vehicle values helped contribute to fourth quarter GDP growth of 170% year over year.

Consistent with trends during the first three quarters of 2021 vehicle mix on our marketplace moved up market in Q4.

In fact since last year, the percentage of vehicles valued over $15000 doubled to nearly 40% in 2021.

While elevated vehicle values may normalize over time, we believe this higher mix of newer vehicles and Suvs marketplace is sustainable resulting in long term tailwind for ARPA.

Moving to slide six we thought it'd be helpful. Again, this quarter to provide some context on the dealer wholesale market.

In relation to the broader automotive market.

As I mentioned earlier this is a case of competing cross currents.

The two charts on the top row highlight trends in the used vehicle market.

They've used vehicles remain elevated.

70% above pre COVID-19 levels, reflecting strong consumer demand and strong retail values.

The chart on the right shows how this demand and environment translated to a historically high prices for wholesale vehicles.

Strong demand and pricing have been nice tailwind for ACB, which you saw reflected in record level <unk> last year.

The two charts on the bottom highlight the trends for new vehicles, which continue to paint a very different picture.

The semiconductor chip shortages and other automotive supply chain issues.

<unk> in a steep decline in new vehicle sales.

The latest SAR reading of around 13 million units is down 30% from pre COVID-19 levels.

And days supply of light vehicles at franchise dealerships contracted to around 22 days versus historical levels in the sixties.

As a reminder, this supply picture matters to HCV, because consumer trade ins for new vehicles are critical input into the dealer wholesale market.

Historically, representing a significant portion of the annual supply.

With new inventory such acute levels the volume of trades entering the wholesale market has declined.

Resulting in a temporary contraction in the market we serve.

We continue to believe it's temporary because of chip supply picture will no doubt improve in the coming quarters.

And given the investments, we're making in both territory expansion and our differentiated product suite.

<unk> is very well positioned to benefit from the resulting recovery in the wholesale market.

Turning to slide seven.

To put a finer point on the supply dynamics in the market.

Based on our proprietary analysis, we estimate that the U S dealer wholesale market contracted 12% quarter over quarter in Q4.

And contracted about 5% from Q4 2020.

Despite these transient supply headwinds, we continue to gain market share and attract new dealers for our marketplace.

Given our 35% year over year unit growth in Q4, 'twenty, one and our estimate that the market contracted 5%. This implies ACB gained 40% share year over year.

For all of 2021, we believe that the U S dealer wholesale market grew modestly at about 5% with the growth benefiting from a strong first half compared to 2020, where COVID-19 had a significant impact.

As such we believe the ACB gain 38% market share in 2021.

The takeaway here is that while our industry is facing temporary supply constraints ACB.

<unk> is gaining market share, attracting new dealers and an impressive pace and delivering strong revenue growth.

Next on slide eight.

We are pleased with the progress <unk> made on territory expansion and we are now positioned to engage with nearly all franchise dealers in the U S.

Following each territory launch we execute our proven go to market playbook by growing our inspection team attracting dealers to the marketplace and creating the powerful network effects that we've proven across the country.

Moving on to slide nine.

Akshay marketplace revenue growth was 73% year over year, and nearly 200% growth versus Q4 dollars 19.

Full year auction marketplace revenue of $164 million was up 66% year over year.

Driven primarily by 43% unit growth.

And to a lesser extent higher <unk> during the year.

Turning now to slide 10.

Over the last few quarters I've highlighted our consumer sourcing offering libra appraisal that contributed to our strong unit growth in 2021.

We were an early mover in this category.

Enabling our dealers to offer their customers a unique and effective way to sell their vehicles on acp's marketplace.

Cyber appraisals gained significant market traction delivering over $200 million of DMV in Q4 alone.

Five appraisal is being leveraged by dealers across the country with sales in 48 states last year.

We continue to invest in this category and look forward to detailing our vision to further penetrate this large market opportunity at our upcoming analyst day.

Let me turn.

To the second element of our strategy to drive long term shareholder value Tam.

Tam and product expansion.

Moving to slide 12.

Let's touch on two offerings that are creating incremental growth levers starting first with programmatic buying.

We're very excited about the market traction of our programmatic buying offerings.

It's still early days.

But this innovative way of enabling dealers to engage with our marketplace already contributed to a mid single digit percentage of units in Q4.

Our buying API is live 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.

Our new programmatic buying user experience launched in Q4.

This offering enables the rest of our dealer partners to leverage programmatic buying on our marketplace by creating inventory wishlist to automatically source their inventory needs.

These programmatic buying capabilities together with our nationwide inspection team enables HCV to offer a highly efficient and trusted experience, which we believe deliver superior results for our dealer partners.

Moving to our private marketplace offering.

Recall that this private auction platform.

Leverages Acb's open marketplace technology to enable large dealer groups to optimize intra group trades.

Private marketplaces provides HCV with another avenue to engage with the largest dealer groups in the country.

Who collectively own about 6000 rooftops across the U S.

We are seeing strong initial demand and look forward to updating you on the adoption of private marketplaces in the coming quarters.

Moving to slide 13.

We are very excited about the market traction, we're seeing with our Max digital SaaS and data offerings.

Max digital pricing guidance merchandising and inventory management products are a natural complement to <unk> data services that.

That together create exciting growth synergies.

In fact, the Max digital pipeline has grown by over 150% since the acquisition closed last July .

We look forward to sharing updates and ACP is broader vehicle intelligence strategy at our analyst day.

Turning to slide 14, 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, an ACB capital.

These investments are driving strong top line growth by delivering highly differentiated services to the market, while also creating efficiencies for both our partners and for HIV.

ACD 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 exceeding 50% in Q4.

This was a full year ahead of our original plan.

A huge shout out to the ACB transportation team for achieving this milestone in such short order.

<unk> capital continues to gain traction in the market and.

Unlike our transport business is tracking ahead of the milestones built into our long term targets.

Capital attach rates reached the mid single digits in Q4.

With 200% loan volume growth year over year.

The new finance offerings, we launched last June are translating into strong revenue per loan growth.

We continue to be excited about the revenue and margin opportunities for our capital business as this business scales in the coming years.

With that let me hand, it over to Bill to take you through our financial results and how we're driving growth at scale.

Thanks, George and thank you everyone for joining us today.

We are pleased with our Q4 financial performance, having again delivered upside to both our revenue and adjusted EBITDA guidance.

Fight the challenging macro factors George outlined earlier on the call.

Turning to slide 16, I will begin with a review of our fourth quarter results.

Revenue of $100 million was above the high end of guidance and generated year over year growth of 86%.

Adjusted EBITDA loss of $16 million or 16% of revenue was also very favorable relative to our Q4 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 ACB transport revenue, which increased approximately 800 basis points year over year and exceeded our expectations.

As a reminder, we believe through the scaling of HCV transport, we can deliver a better SLA to both sellers and buyers. While also scaling this offering to generate better economics over time.

Total operating costs, excluding cost of revenue as a percentage of revenue decreased by approximately 200 basis points year over year, which demonstrates the operating leverage in our model.

This operating leverage was achieved despite investments across our technology portfolio operations and go to market functions.

The investments, we're making to fuel our long term growth strategy.

Turning to slide 17, I will cover some additional detail on revenue.

We have a diverse revenue mix with approximately 86% of revenue evenly split between auction marketplace and service revenue with the balance in customer assurance.

Auction marketplace revenue increased modestly quarter over quarter and was better than our expectations due to both higher ARPA and unit performance in the quarter.

For 2021 auction marketplace revenue was up 66% 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 80% historical rate.

Our services business continued to outperform expectations with strong results in transportation and capital.

Moving to slide 18, I would like to discuss the operating leverage in our business.

Here, we're showing the historical adjusted EBITDA margin along with the results for 2021.

As I mentioned earlier 2021 was year of significant investment for ACD.

And as you've heard throughout our discussion today, we are delivering on our territory expansion plans launching new digital offerings to drive additional market share at.

And investing in technology to scale our operations.

These investments translated into a 56% year over year increase in operating expense, excluding cost of revenue and.

And despite this increase our adjusted EBITDA margin improved by 300 basis points year over year again, highlighting the underlying operating leverage in our business model.

Now I will turn to guidance on slide 19.

For the first quarter of 2022, we are expecting revenue in the range of $100 million to $102 million.

Both rate of 45% to 48% year over year.

Adjusted EBITDA is expected to be a loss in the range of $17 million to $18 million.

For the full year 2022, we are expecting revenue in the range of $450 million to $460 million.

Both rate of 26% to 28% year over year, and approximately $45 million or 10% above our IPO model.

Adjusted EBIT is expected to be a loss in the range of $53 million to $57 million or 12% of revenue at the midpoint of guidance.

Note that the 2022 adjusted EBITDA margin is expected to be an improvement of approximately 600 basis points relative to our IPO model.

Which puts us firmly on a path to achieve adjusted EBITDA breakeven exiting 2023.

As it relates to our 2022 guidance, although the ongoing automotive supply chain issues have made it challenging to predict both used vehicle values and vehicle trade volumes on our marketplace. We believe we have multiple levers in our business model and therefore multiple paths to achieve our 2022 revenue guidance.

We are also providing newly established 2026 financial targets of $1 3 billion in revenue a 30% CAGR.

And $325 million and adjusted EBITDA of 25% adjusted EBITDA margin.

We look forward to providing you with more color on our path to achieve these targets at our upcoming analyst day in a few weeks.

To wrap up my comments, let me highlight our strong capital structure on slide 20.

We ended 2021 with $580 million in cash and equivalents and marketable securities of 100.

Third $64 million of which reflects the float in our auction business note.

Note that we generated $85 million of cash flow from operations during the year due to an increase in the floating on our marketplace. Since December 31 2020.

The amount of Florida, and our balance sheet can fluctuate meaningfully driven by business trends in the final two weeks of each quarter.

We ended 2021 with 500000 of long term debt associated with our ACB capital business.

Given our strong cash position, we continue to optimize our cost of capital and a current level of our self funding the ACB capital business.

And with that let me turn it back to George.

Thanks, Bill before we take your questions, let's summarize.

We are very pleased with our continued strong execution on navigating through unprecedented times in our industry.

We are especially proud of our ACD team has delivered these results while also navigating the challenges created by the global pandemic.

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 ACB for strong growth going forward.

We are executing on our territory expansion plans are.

Our marketplace offerings are gaining traction in the market.

And see some very promising growth synergies emerging from our SaaS and data services such as Max digital.

Lastly.

We are on track to generate over $1 billion in revenue with attractive margins through a proven business model that delivers scalable growth with strong unit economics and 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.

Yes.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The patent Keith Our first question comes from Andrew Boone with JMP Securities. You May proceed with your question.

Andrew.

Hi, guys.

Thanks for taking my questions just to start off given the volatility that we've seen within vehicle pricing can you just talk about the puts and takes for that as we think about 2022, and then secondly on programmatic buying and to your private marketplace are you seeing traction there with dealers that are that are newer to the platform in other words.

Is this kind of the tip of the spear in terms of go to market or is this gain traction with all of our customers where you guys have more trust there.

So much.

Yes, Thanks, Andrew.

I'll kick this off and then bill if you want to add some more context with basically two so.

First when you look at what's going on as far as <unk>.

<unk> prices in Q4 was definitely.

That could possibly have been a key for the industry and none of us know, but yes without a doubt Q4 <unk> was high.

If you look at some of the industry data.

That's coming out both I would say retail data.

Consumers starting to see some softening to consumers willing to pay certain.

Retail values.

A little bit of data out there on the wholesale.

Various folks.

I think so far we're saying a very slow.

Small.

Change in timbre, but nothing radical yet so I think we'll start to see that we believe we still will start to see that happen throughout the year, a moderation on GM base.

So that helps you think as you know the other puts and takes as we think about 2022.

As volume.

We do think.

Volume will also start to slowly come back. So when you think about our sort of puts and takes about <unk> first units. They do kind of go hand in hand, and so if we do see.

<unk> started to go down in a way that we could start to see volumes start to come. So hopefully that gives you a little context, Bill if you want to add anymore.

Okay.

What I would add Andrew is George just described the levers.

<unk>, which basically gives us multiple ways to kind of get to the same result.

What we observed last year, obviously record <unk> because of record GMB.

Though units, especially in the second half were more challenging but those to serve more than actually the higher ought to more than offset the lower units.

This coming year.

It will all depend on how the supply picture changes and evolves through the year.

If it if it continues to be more challenging we would expect that our <unk> would be higher and Conversely. So.

Again multiple path to get potentially the same result, depending upon what happens with what the supply of new vehicles.

And then Andrew on your second question related to programmatic buying.

Some of the early participants were in.

Existing buyer large buyers, who have now adopted programmatic and some of the buyers.

We're now leveraging programmatic has never participated previously with ATV.

So we do have both.

Both constituents.

Buyers, who are buying more in the way, we're getting more wallet share out of that fire because.

They now have a programmatic or look at it as a persistent demand on HCV.

And we also have new participants right now by an ACB, whereas this was our opportunity to win them over.

And that they now can set it up.

Look at the way they are buying change.

Change however, many times I would like to wait, but they've got a very simple and efficient way to buy initially on ACD.

Understood and then in the future that might be beyond I hope that answers your two questions.

Perfect. Thanks, so much.

Thank you.

Thank you. Our next question comes from Bob <unk> with CJS Securities. You May proceed with your question.

Hey, Bob.

Hi, Thanks, and congratulations on some.

Very strong operations.

I wanted to start with live appraisal you highlighted it.

In the slide deck presentation, a little bit and maybe you could we could take a little bit deeper.

It's co branded with dealers, how do you market to the dealers.

How penetrated is it now versus where do you see it going over time in terms of the numbers of dealers that you are penetrated with so that's kind of the first part of the question and then the second part is where are those where would those cards. Otherwise go are those like peer to peer cars before and coming now into the dealer market or were they going to go to a different.

<unk> or where do you think that.

Cars are coming from that are going through five appraisal.

Yes, Thanks, Bob.

On your first part of your question there.

So one we're thrilled with our growth and our traction of LIBOR priced itself. The way dealers are using the product does vary so in our slides we showed some images there.

One of the images, but was like a 10th of that where the dealer marketing to consumers.

Their market it could be via radio it could be a TV billboards come auction your car.

Some of them are using the <unk> brand.

Some of them some of them don't some of them just market the function of auctioning their vehicle.

And we don't today prescribed exactly how to go to market with the dealers who are participating.

But the commonality here.

Is live appraisal enables the dealer.

<unk> market transparency to their consumer and as you know this is a hot topic at.

That's a topic that why why just have one dealers willing to pay for your car why not have what the market's willing to pay.

So a lot of research we've been doing our own research, what we'll start to circulate the cut.

In quarters as consumers love the idea of transparency consumers will love the idea of fair consumers love the idea of knowing the markets determining the value not just one dealer so although there's a little bit of like there's varying ways theyre going to market.

Various ways leveraging our brand.

But there is a consistency in this hall.

Transparency.

Second part of your question related to.

Well.

This share coming from.

And I'll put it under.

Two two buckets.

And it's hard for us to tell.

At this point in our journey what percent comes from bucket and what percent from bucket B as I will describe the two buckets. So.

The first bucket would be.

A consumer wants to trade in their car and buy a car.

I would like to understand the value of their car.

And.

They are looking to buy they're looking to understand the value and.

<unk> is an incredible way.

We look at it.

If you look at the overall dealer wholesale market.

Retailing dealers as one segment overall.

That's one segment.

And then to your point another segment that final true into dealer wholesale if some portion of peer to peer which in any calendar it might be nine to 11 million vehicles.

Why would a consumer solid a car to another consumer if dealers are willing to pay more they are willing to pay a fairway. It's easy. It's no hassle you don't have to worry about sending a title to another consumer dealing with fraud dealing with everything and.

Our research is showing and again over time, we'll start to share research that consumers. Many consumers with safe are getting a fair price and no friction.

What portion is coming from bucket, let's call that dealer wholesale that comes from the trade portion.

<unk> or B, which is the portion that rolls up into dealer wholesale traditionally what it came from peer to peer we don't have a great breakdown just yet Bob what.

Where the share is coming but without a doubt it's coming from both.

That's great.

Appreciate the detail very much.

If I could ask one more question I would just.

Since the IPO, obviously theres been a lot of change in the marketplace and theres been some new entrants and new announced entrance.

Provo, or CDK, Dms, offering and things like that so could you just tell us how you stack up how do you think the competitive landscape may have changed and your differentiation versus some of these new entrants.

Even in the last year.

Yes, certainly so as you know.

<unk> bin.

Been doing research on this market for a long time.

We've had hundreds of competitors from day one.

Hundreds and that's not that's not that's there's nothing new about us having competitors. This is not an industry, where there was one or two players in the industry, where there are national players local players.

National players that physical and digital.

There's been a lot of different participants in this ecosystem. So.

But when you look at our Q4 results.

And you look at the fact that quarter over quarter the market.

Sure dealer wholesale might've shrunk as much as 12%.

Our proprietary analysis.

Even.

All of these new competitors former competitors.

We're taking share.

So there will be new entrants there will always be new entrants all now kind of give you another way of looking at that.

There is different types of wholesale.

And when you when you look at different types of wholesale we started our journey.

With the lower priced assets that where the typical trend.

And these were the higher mileage.

Lower price you saw <unk> earlier was lower you saw that if any of you who are watching our auctions you decided the typical car had 80000 to 100000 miles on it and you might think you might have heard us even call. It the typical wholesale car.

That was our early years and we did a fantastic job.

Bringing the best condition report.

We made digital happen, because we brought transparency and trust to these vehicles that really.

Need it the strong conditioner part picture to come come to life and be something that would be contracted citrix interacted simply over the internet we made that.

Over the last couple of years, you've seen us grow.

We now are no longer just the marketplace for a lower price cars the high miles a lot of issues.

The participants have changed both sellers and buyers the trust and HCV has changed.

If any some of you've done a research on this as you say.

I've read some of your research that we wish to HCV infection with on every bar.

And so look at as we grow and.

And we grow the use cases, we can broaden.

Our share of the overall wholesale sector. So we went from an early lead in one category and we definitely know started to grown.

Our share and as we continue to invest in our platform and we continue to add more of our trust and we add additional elements like programmatic, making things simple we think we're in a great spot.

That's great. Thank you George.

Thanks, Bob Thanks, Bob.

Thank you. Our next question comes from Eric Sheridan with Goldman Sachs. You May proceed with your question.

Thanks, so much and thanks for all the detail on the on the presentation I wanted to go back to slides 12 to 14, where you're sort of laying out.

Tam and product expansion and the drivers of the services business over the long term how much of what's ahead of you in the years forward are elements, where you still need to invest to build scale and services and the tackle this product expansion opportunity versus it's already been built now in execution mode. So we can better understand the.

Mix of investments that are needed versus pure sort of execution, that's going to drive mix of the business in the years ahead. Thanks guys.

Yes.

Thanks, Eric.

Obviously, a great question and broad so I'll try to get in there and if you want to ask a follow up. Please go right ahead.

When you look at the.

The journey, we're on from a technology perspective.

Some of the elements inside 12, 13 and 14. Some of these are early parts of the journey and some R. R.

Endeavors that we were many years that right. So.

Sure.

When you look at something like programmatic, obviously, we just launched that last year, we were late but this isn't like an R&D skunk work, we've got big some of the largest dealers in the country behind lots of cars and other types of constituents. So yes, theres an investment here to keep it going but its end market is going.

It's working same thing or private marketplace. We've got some of the largest dealers in the country already using private marketplace and of course, they've got requirement. They have got the next thing the beauty of a package you get in the hands here.

Our customers and they would like to turn a little more of that below that.

So there is definitely continuing to investment, but with that investment has with it.

The exact requirements. We are hearing from dealers I think we'll do more with you. If you do the following and when you look at products like Max that's digital.

Was it already in the leader in the category for some of the items like merchandising and really understanding a car by car how they are unique and how that relates to pricing.

We had a fantastic base to work from.

But with our National sales force and now we're starting to integrate it and so the car here what youre seeing there we're getting leverage of the pipeline there from when we bought it to now and look at it as like the growth from from a joining ACB fantastic, whereas products like transportation and capital.

When we went public we are pretty open we said we had two engineers on transport Republic.

Didn't yet have the resources to go invest in all of the things. We wanted I was very transparent on that.

Now fast forward, we've got a dozen or so or more folks just focus on transport look at how well we're doing.

Taken transport what was a losing business from a from a margin perspective.

Now we're showcasing confidence.

This is a business where we're ahead of our long term targets, we're investing in the tech our team feels great about it so something like that when we have a policy. We had a couple of engineers and now at least we've got a small team of our going in and we're looking at attach rates on transport at 50%. It's because we can optimize lanes we can.

We can be scientific about our pricing.

All you're really hearing me say, whether it be capital, where you're seeing our attach rates grow.

Our tech investments has been incredible.

Our acquisitions are.

We are getting us more and more excited about this broader product suite. So we're feeling good and then at the end of the day when we look at what we're doing for our investors or the shareholder value, we're getting out of the several hundred folks who haven't product in engineering is paying off.

Great. Thanks, so much really appreciate the framing and look forward to the analyst day in a couple of weeks guys.

Yes, thanks, so much.

Thank you. Our next question comes from our lease buzzing with Guggenheim You May proceed with your question.

Hi, everyone. Thanks for taking my questions.

So I recognize there's a lot of different ways. This could play out in terms of volume and revenue per unit in 2022, but maybe you could help us understand what volume growth assumption right now is embedded in your <unk> and.

And 2022 full year guidance I also had the same question about the volume assumption that's embedded in your 2021 $3 billion revenue guidance.

Hey, Ali it's bill.

Yes, so we really don't get to that level of fidelity and the reason why is because.

Again, the multiple ways that we could get to the same results.

Right. So we know obviously, we're still in a challenging environment in terms of supply.

Believe that.

We'll start to abate by the time, we get to the second half and that supply will start to increase.

As new car production improves.

And that obviously as I mentioned earlier sort of there is a play between <unk> units right.

They are both related to each other.

With supply challenges.

Used car prices are typically higher which generates higher <unk> and then Conversely.

The versa right. So we purposefully don't get to that level of fidelity.

Again, we can model our business in a few different ways and see that there is multiple paths to get to the same result.

That's why we don't we don't get to that level of fidelity.

That makes sense, thanks, Bill and just as a quick follow up here in terms of your <unk> outlook. So that makes sense that it would gradually normalize through the year, but it does look like you took your feet higher than the fourth quarter. So is there a potential that we could see GMB normalize, but your revenue per unit actually remains at <unk>.

Elevated levels at those fee adjustments kind of offsets that underlying price normalization and then.

On top of that I guess, what is the opportunity here going forward for further fee adjustment upward.

Again, it seems like you've made one in December I am curious, how you think about your pricing power longer term.

So I'll take the first question and then George you could you can take the second question.

So the way we've modeled the business through the rest of the year early is to look at.

The adjustment we made by fees in December is really mid potentially.

Mitigating any downdraft in <unk> as a result of lower used car prices right. So.

How much it mitigates again, all depends on the dynamic in terms of supply and.

And used car prices.

Members are willing to pay so it clearly is a factor that we baked into our modeling.

But again, we're assuming that that.

<unk> per unit will will certainly come down through the year and we're already starting to see some of that.

We're already starting to see that buyers are a little more tentative.

In terms of the prices that they have been paying.

Understanding that that the consumers are reaching a point where.

They will not they are not willing to pay more for a used car.

That will adjust over time, so so yes, it plays a role whether or not it would fully mitigate any reduction in <unk> as a as a reduction as a result of a reduction in used car prices I think it's too soon for us to say and again I hate to repeat myself, but it sort of gets back to these multiple levers that we've got.

Great. Thank you.

Yes.

Sort of a follow up to your question.

We're not planning to increase fees again this year.

Part of the current plan.

But I guess the <unk>.

Water questionnaire is there room to and the answer is yes, there is room.

So.

We're still priced in some of the price segments under market.

At this point, where I'm sitting right now I think.

No reason to raise at all where it could be long term at this point.

We just raised it I think we're in a good spot for right now we feel good about our targets for the year. It's a great business strong unit economics, even where we're at right now.

And.

We're always asking ourselves that question Ali like when it's the right time.

We're not really hearing a sense of like we need to do that anytime soon it's.

It is not currently on our docket, but we do always ask ourselves. The question of how long should we keep our prices as low as they are.

But we feel good and where we're at.

That makes sense. Thanks George.

That's right.

Thank you. Our next question comes from Rick <unk> with Jpmorgan you May proceed with your question.

Alright. Thanks.

Thanks for taking the question.

Maybe just a follow up on Randy's question on revenue.

You talked about multiple of the orders there.

The event like pricing more grades faster than expected volume.

Curious like what's embedded in terms of income.

<unk> opportunity or international expansion and the bad.

Frame around that.

And then I have a follow up.

Yes, sure so I'll start on commercial Bell and.

Tad on internationally and you could add.

So today, we have.

Limited, but some commercial partners using ACB.

We've got some rental car companies.

Selling an ACB.

Which has been great we've started our journey.

We've been able to show them that.

<unk>, it's a great place I thought if they don't sell direct as you know in the rental car category. Many of them first tried to sell it direct and they can tell the direct to dealers.

Then they traditionally but then send it to a physical auction that's kind of like the historic path.

We've been able to quit ATV.

And for <unk>.

A few dozen places across the country, we've been able to put HCV.

As.

And alternative.

Second lever for them of going from their direct efforts to digital before they just send it off to physical so thats been one not a huge number but at least where we're getting we're getting started with them also some small fleet companies. These are companies that own assets.

So very small, though but the good news is at least I'm going to end the year with some case studies I'm going to end the year with proof we are in the market.

I am excited about the long term potential in commercial and there is also products that we have.

We're in a very early stages on commercial specifically, we've got a.

A pilot going with a smaller regional fleet company on our private marketplace is still very early.

It's always great. When you can get these products built getting to market.

But we don't have huge assumptions in our model right now.

On the commercial category, we still look at this year is getting out there case studies, proving where a player and in the out years will start to take.

More and more share because we think we're in a great spot and we're feeling good about where we're at.

International very little.

Is assumed in the model at this point, we don't have a big assumption on international at this point.

Got it got it.

That's helpful.

Maybe on the expense side.

I would have expected.

Slower increase there given some of the volume challenges that.

The two challenges but.

I'm curious like is there some catch up happening there with respect to inspect their hiring versus last year.

How much would you characterize as inflation linger role.

And that expense increase year over year.

Thanks.

Yes, Phil Yes, you nailed it so so as you know last year, we got off to a slow start in terms of ramping our product and tech resources.

I think we did a pretty good job on the go to market side, we've had a lot of focus in terms of bill.

Building out that team.

But on the product and tech side, it took us a while to really get started so.

The good news is our recruiting team is really executing well now in terms of bringing in more and more talent on the product and tech side. So so there is some catch up.

As a result of that.

But just to put it all in context, though.

If you look at our Opex growth.

Just on the mid point of our guidance for the year, it's going to be about 33%.

That said, that's still $10 million lower for the year when you do the math.

Versus our IPO model on $45 million more in revenue.

So we're kind of in line I mean, all of that results in about a 600 basis points.

The improvement in EBITDA margins versus our IPO model, so kind of as I mentioned in my prepared remarks.

Firmly puts us on a path to exit next year at breakeven, so, but it's exactly what you thought.

Catching up and we're actually going to get to a lower run rate when we're done.

Got it.

Thanks for the color the back into.

Thanks.

Thank you. Our next question comes from John <unk> with Jefferies. You May proceed with your question.

Hey, John Thanks for taking them.

How are you thanks for taking my questions.

Just wanted to start with programmatic buying went from low single digits in.

In Q3 to mid single digits as a percentage of units in Q4.

Just given how nascent that product is can you talk about what sort of contribution we should expect over the next few years and also are you starting to see any signs that marrying programmatic buying with your core auction marketplace has helped increase overall conversion rates and I have a quick.

Follow up.

Yes, certainly John so on the.

Okay.

In these early days of obviously, we're just getting started on the programmatic.

We're really listening to the market of what else they would like to see.

What additional data with additional capabilities.

Say for example, they want X X y Z more fields in there they want certain things they want to be able to.

Leverage the capabilities to bid at specific vehicles higher than another so we've been we've been busy at work and we've got our.

Not only in market, but we're listening to our dealers and we're also hearing from them. The next level of requirements. They would like to buy in and I think it will create even a larger take rate here. So John I think that's going to take us several quarters.

Before it's a very large percentage.

Great News is we started our journey the.

His visit as part of the plan. The Great News is whenever you get a product to market and you hear great feedback, we just keep going so I think these are still early days.

Software you need to go lifts and build release and.

Well, we'll get to your question on how material, we will get to a point, where it becomes very material I think towards the end of this year. Early next year does that just only software works you listen you grow you invest you keep going into market.

I think that puts us in a great spot for next year.

Because we're.

We're not stopping here.

As far as Contra Confucian too.

A higher conversion rate it definitely helped us with a higher price deck.

Without a doubt.

We are we think about it in the back of your mind, we're not there yet, but we're almost at a point we're almost there.

Where we have our programmatic offer almost every car above a certain price point at a certain type of mileage.

And thats going to be awesome.

We're getting there and I think we'll have that some time in next couple of quarters.

There were no that price may or may not be where the seller is willing to sell it for but at least we're going to start getting.

What what is the HCV what is the actual cash value of that vehicle and this is what the market says so so John .

You're a student of this whole category think about this isn't just this isn't just about us telling car.

This will help us.

Let's go back to the sellers because their assets are going to be going down in value throughout the year.

And honestly you showed a solid yesterday on our platform for what we got it like why are you.

What's going on here that no longer are used cars going to appreciate.

That didnt make sense right. This is really the message to all of our dealers and so programmatic is going to become pretty significant not only to help us sell more cars, but provide us the data.

<unk> help our sellers understand the actual cash value of their assets.

Great and.

Just wanted to ask about customer acquisition.

Strong customer acquisition in the first half maybe you could just update us on how that's trended in the second half and in Q4.

<unk>.

Yes, certainly so we.

When you look at overall.

Sure.

To repeat what I said earlier when you look at our share gains in Q4, and really study that based on at least our proprietary analysis of dealer wholesale strength again.

Q4 <unk>.

We ended the year very very strong.

And so we continued and maybe just a little taste of Q1, we obviously just be careful on that.

A number of sellers.

And listings.

Or actually start into.

I would say are starting to come.

Come back in a way from a listings perspective as well.

Now we will also start to guide them on price, Okay, but we're feeling John really good about not only our share gains in Q4, but we're feeling really good and how the year has started with number of sellers on the platform.

And I feel like we've got the data to help guide them on what these assets are worth.

So.

Hopefully that gives you a little without me talking too much about Q1, a little color.

I would add by the way John that at our Analyst Day March 1st who will provide more fidelity in terms of the specific seller and buyer accounts. So that's on the agenda.

Very helpful. Thank you thanks for answering my questions.

Thanks, Tony.

Thank you. Our next question comes from Michael Graham of Canaccord. You May proceed with your question.

Okay. Thanks, a lot.

Hey, guys, Hey, George Hey, Bill just two quick ones.

One is congrats on getting to like basically a 100% territory coverage I guess in the U S.

I was just wondering if you could refresh any thinking around like the cohorts.

Where are you with some of your best markets.

Key metrics like.

Share of wallet or margins or whatever you think is appropriate relative to some of your newer markets and then I also just wanted to ask on the capital side.

Like is there a volume level or some sort of size, where you would think more critically about taking some of those loans off off your balance sheet.

Yeah, I'll start, Mike, Glenn and Bill and hand, it over to you.

And when you look at as we mentioned on the Analyst day, we're going to go into cohorts might go and we're going to we're going to spend.

And some time and so just absolutely great about where we're at it would be nice to have several hours with you all.

These quick call. So our thought was that I don't know we can ask for now ourselves. So we would spend some time then.

Going through this and really walking you all through how we're doing from a color, but I would say.

Our generic answer is we're feeling good about the.

Not only the markets that are established in.

And growing wallet share out of the current market that are established but also feeling great about opening up markets across the country and starting our journey. So feeling really good about where we're at.

And I would say more to come but bill maybe on the on the capital side of things you could take that one.

Yes, yes, yes happy too so Michael.

We ended last year with $44 million on the balance sheet.

Capital receivables.

Which again, where.

We're kind of carrying that because of our.

Our strong cash position. So we are actually working now on looking at as we continue to grow that portfolio the different options available to us to to finance those receivables.

The receivables.

We've got some pretty aggressive growth targets in place this.

This year so as we.

As we continue to execute.

Would expect at some point, what I've said Directionally is when we get to a $100 million.

Of a portfolio of $100 million.

Receivables.

Portfolio level, then we would expect to not be financing that on our balance sheet and we make we may decide to look at alternatives.

And do something different than what we're doing today, even before we get to that point so.

We're literally in the throes of looking to alternatives as we speak today.

Okay. Thanks, a lot guys and looking forward to your analyst day.

Okay.

Thank you I would now like to turn the call back over to Tim Fox for any further remarks.

Thank you Josh.

Thanks, everybody for joining us on the call today.

Note that the registration details for the analyst day are both in the press.

Our IR website, and we look forward to seeing.

<unk> live hopefully if not you can still joined virtually on March 1st.

And lastly, thank you for your interest in HCV and have a great evening. Thank you.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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