Q1 2022 ACV Auctions Inc Earnings Call

May 11, 2022

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the ACB first quarter conference call.

During todays presentation, all parties will be in and only mode.

Following the presentation.

Our call will be open for questions.

I would now like to turn the call over to Tim Fox <unk>, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining Acb's conference call to discuss our first quarter financial results.

With me on the call today are George demand, Chief Executive Officer, and builds a 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 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, 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. Thank you for joining us.

ACB delivered solid top line results above our guidance range. Despite the persistent supply constraints Wang on the automotive industry.

And softening retail demand for used vehicles.

We delivered EBITDA within our guidance range, while continuing to invest in key growth expansion and technology initiatives.

We continued to broaden and deepen our relationships with our dealer partners.

<unk>, our long term growth opportunity.

Automotive dealer space, the macro challenges I referenced earlier and they have proven to be resilient and are a critical part of the automotive ecosystem.

Youll always have also embrace digital transformation.

<unk> is increasingly well positioned to enable them to improve their ability to source manage and salvage vehicles with greater transparency and efficiency.

With that let me turn to the first quarter highlights on slide four.

Our market momentum continued in the first quarter with revenue of $103 million.

Growth, 49% year over year.

We transact at $2 4 billion of GMB growth of 83% year over year.

We sold 140000 vehicles in our digital marketplace.

9% increase year over year, and an increase of 70% on a two year basis.

Overall, we are very pleased with strong execution by the ATT and continued customer adoption of our growing suite of services.

Turning to slide five.

The rest of our discussion today, we will focus on the three pillars of our strategy to drive long term shareholder value.

Joe.

Innovation and scale.

I will begin with grow.

Moving to slide seven given the continued headwinds facing the automotive industry, we are providing context on the dealer wholesale market in relation to the broader automotive retail market.

First I understand the demand side of our market. We provided data on overall used car transaction and wholesale pricing trends.

As you can see in the chart on the left retail sales of used vehicles in Q1 experienced seasonal sequential improvement over Q bar.

<unk> was down about 10% year over year versus very strong performance in Q1 'twenty one.

Consumer demand for used vehicles, the key driver of wholesale demand and supply.

Because consumers purchasing a used vehicle typically have a trade it.

The chart on the right illustrates how the modified consumer demand in Q1 impacted wholesale prices.

After experiencing historically high wholesale prices throughout 2021 prices declined during the first quarter, which does not mirror typical seasonal historical pattern.

As I will describe in more detail later this price deflation resulted in compression to conversion rates across the industry as dealers increasingly became more price sensitive while buying vehicles in the wholesale market.

Now turning to slide eight.

Let's look at the supply picture.

New vehicle sales remained well below historical averages and.

And we're down about 16% year over year in Q1.

Due to the ongoing supply challenges impacting vehicle production.

This is reflected in the chart on the right, which shows that supply of light vehicles that franchise dealerships remained historically low.

New vehicle supply is important to our business because consumer trade ins for new purchases are a significant input into the wholesale market.

New vehicle inventory at these acute level the volume of trade entering the wholesale market has declined.

Resulting in a near term traction in the market we serve.

While the exact timing for supply to return to historic metrics may be unclear. What is clear is that our our ongoing investment in growth and differentiated product positioning HCV benefit resulting recovery in the wholesale market.

So what gives us confidence in our strong market position.

On slide nine we provided additional insight into our business.

The chart shows quarterly listings on our marketplace.

<unk> listings as a measure of dealer growth in marketplace adoption.

As you can see listings have grown consistently quarter over quarter.

But the notable assumption at the beginning of the pandemic Q2 2020.

Listings growth moderated in the second half of 'twenty, one and supply pressures mounted in the industry.

However.

Q1, 'twenty two listings recovered nicely growing 37% year over year.

Reflecting strong execution on territory expansion dealer penetration and wallet share growth, including higher price segment of vehicles.

This is also a reflection of the changing sentiment and dealers are increasingly becoming more willing to wholesales yet.

In the figure on the right we've provided the quarterly variance with the marketplace convergence.

There are three key takeaways.

First pre Covid, you can see that conversion rates in our marketplace were quite consistent bearings.

<unk>, just a few percentage points from the App.

Second once COVID-19 hit.

Version right significantly increase driven by the supply demand wholesale pricing factors I covered earlier.

Third as I mentioned vehicle prices began to decline in Q1, 'twenty, two resulting in incrementally cautious buying behavior and further softening of conversion rates back to normal pre COVID-19 levels.

For context, the year over year change in conversion rates in Q1, 'twenty two with a 30000 unit headwind versus Q1 'twenty one.

We believe conversion rates on our platform will increase in the future as we continue to invest in our data products to help dealers manage price expectation.

Obviously, the historically high conversion rate, we and the industry experienced last year benefited the macro environment, but.

But it's important context, when assessing our year over year unit growth.

Turning to slide 10.

You can see that units grew 9% year over year compared to 55% unit growth Q1 2007.

70% unit growth on a two year basis.

And despite softening wholesale prices GMB grew 83% to $2 4 billion.

Resulting from a broader mix of vehicles on our marketplace.

Moving on to slide 11 base.

Based on our internal analysis, we estimate that the U S. Wholesale can from retail dealers was flattish quarter over quarter.

Our contracted around 18% year over year.

So despite ongoing industry headwinds.

We continue to execute.

<unk> market share.

And attract new dealers to our markup.

Given our 9% year over year unit growth in Q1.

And an estimated market contraction of 18% this would imply ACB grew market share by 27% year over year.

Next I would like to wrap up the growth section with highlights on our value added services.

We continue to invest in the technology and resources and scale HCV transportation, an ACB capital.

These investments are driving strong top line growth by delivering highly differentiated service the market.

Also creating efficiency for both our partners and for HCV.

On Slide 12, you can see that ACB transportation continues to deliver strong results and remains a key enabler for attracting new buyers to the platform.

Our growing carrier partner network and fast cycle time resulted in attach rate once again exceeding 50% in Q1.

With the number of transfer it's growing 45% year over year.

In Q1 over 50% of our transport for automatically dispatch, which drove more efficiency in our transport operations.

Also just recently launched the carrier Transportation Act.

Which is a digital tool for carriers to efficiently manage their vehicle pickup and delivery.

Technologies like auto dispatch and the carrier App help attract new carriers to our transport marketplace and drive efficiency, which is an important element of <unk> overall margin expansion strategy.

Turning now to slide 13.

We are pleased with the execution and our ACD capital business.

Attach rates and capital has more than doubled year over year.

<unk> and 140% loan volume growth.

The increased mix of higher priced vehicles transact in our marketplace, along with new Ace III capital offerings.

And the 50% increase in revenue per loan in Q1.

We are also investing in the technology powering our capital.

To drive adoption and improve dealer engagement.

Which we believe will drive additional wallet share.

The new <unk> capital online portal clips dealers, so the seamless post auction financing solution.

This enhanced platform aligns with acd's commitment to leveraging technology to deliver easy to use solution and transparency regular partners.

And we will further enable <unk> capital in important growth and profit driver going forward.

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

Innovation.

Now to slide 15, I would like to highlight the innovation, we're delivering to enable our dealer partners to drive numerous first inventory.

IRA appraisal was our first offering in this category that contributed to our strong unit growth in 'twenty, one and continues to be a unique and effective way for consumers to sell their vehicles and acb's marketplace.

Our dealer partners.

Five appraisal once again contributed to high single digit percentage of our unit in Q1 'twenty two.

Alive appraisal is just the beginning.

With the acquisitions of driveway months Max digital.

We are able to create a more comprehensive solution for our dealers on the consumer acquisition costs, which we believe will increase our wallet share of dealer wholesale.

<unk> provides a seamless consumer buying experience.

And it is powered by the ECB pricing.

Which is our condition adjusted machine learning model for vehicle valuation.

This integrated appraisal tool provides an end to end experience or selling of consumers' cost.

Our ability to deliver trusted vehicle valuation.

Because of our expansive proprietary data enables dealers to provide attractive offers to their consumers.

Which means sourcing more customers for the dealership.

Which in turn drive more wholesale supply.

We also plan to leverage months, AI, driven imaging technology to enable consumers to do a self inspection right from their own mobile device.

Which will further inform the price dealers can offer consumers.

We are in the early stages of launching dealers on this new platform and we are very excited about consumer sourcing and attractive Tam expansion and wallet share opportunity for HCV.

Moving to slide 16.

Very pleased with the market traction, we're seeing with our Max digital path and data enabled.

And the synergies created by the HCV Max combination.

Finally, the combination so powerful Max is a significant volume of data and suite of services from our long history in retail automotive.

ACB.

Has amassed a huge volume of data and wholesale automotive.

Emerging all that data and intelligence together creates insights for our dealers that will help power both Max and all of these new products.

Leveraging our growing moat of dealer retail and wholesale data, we can make recommendations that are localized and personal lines for a particular deal.

The ability to drive dealer specific insights is key as it drives better outcome for both the retail and wholesale side of the business.

Moving to slide 17.

I am pleased to share an update to our advanced Biofuels.

Including the previously shared programmatic buying capabilities.

We are about to increase our go to market presence include.

Including the introduction of our brand initiatives.

These tools will now be offered under the brand <unk>.

Ma'am.

An acronym for smart acquisition manage it.

Thanks to Sam buying an ACB has never been easier.

Creating specific and relevant notification.

As well as powering intelligent auto bidding.

Sam brings broad and persistent demand for the platform.

Complementing our marketplace and driving price realization and conversion for our sellers.

And Sam also informs our algorithms and pricing engine to help dealers understand vehicle pricing.

Tim is already contributing over 5% of our quarterly unit volume.

And we believe it will be a big growth driver for us as we expand its use cases and capabilities.

Simply put every dealer needs that.

So to wrap up on innovation, we are very excited about our growing suite of data enabled solutions and technology roadmap that expands our competitive moat.

<unk>, even more value for our dealer partners and drive sustainable long term growth.

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 Q1 financial performance.

We delivered upside to our revenue guidance with adjusted EBITDA within our guidance range. Despite the challenging macro factors George outlined earlier on the call.

Turning to slide 19, I will begin with a review of our first quarter results.

Revenue of $103 million was above the high end of guidance and generated year over year growth of 49% versus strong results in Q1 'twenty one.

Adjusted EBITDA loss of 18 million or 17, 5% of revenue was within our guidance range, but as I will detail later was negatively impacted by the cost of revenue headwinds.

Turning to slide 20, I will cover some additional detail on revenue.

Note that we are providing revenue by product line that aligns with our analyst day presentation. As we believe this provides investors with more fidelity into our business trends.

Total revenue of $103 million represented 56% CAGR since Q1 'twenty.

Akshay and assurance revenue, which was 57% of total revenue grew 31% year over year, reflecting auction unit growth and strong auction and assurance.

The year over year growth in <unk> of 36% was driven by higher GMB due to the strong mix of vehicles sold on our platform and the <unk> increase we instituted last December .

Marketplace services revenue, which was 35% of total revenue had impressive growth of 87% year over year.

I think it was strong adoption of transport and capital that George outlined earlier.

Our SaaS and data services products comprised 8% of total revenue and had very strong growth of 72% year over year.

Kimberly reflecting revenue from the Max digital acquisition.

Turning now to slide 21.

<unk> costs in the quarter.

Cost of revenue as a percentage of revenue increased approximately 300 basis points year over year.

Was above our expectation.

The increase was driven by two factors.

First due to the softening market conditions in Q1 that George described.

<unk> sense is to help our dealer partners acquired vehicles, while still delivering on our EBITDA guidance.

As market conditions improve and buyer and seller expectations converge, we will pull back on these incentives and expect less of a headwind in Q2.

The second factor impacting cost of revenue was arbitration costs.

While rising inflation has increased cost for automotive parts and labor. We were also more liberal in our arbitration practices.

We apply this approach of bearing degrees during market shifts, but do so while staying within our cost envelope at achieving our EBITDA guidance.

Obviously can't control inflationary pressures, we are taking steps to mitigate the overall impact on our business.

From an operating cost perspective results in Q1 were positive as well.

We increased our leverage by approximately 300 basis points offsetting the cost of revenue pressures.

Okay.

Moving to slide 22, let me provide further context on our investment strategy operating leverage our path to profitability.

As we outlined at our analyst day, 2022 is a year of investment.

Investment in growth and in the technology to extend our competitive moat.

However, we remain committed to driving profitable growth and expect our EBITDA margin to be flat year over year. Despite a 28% increase in operating expense.

We also remain committed to achieving EBITDA breakeven exiting 2023.

Fact based on our outlook for the balance of 2022, we believe that Q1 will represent the peak EBITDA last quarter.

Next I'll highlight our strong capital structure on slide 23.

We ended Q1 with $564 million in cash and equivalents in marketable securities of 152 million of which reflects the auction marketplace.

Market place.

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 Q1 with $60 million of long term debt to finance, our rapidly growing ACP capital business.

Moving away from financing this business off our balance sheet due to the significant growth of our portfolio.

Now I will turn to guidance on slide 24.

For the second quarter of 2022, we are expecting revenue in the range of $190 million to $112 million a growth rate of 12% to 15% year over year.

To put this revenue growth into context, it's important to remember that Q2, 'twenty, one with a very strong quarter with 117% revenue growth.

On a two year basis, our Q2 'twenty two revenue growth is expected to be 146%.

Adjusted EBITDA is expected to be a loss in the range of $16 million to $17 million.

For the full year of 2022, we are raising the low end of revenue guidance and now expect a range of 452% to $460 million.

Both rate of 26% to 28% year over year.

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

As it relates towards 2022 guidance, although used vehicle supply and demand trends remain difficult to predict we continue to believe we have multiple levers in our business model and therefore multiple paths to achieve our 2022 revenue guidance.

Let me wrap up on slide 25 by reviewing our 2026 financial targets.

We are very pleased with our execution in what has proven to be a very challenging macro environment and we remain confident in our ability to achieve $1 3 billion of revenue and $325 million of EBITDA in 2026.

And with that let me turn it back to George.

Thanks, Bill before we take your questions, let me summarize.

We are very pleased with our continued strong execution, while navigating through unprecedented times in our industry. We are especially proud of our <unk> team has delivered these results.

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 growth.

We are executing on our territory expansion plan.

Our marketplace offerings are gaining traction in the market.

And see some very promising growth synergies emerging from our SaaS and data enabled services.

We are delivering an exciting product roadmap that further differentiate <unk> and expand our addressable market.

We are on track to generate over $1 billion in revenue with attractive margins through our proven business model that we believe will drive significant shareholder value.

Lastly, we remain committed to continuing to build a world class team to deliver on our goals.

With that I'll turn the call over to the operator to begin the Q&A.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need.

Press Star then one on your telephone.

To withdraw your question press the pound key.

Thats Star one to ask a question we ask that you limit yourself to one question and one follow up.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Rajat Gupta with Jpmorgan. Your line is open.

Great. Thank.

Thanks for taking the questions.

Just a first one on.

Some of the recent developments in the industry.

Most credit Llanos acquisition of ADESA, we have seen many Oems amounts.

They're looking to switch to other platforms and some of them already.

Manheim.

Including some of our own survey work suggested that many dealers are also looking for alternatives.

So could you give a sense of.

Whats you were seeing on the ground.

Have you already started to capture some of these customers.

Did it did impact the first quarter is always or the second quarter guide.

I have a follow up thanks.

Good to hear from you so.

We are.

We provided a bunch of data that suggests that.

The market.

Obviously.

Yes.

Smaller sort of year over year on a quarterly basis, but yet our listings.

Tremendous study and so.

Listings growth our customers are coming from from obviously competitor so whether it would be the one you mentioned or others.

We're taking share.

And we.

When you look at the backdrop of sort of the macro things going on in automotive.

And the data we provided to you all in today's earnings call.

We're providing them for a reason right, it's basically demonstrating to our investors that amongst all these things going on.

Still out there taking share so.

I'm sure the parties.

As you mentioned are part of that.

Part of the dealers, we want are probably folks that were using it but also other auctions.

And it all contributes to part of our growth.

Hello.

Got it.

Did you see any change in the velocity of those.

Interaction more recently or.

It just been steady as you've seen in the past.

Yes.

Increased customer engagement.

Yes, I don't think were ready to speak specifically about.

Where we are winning share from today.

I think more broadly I think what we're trying to lean in and suggested yes, we're winning share from a number of competitors.

I think as you all do your research you'll see that.

We're.

It's not only them Theres also others in the industry, where we are more than likely taking share.

Got it great thanks for that color.

One follow up in terms of your staffing levels.

Actors.

Given what youre seeing in the overall auction industry in general.

Youre, obviously, gaining share but there continues to remain a lot of choppiness in the market.

Are you are you pulling back a little bit versus what you may be talked earlier this year.

Staffing levels.

Or are you just continuing to hire some nasty position.

So we're going to hit the market recovers.

Yes.

Eric.

From a go to market perspective.

We're.

We're really dialed in every month.

Every territory across the country and the number of inspectors were hiring and and generally we're trying to hire a couple of months into that it sounds like youre hiring a year in advance or two years of that so think like how how our internal processes work.

The territory managers.

So basically provider their forecast on on the customers are talking to their growth rate.

And then we open up and we open up the hires.

Have something like over 100 Inspector also open right now that we're recruiting for.

Would suggest that we see growth right.

Rob with website Youll see we're hiring we're hiring and where we're hiring for a reason for hiring because the feedback we're getting.

Is that.

We believe we're going to need more inspectors right to take on this new things new customers, but we're always managing this growth within our EBIT guidance.

And so we've been extremely disciplined.

When you when you take a business like ours and asset like business.

Where we can have great controls in place.

Last thing and people, but you're investing it with them.

Specific.

Specific metrics that help us make the right decision.

None of this is new to us we've been doing this for a number of years.

Okay.

Got it great. Thanks for the color I'll jump back in queue.

Thank you thanks.

Thank you our.

Our next question comes from.

Ali for Gary with Guggenheim Your line is open.

Hi, good afternoon, thanks for taking my questions.

So looking at the volume outlook into the second quarter are you seeing any signs that the macro headwinds are normalizing. It seems like conversion is going to continue to be a sizable year over year headwind looking at the chart you provided but are you seeing anything on the new car supply or used car demand side that should suggest your volumes will improve sequentially into the <unk>.

Quarter.

But what we're trying to use for today is star.

Stabilized if you would.

We're not.

We really.

<unk>.

And Bill you can lean a little bit more on this as it relates to the Q2, but.

The quarter.

And how do we think from the quarter started.

Quarter, It started stronger than Q1, but I would say there is a macro reasons why not just one which is like new car sales one theme as dealers.

Going to be less willing to hang on hang on to all of their trades.

So if you look at all the different themes.

New car supplies, we circle pie is not yet back to where it was obviously, but last year.

New car dealers cut almost everything right. They kept everything because there was so much consumer demand. So they have things that they shouldn't have.

There was even a new term in the industry, we're going to make a Colorado This which makes no sense, which means they're going to spend a ton of time, our reconditioning and older.

So think theres multiple factors going on right, yes, new car supply has not yet returned back to sort of prior prior levels, but with the current new car and used car total sales and the trade ins that come as part of those sales.

You're always going to be a little bit more careful.

So those arent going to keep all of the inventory like they were before.

And theyre going to be.

More conscientious that the macro environment has changed so I think those are like a little bit of puts and takes sort of helps you think about the macro environment, but I don't really want to add any more to that.

Yes.

Would add Lee is again the backdrop here is some recent data published retail sales in April were down 13% quarter on quarter and 20% year on year.

No.

There is this dynamic obviously out there on the macro environment that George is referring to but yes.

Yes.

Did see a solid start to.

Q2.

And recall that we had really strong listings growth in Q1.

37%.

It's continued into Q2, so even though the supply.

<unk> is still very very tight.

We're seeing really strong growth in our marketplace.

And I think for US you couple that with you.

As we think about <unk> going forward.

A reduction in some of the incentives that we pass through in Q1.

Start to see some benefit there as well so all of those kind of combine to get us to our Q2 revenue guidance and the full year guide as well.

Thanks, that's helpful color I guess, a good segue since you mentioned the fee increases it looks like you took price in December and then two of your main digital competitors have also implemented fee increases relatively recently I know you are still priced below physical auction, but how are you relative to your digital competitors at this point following.

All of these fee changes and do you see an opportunity to continue increasing your fees over time.

I think were competitive right now, we're probably still lower than one or two of them, we might be higher than one of them, but in the bigger picture things I feel good about our pricing for this year I think where we're priced.

The effective way to continue to take share.

Both sellers and buyers to feel like they're getting incredible value in HCV and a number of you have heard me talk about this over the years like to me pricing as something where especially in these growth years.

The price of the product, where we've got great unit economics, but price in a way. It's also going to help us just gain a lot more shared on our marketplace and I think we're doing an exceptional job in that way and you will see folks can copy us like that will be a norm youre right Theres always.

We sort of.

Go up stream as we sort of show confidence that we're providing value.

We see that rate in every marketplace leader position.

Great. Thanks George.

Thank you.

Our next question comes from the line of <unk> Khan with <unk> Securities. Your line is open.

Yes, thanks for that.

Curious about here.

Zimmer sourcing.

<unk> initiated and what's your go to market approach.

What's the plan to drive consumer traffic.

And then secondarily on the desk.

Look.

What are you baking in in terms of.

So the expansion what are the high end and the low endocarditis.

So.

Ill do my best to answer your questions, just because I think I understood your question, but ill.

Alright.

I'll ask the question and answer it so.

On the first one.

On the consumer side of the equation.

Whether it's the Resourcing and what is the go to market there.

We mentioned sort of two parallel go to market efforts, one we continue to leverage <unk> appraisal.

Which is R.

Dealers across the country.

Who are doing events.

Whether they will have let's say, a saturday event and consumers come in come in an auction their car.

We'll also be at the dealerships.

To help them with vehicles that the consumers would like to praise that's where it really doesn't add more resourcing per se. It's just a part of how we're scheduling our inspectors throughout the week.

It's been part of the playbook from day, one so I wouldn't want to look at that as sort of additional resourcing.

Leveraging the Resourcing in any one territory I believe the second question.

Was about more broadly how are we looking at our field expenses when it comes to our sales and inspection team. So we already have as part of the plan Terra.

Territory managers across the country, we look at the U S is.

Around 160 territory, there's about 22 regional sales directors managing these folks. So that's all already part of the current spending and plan below that or the inspectors, which goes with.

<unk> question earlier was about the inspectors and more mature territory. We may have let's say 12, or 14 inspectors and we might be selling 1000 cars a month.

Yes.

Mature territory, you might have two or three inspectors may only be selling.

Dozens of 100, Carvana, so so think about that maturity.

As we hire more inspectors.

In the less mature markets.

We're bringing on new dealers.

Which is part of our model here.

Part of our go to market.

It's almost more like rinse repeat.

If you look at others.

Allergy or other industry as we it's just what we do we go in we bring on a few sellers, we bring on tomorrow salary for hire more in factors and all of the cohort data we gave you.

When we went public and then recently at our Analyst Day help you all kind of look at why hiring inspectors.

Proven plan and with strong unit economics.

Yes.

Thank you.

Yes, certainly thank you.

Thank you. Our next comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks for taking the questions and hope everyone in the team is doing well.

All of the supply demand side has already been asked but I wanted to come back.

The analyst day, a couple of months ago, you really pay on display a lot of the tech investments youre, making and how that can improve.

Efficiency and productivity on the platform over the medium to long term can you, maybe reframe and revisit some of the investments you see as mission critical in 'twenty, two and 'twenty three.

We should be thinking about those investments broadly in tech and the platform is driving mixture of volume and efficiencies over the medium to long term. Thank you Scott.

Yes, Thanks, Eric.

I think that's really important so when Europe broadly and I'll just start with the inspection side of the business because obviously our brand essence of HCV transparency and trust. So no particular at about let's start with our brand essence.

We built the single inspection platform to allow us to whether it's a wholesale inspection and off lease inspection and internal private marketplace type transaction between dealers. We built this sort of universal inspection platform that plugs into Cogs into various applications. For example, we introduced many.

Many folks not necessarily already know about virtual lift in App is two of the great R&D items that are helping dealers get more transparency online, helping us reduce arbitration et cetera. The next one is apacs apex's Iot device that we are we will be more formally announcing.

Without the year this year as we go to market now and so we mentioned at analyst day that it was in.

We were just finishing up with that Tech investment is now actually next week going into.

Into the field, where we're going to start getting our early data samples before we broadly say slides, we always go into sort of a measured approach, but we're going to be able to not only listen to the engine, but we're going to see vibration, we're going to be able to get to smell and understand whether or not a vehicle has any issues.

The whole factor here on the inspection side.

Digital requires transparency and trust as you see as you all see what happened not only with us but with the initial look at some of our competitors.

You got to get this stuff right.

Dealers want to transact digitally, but they don't want surprises.

And when you when you have the right tack there create.

Create less friction so that was one big area, we've talked about another big area, we talked about with what with driver Billy and monk monk was the south.

Inspection platform, we bought out of Paris, It's an unbelievable way for consumer walk around their car, where we leverage AI.

Detect any visual.

Challenges with the vehicle that will be integrated with driver. We believe for a launch later this year driver Blake is the consumer answering questions.

On dealers' websites you saw a couple of examples of that in the slides today that whole area of our investment is.

Fire more cars for consumers the average dealer only acquired 8%.

Other retail transactions.

Consumers or from the curve there.

A large.

Used car retailers are as much as 50% that drives my customers Crazy.

They are turning to us, saying, we want to buying more cars from consumers and then they'll keep let's say, 40% to 60% of it breaks out and they'll wholesale 40% to 60% with a profit otherwise and they will do that with our tools. So they are asking HBV. We wanted to compete in that area and we are delivering we are bringing the products from customer acquisition consumer.

Acquisition when you look at more broadly on the management of your inventory, we launched private marketplace. We now have a number of both public and private automotive dealers now using our private marketplace sort of buying cars from consumers and they are leveraging the private marketplaces aside what's the state what should stay within the group.

Are they should wholesale.

And it's our tools, helping them do that.

With products like Max digital we're taking even a step further and say this specific vehicle you shared a holdup Thats. One you said retail. This is your margin on the car in a matter of fact this car belongs with desktop not this store and it helps you actually go through and you make your decision. So a simple way because I don't spend the whole call is whether it's sourcing the cars managing the <unk>.

Cars that are merchandised in the cars.

Are the dealers partner, we are here to help them.

Improve and execute in this digital world and that pulls us in to a partnership level that is quite unique.

Great. Thanks for all the color.

Thank you Sir.

Thank you our next <unk> comes from the line of Chris <unk> with Needham Your line is open.

Good afternoon.

A quick question you said you have levers to pull to hit the 2022 revenue guidance, even if the macro stays unfriendly just to confirm we're talking about marketplace services exception data services.

Increased penetration there.

Yeah, Hey, Chris.

It's actually less of that and it's more the dynamic between supply.

And used car prices.

Alright, so so that tightens the supply.

The higher prices will remain.

And we certainly saw that in Q1, even though prices came down a bit they held up actually better than we previously expected so but with tight supply comes potentially lower units at the top of the funnel, that's offset by higher <unk>.

Conversely, as supply improves potentially.

Potentially prices come down even further.

And that dynamic you've got higher units been expected at a lower <unk>. So what we observed several quarters is that these tend to offset each other.

So that's number one number two since we increased our biases in December of last year.

That's also kind of a mitigating factor in terms of any downdraft in GNP and the resulting reduction in ARPA. So but those are the two levers and they're very much related to each other in terms of units and the resulting ARPA.

Okay perfect and then are there levers you can pull to drive higher conversion that arent.

Dilutive to gross margin is programmatic part of that because if I'm thinking about it right. It's more of a kind of set my bid and forget it type thing versus someone having a certain feeling around being prices.

Based on what they are feeling in the marketplace is that something that can kind of drive higher conversion.

Yes.

You kind of look at the conversion is maybe two different areas. So one is on the demand side I think youre going to question is yes.

With products like Sam right Smart acquisition manager it allows a dealer to be more engaged with baby ACB by putting these automated bids or just getting better alerts and getting more activity on a specific unit. So that's the demand side and there is more than that but we yes, we've got more and more we can do.

To help get.

Infinite amount of demand any one asset, but a big part of this conversion rate is.

Really the expectation of the seller.

So we already have lots of virus.

Jim.

The demand the demand the incremental demand will help.

But the biggest tipping point is how we leverage our data to say to a seller we had eight dealers fighting over here.

Okay.

Hi.

Retail I understand that this vehicle.

<unk> last year right used cars didn't historically.

Sure they are decreasing right and basically to stay in a nice way that honeymoon is over.

You're no longer going to see vehicles I appreciate it and our data helps you ask it more and more demand our products out, but then our data helps us understand okay. You had a number of dealers fighting over this one asset you have got the market price if you really want to wholesale it.

Versus trying to retail it.

Better now because it's just going to depreciate more next month, so think about our products and our data helped both the supply side and the demand side to help on the execution of conversion.

Okay. Thank you.

Thanks, Chris.

Thank you.

Our next question comes from the line of John <unk> with Jefferies. Your line is open.

Hey, John .

Hey, How's it going thanks for taking my questions.

Wanted to start with conversion rates looks like they've gone back to pre pandemic levels in the in the first quarter could you just talk about how conversion rates have trended in recent months and weeks and.

How.

We should think about conversion rates for the cadence of the year what are some guard rails that we should be thinking about.

So so.

Bill do you want to start here.

Kickoff.

I want to make sure is power.

Power talking really about from a guidance perspective, why don't you kick off and then I'll follow behind it.

Yes, sure So hey, John .

Look I think conversion rates have been coming down.

And then based on the charts that we showed in the deck you can see.

Far down they've come back closer to the historical norms right. So we certainly saw that happened at the beginning of Q1.

At the end of Q1, they actually bumped up a bit in March.

March is typically a strong month, you do get taxed.

Refunds, so we did see an increase in activity.

And there certainly was higher sell through.

In Q2, we're assuming it starts to kind of move back down a bit right.

Closer to historic norms.

April was a pretty strong month for sell through.

Our guidance and our our.

Our modeling going forward.

We're assuming it moderates down a bit through the rest of the quarter.

And then for the rest of the year, we're assuming again for the most part that it's it hovers around the historical norms right. So.

Kind of back in a tighter range versus the huge volatility that we saw last year, which drove.

Just huge increases in conversion and huge growth in unit volume. So I would say this is starting to look a little more normalized.

Based on the trends that we're seeing.

And maybe a little bit more color. Thanks Bill.

A little more color on that would be behind like broad averages you've got different asps segments. So like lower priced cars still have very high conversion rate. They just sell dealer sort of like I would say just kind of getting rid of them and lower segments had high conversion last year.

Have a little bit lower conversion, but generally have very high conversion.

And then these higher priced assets the ones that have decided to really retail or wholesale.

Those are sort of the areas where dealers from the from the seller's perspective.

Just trying to size, what do I want to do with this asset to own a cell it turning around our retail and that helps you kind of look at there's a deeper story behind conversion. Then you go okay. What can we do about this right I mentioned earlier, our data can help inform the seller and price guidance.

And earlier that on the demand side of things or.

Our new products, whether it be stand whether our marketplace improvements.

R R.

Other products that we have in product development right now to help guide valuation.

Each of these helped guide the seller and the buyers to make the right decision. So they all really sort of work towards conversion, whether you're influencing the supply or the demand side hopefully thats helpful.

Okay, that's very helpful.

Wanted to ask a second one on guidance.

This was playing around a little bit with with revenue per unit.

For the cadence of the year and.

The conclusion that I came to at least Directionally is that full year guidance in the second quarter guidance implies that units increased sequentially.

In each of the back three quarters.

Could you just help at least give us a sense for.

Whether that's directionally the way, we should be thinking about it.

Or if there's kind of any sort of kind of high level Guardrails, you can give around the puts and takes on your guidance. Thanks.

Sure sure.

Yes, so and as you know, we don't guide to units, but I'll try to give you.

As much as much color as I can.

We are certainly assuming in our guidance for Q2 that units will will grow.

Quarter on quarter.

Alright, which is what you would expect.

I would tell you that directionally through the rest of the year, we are assuming and we continue to assume that our pool will will come down potentially not as much as we originally thought because used car prices.

Seem to be staying elevated for potentially longer than we expected since the supply chain issues appear to be such that they will persist through the rest of the year.

So we've kind of modulate our assumptions a bit there, but we are assuming that <unk> will come down.

Over time, so you can.

You can use that as a basis to try to back into a unit assumption.

Understanding this is again not a precise science right as I said earlier right.

We know <unk> and units are correlated to each other so to the extent one is higher and the other is lowered by <unk>.

But.

Again, I want to stop short of giving you specific guidance certainly beyond Q2 other than to say that.

We are assuming <unk> comes down a bit as we go through the rest of the year.

I appreciate the color. Thank you.

Okay.

Thank you.

Question comes from the line with Robert <unk> with CJS Securities Your line so.

Hi, Good afternoon, it's John on for Bob Thanks for taking my questions.

You previously identified the off lease market is an area of incremental opportunity but.

But it is looking like there really won't be many off lease vehicles for a pretty long time to come does it change your expansion priorities maybe in international markets first and then go back to the office markets later.

Yes, John Thanks for the question so.

Where are we prioritized first I would call it the commercial sector as well.

And we've been leaning in and what rental car companies would like from a product.

And rental car companies are an interesting category as you study that Tam.

They tend to sell vehicles directly to dealers as their primary objective not.

Not all of them, but most of them first tried to sell a car directly to a dealer and then if they can't then they use that physical auction that would be the historical way.

We've built out a product strategy that you'll hear us talk about maybe towards the end of this year.

Yes.

We believe we have a great product strategy for rental car companies.

And so we cut back on we don't we're not like.

Where do I think about this as like as a steady machine.

Instead of just looking all these cyclical things in changing your roadmap too much.

Pretty simple right.

Youre inspecting a vehicle and providing data to the seller and helping them make informed decisions, whether theyre going to sell it directly to our dealers through our marketplace leverage the data.

So it also helps US now go into a new market, let's say for example, first rental than it might be fleet after that as an example.

Firstly, let's say by that in X years from now Youll.

You'll see.

The other parts of the commercial markets come back.

And so I was thinking like we stopped working on those efforts.

We kept going on inspection, we kept going on data services in that area. We're actually about the launch some new capabilities over the next couple of months I think.

Actually one of them launching technically and I think like six to eight weeks.

And and that will go to a part of the commercial task and we will go get a few wins this year.

And then we'll start to take those lessons learned those capabilities when the blood Tam comes back and commercial will be in a great spot. So hopefully that helps at least at your first question there.

Thank you for that color and then second I was wondering if you could give us more color on the programmatic buying.

Maybe how is it performing with the early adopters there.

What's the rate of sign up of new customers that you're seeing right now.

Yes, certainly so I would say dealers are an interesting point.

<unk>.

Youre seeing let's say last year and early this year dealers were.

Screaming for inventory.

I'm willing to buy anything.

Because they were so hungry.

I would say programmatic right now is still a big need in the industry.

Going to see dealers, a little bit more cautious.

Okay, because some of the other things they may have tried they might've gotten vehicles at one of the condition. They were looking for okay and so.

What we've tried to do is.

As we've gone to market is step people into programmatic, where hey for the first couple of weeks, let's just give you a great alert and the platform and then from there you can start to move towards programmatic and it's working fantastic. So think about think of babies that especially if they've tried others before trying ours, we really don't want to make sure you can trust.

Our condition you can trust, what's going on here so that.

We're still in the early days, but we're still really early days I think it's like.

A few hundred dollars a month, there, but approximately a.

Couple of hundred dealers, a month are sort of coming onto the platform. So think so early days.

Very happy, but haven't even done an internal campaign to my own dealers, yet we need to have a brand name yet.

The main programmatic is fun to talk about with investors, but not the right word even say to a dealer like so we had a little work to do I've mentioned on this call. We're still in the early days in the next sort of month or two months, we will launch our brand, which I always give you a little heads up of what we're up to and then we'll launch spam and how Sam is going to help you and then I'm, hoping to sort of.

Leverage that tool even more so towards the end of this year going into next year. So.

Pretty much all transparent they can give you at this point.

No. That's helpful. Thank you very much.

Hey, Jeff.

Thank you.

Our next question is from the line of Daniel <unk> with Stephens. Your line is open.

Yes. Thanks, good evening guys. Thanks for your questions.

Bill I wanted to start on the balance sheet.

Cash reserves still strong lot of cash to support growth I think the last few years, you've done some deals and M&A kind of on that inspection space to George's point earlier, it's an important growth Avenue, but curious are there any specific capabilities you guys would want to deploy capital towards on the M&A side or is there anything out there right now and then investors at risk.

Everything in this backdrop just curious if the volume backdrop remains more challenged for longer than you think now I mean, how do you feel about when we reach cash flow breakeven and then those long term targets you've given though.

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

Response to the first question.

In terms of M&A targets.

So yes, so so.

I think the way investors should be thinking about this is we are very committed to managing.

Towards exiting next year at EBITDA breakeven, if not slightly profitable.

That goalpost is not changing as far as we're concerned when we will manage our P&L to hit that.

Again keep in mind, if the supply environment continues to be very challenging that implies that used car prices probably remain somewhat elevated.

I would say the wildcard obviously is the macroeconomic conditions and consumer demand but.

All of that being said.

We still feel very confident we can get to our targets in terms of EBITDA breakeven by the end of next year and there are other levers obviously in terms of opex growth and the like that we could potentially modify as we go along depending upon how things play out so I wouldn't think of us necessarily backing off of that commitment.

And then George on your first question, yes, So obviously our balance sheet is strong.

Our balance sheet is strong.

We've got a great business here, we've got great unit economics.

And to your question on M&A, we're always we're always reviewing the market.

And where you're seeing us be.

B a great steward of this capital we brought in some great products, we're extending the value added capabilities and how we go to market.

We have a dedicated team who is always looking at assets.

But you also CSB being smart and not rush into anything right. So.

I don't really know what else I can say from an M&A perspective, but we're always on this we're always doing our diligence we're always looking at various ways, we can expand.

Our product suite and our go to market.

I think that's all I can say at this time.

Got it and then just one George on the growth strategy I think at this point, we're in all the markets. So it's a more of a wallet share game curious if you're seeing any competitive changes some of your peers, obviously, you're investing a lot in the digital space, both public and private so curious if youre seeing any change in how they're going to market versus you guys how the rooftop.

Maturity or penetration going in and then really from a sales level, we're kind of operational standpoint. When your sales person is pitching themselves against your digital dealer to dealer peers. I mean, what are the points of differentiation you highlight to dealers on the ground.

Yeah sure Dan so.

We start our journey.

With different dealers and sort of different way. Okay. So we might start with the dealer for example, where.

Please start their journey using lateral appraisal.

We don't yet replace let's say, a physical auction or whoever their current so the incumbent auction company is.

We may start with that product and when we start with that product, we might only be getting let's say three or four or five cars a month being sold on ACB and they might Q3 report, but we started our journey. We began our partnership we may start our journey with Max Digital we may start our journey with driver, but we may start our journey with selling.

And cars in that lower end cars, we may start our journey on lower end cars, but not higher end cars.

And so each one of these dealer relationships.

Whether they start out with a relationship with a used car manager for the dealer principle or with a dealer group for example, a large group a relationship might start with a rooftop by the group going with HCV for private marketplace.

Exchanging cars.

As a group.

And then we're starting our journey by saying, Hey, you're using US right now for <unk>.

For private marketplace, let's look at how we can help either buying more cars or sell more cars.

So we have different ways. We start our differentiation is we believe we have the number one condition report and inspection process with World class technology.

<unk> team in the industry with data to help support how these dealers can make the right sufficient so that's an area of differentiation step backs all of this.

And then we've got at the end of the day. These different products that are customized on whether it's a dealer group whether its a single store that helps them achieve their goals.

Got it that's helpful Best of luck.

Thank you. Thank you.

Thank you, ladies and gentlemen, due to the interest of time. Our final question comes from the line of Michael Graham with Canaccord. Your line is open.

Okay.

Hey, Michael.

Yes, Hey, Tim.

Squeezing me in here.

Just two quick ones one is on the.

Could you just comment on how promotional you were at with some of the selling dealers and you're.

And your newer newer territories versus your older territories, and just how youre thinking about that.

I just wanted to ask you it seems like.

The new card market coming back is definitely sort of like a precursor to some of these model normalization trends that you are anticipating and I'm just wondering.

If that's true and what do you see as sort of the lag.

Necessarily when the used car market is going to the new car market is going to come back because it is hard to predict but what sort of a time lag between when that happens and when you start to see some of these other model dynamics unfolding.

So hey, Michael its <unk>.

Sure.

And the <unk>.

The other side.

We we try.

Many thanks, and I think if there's one thing going on here. So for example, we will take our sellers through sort of volume commitment is an example of a type of incentives we made in let's.

Let's say for example were only getting 10 cars, a month and there might be 10, or 20 cars going to a competitor.

Then it might be hey, do more cars with us and we'll give you. An example of one type of incentive program.

Whether it be by the way in a mature market or a less mature those types of things that always kind of at a high level part of the model.

Another type of incentive would be.

Specific transaction base of saying, Okay, let's move this car.

And as we move this car right now will make five or $10 whatever it is reduction and do something like that.

Moving specific vehicles, so I think some of these or more.

I would say run as a program.

Based on again, our strong unit economics and position and in some of these are more.

We're trying to not just specific deal or along to help them with their decision, making like hey come on we got we got your seven buyers. We did all of this so let's move this along and maybe give him a little other incentive bonus so Michael I was like I'm trying to frame it a little less about just like the new markets with some mature markets I would say, it's a little bit more.

Programmatic than that in our in our <unk>.

Approach.

We have a bunch of intelligence and the things, we're doing and just part of the overall plan.

And all part of our EBITDA guidance. So as you can see no matter, what's going on cost over here costs over here.

Bill runs a pretty tight ship around here the basically it gives the team alright, here's where here's what you can do.

And.

And we've got that discipline does that that discipline to go out and grow.

Hit the numbers were where we are.

Basically telling you all but do it within an EBITDA range.

I'm really proud of that and so yes, there is some of that going on behind the scenes but.

Those types of things are new we've been doing that for years, it's sort of just part of our operating plan Michael The second question was.

Remind me.

Yes.

Sorry accumulate.

I was just wondering like.

When the new car market comes back how long.

Much time Elapses do you think until.

The wholesale used market comes back and starts to have your model unfolding.

You are talking about with units coming up and pricing coming down and things like that like what's the time lag there.

So we're.

Yes.

But I believe this is going to be a sort of iterative.

I believe one of the things, we shared Tim but I'm not sure we shared and as I said, we had a 4% gain quarter over quarter and listings that we share that in a minute.

<unk> shared in the slides, but I just shared it okay. So we had a 4% quarter over quarter look at this as I got.

Again in sort of listings sort of on a per dealer basis, Okay and micro that to me is an example.

That's not a huge number right, 4%, but it all it all adds up I just like the fact that it's more or less meaning we are starting to see a trend now.

We're starting to see a trend of a dealer willing to wholesale a little bit more for all that supplies even come back.

Michael <unk>.

Not like this right.

This.

Upheld climb all at once like this one quarter.

Im sorry.

Dealers are going to be.

Taken trades.

Smarter.

Theyre going to know inventories coming they're going to keep the ones they should retail.

And there is a wholesale the ones they should be wholesaler.

And and and no different than what the largest used car marketplace. This year. If you look at some of the largest used car market places base retail so on the wholesale side right. So once they get enough supply they make the right wholesale this shifts so Michael hopefully that helps but I look at us more additive throughout the year that as supply starts to change as <unk>.

<unk> demand.

Changes franchise dealers will make the right decisions on what to retail whats the wholesale.

Okay. Thanks, a lot George Thats helpful. Thank you.

Thank you Michael.

Thank you.

This time I would like to turn the call back over to Tim for closing remarks.

Great. Thank you and thanks, everybody for joining the call today.

We'll be on the road.

And a number of conferences over this next quarter can find all those details on our IR website.

So we do look forward to seeing you do on the road and thank you again for your interest in the ECB have a great evening. Thank.

Thanks, so much.

Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the ACB first quarter conference call.

During todays presentation, all parties will be in and only mode.

Following the presentation.

The call will be opened for questions.

I would now like to turn the call over to Tim Fox ACB, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining Acb's conference call to discuss our first quarter financial results.

With me on the call today are George Sherman, Chief Executive Officer, and Bill's Irrelevance 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, which can be found on our investor Relations website.

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

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.

Thank you for joining us.

We delivered solid top line results above our guidance range. Despite the persistent supply constraints Wang on the automotive industry.

And softening retail demand for used vehicles.

We delivered EBITDA within our guidance range, while continuing to invest in key growth expansion and technology initiatives.

We continue to broaden and deepen our relationships with our dealer partners to underpin our long term growth opportunity.

Automotive dealer space, the macro challenges I referenced earlier that they have.

Proven to be resilient and are a critical part of the automotive ecosystem.

Dealers have also embrace digital transformation <unk> is increasingly well positioned to enable them to improve their ability to source manage and sell vehicles with greater transparency and efficiency.

With that let me turn to the first quarter highlights on slide four.

Our market momentum continued in the first quarter with revenue of $103 million growth, 49% year over year.

We transacted to $4 billion of DMV growth of 83% year over year.

We sold 140000 vehicles on our digital marketplace.

A 9% increase year over year, and an increase of 70% on a two year basis.

Overall, we are very pleased with strong execution by the ATT and continued customer adoption of our growing suite of services.

Turning to slide five.

To frame the rest of our discussion today.

We will focus on the three pillars of our strategy to drive long term shareholder value.

Growth.

Innovation.

GAAP.

I will begin with growth.

Moving to slide seven given the continued headwinds facing the automotive industry.

We are providing context on the dealer wholesale market in relation to the broader automotive retail market.

First I understand the demand side of our market. We provided data on overall used car transaction and wholesale pricing trends.

As you can see in the chart on the left retail sales of used vehicles in Q1 experienced seasonal sequential improvement over Q bar.

<unk> was down about 10% year over year versus very strong performance in Q1 'twenty one.

Consumer demand for used vehicles is a key driver of wholesale demand and supply.

Because consumers purchasing a used vehicle typically have a trade it.

The chart on the right illustrates how the modified consumer demand in Q1 impacted wholesale prices.

After experiencing historically high wholesale prices throughout 2021 prices declined during the first quarter, which does not mirror typical seasonal historical pattern.

Now turning to slide eight.

Let's look at the supply picture.

New vehicle sales remained well below historical averages.

And we're down about 16% year over year in Q1.

Due to the ongoing supply challenges impacting vehicle production.

This is reflected in the chart on the right, which shows that supply of light vehicles at franchise dealerships remained historically low.

New vehicle supply is important to our business.

As consumer trade ins for new purchases are a significant input into the wholesale market.

With new vehicle inventory at these acute level the volume of trade entering the wholesale market has declined.

<unk> in a near term traction in the market we serve.

While the exact timing for supply to return to historic metrics may be unclear.

What is clear is that our our ongoing investment in growth and differentiated product positioning <unk> to benefit from the resulting recovery in the wholesale market.

So what gives us confidence in our strong market position.

Slide nine we have provided additional insight into our business.

The chart shows quarterly listings on our marketplace.

I think our listings as a measure of dealer growth in marketplace adoption.

As you can see listings have grown consistently quarter over quarter.

But the notable assumption at the beginning of the pandemic Q2 2020.

Listings growth moderated in the second half of 'twenty, one as supply pressures mounted in the industry.

However.

Q1, 'twenty two listings recovered nicely growing 37% year over year.

Reflecting strong execution on territory expansion dealer penetration and wallet share growth, including higher price segment of vehicles.

This is also a reflection of the changing sentiment as dealers are increasingly becoming more willing to wholesales yet.

In the figure on the right we've provided the quarterly variance in the marketplace convergence.

There are three key takeaways.

First pre Covid, you can see that conversion rates in our marketplace were quite consistent.

<unk> just a few percentage points from the average.

Second once COVID-19 hit.

<unk> rates significantly increase driven by the supply demand wholesale pricing factors I covered earlier.

Third as I mentioned vehicle prices began to decline in Q1, 'twenty, two resulting in incrementally cautious buying behavior.

Rather softening of conversion rates back to normal pre COVID-19 levels.

For context, the year over year change in conversion rates in Q1, 'twenty two with a 30000 unit headwind versus Q1 'twenty one.

We believe conversion rates on our platform will increase in the future as we continue to invest in our data products to help dealers manage price expectation.

Obviously, the historically high conversion rate, we and the industry experienced last year benefited from the macro environment.

But it's important context, when assessing our year over year unit growth.

Turning to slide 10.

You can see that units grew 9% year over year compared to 55% unit growth Q1, 'twenty, two and 70% unit growth and a two year basis.

And despite softening wholesale prices.

<unk> grew 83% to $2 4 billion.

Resulting from a broader mix of vehicles on our marketplace.

Moving on to slide 11.

Based on our internal analysis, we estimate that the U S. Wholesale can from retail dealers was flattish quarter over quarter.

Our contracted around 18% year over year.

So despite ongoing industry headwinds we continue to.

Gain market share and attract new dealers to our market.

Given our 9% year over year unit growth in Q1.

And an estimated market contraction of 18%.

This would imply ACB grew market share by 27% year over year.

Next I would like to wrap up the growth section with highlights on our value added services.

We continue to invest in the technology and resources at scale, HCV transportation and ACP capital.

These investments are driving strong top line growth by delivering highly differentiated services the market.

I'll also creating efficiency for both our partners and for HCV.

On Slide 12, you can see that ACD transportation continues to deliver strong results and remains a key enabler for attracting new buyers to the platform.

Our growing carrier partner network and fast cycle time resulted in attach rate once again exceeding 50% in Q1 with a number of transfer it's growing 45% year over year.

In Q1 over 50% of our transport for automatically dispatch, which drove more efficiency in our transport operations.

We also just recently launched the ECB carrier Transportation Act, which is a digital tool for carriers to efficiently manage their vehicle pickup and delivery.

Technologies like auto dispatch and the carrier App help attract new carriers to our transfer marketplace and drive efficiency, which is an important element of <unk> overall margin expansion strategy.

Turning now to slide 13.

We are pleased with the execution and our ACD capital business.

Attach rates and capital have more than doubled year over year, resulting in 140% loan volume growth.

The increased mix of higher priced vehicles transact in our marketplace, along with new <unk> III capital offerings.

And the 50% increase in revenue per loan in Q1.

We are also investing in the technology powering our capital budget.

To drive adoption and improve dealer engagement, which we believe will drive additional wallet share.

The new AC capital online portal clips dealers with a seamless post auction financing Bush.

This enhanced platform aligns with acd's commitment to leveraging technology to deliver easy to use solution and transparency for our dealer partners.

We will further enable <unk> capital to be an important growth and profit driver going forward.

Turning to the second element of our strategy to drive long term shareholder value <unk>.

Innovation.

Now to slide 15.

I'd like to highlight the innovation, we're delivering to enable our dealer partners to drive numerous first inventory.

<unk> was our first offering in this category that contributed to our strong unit growth in 'twenty, one and continues to be a unique and effective way for consumers to sell their vehicles and acb's marketplace.

Our dealer partners.

<unk> once again contributed a high single digit percentage of our units in Q1 2010.

<unk> is just the beginning.

With the acquisitions of <unk> months Max digital.

We are able to create a more comprehensive solution for our dealers on the consumer acquisition costs, which we believe will increase our wallet share of dealer wholesale.

<unk> provides seamless consumer buying experience.

And is powered by the ACB pricing.

Which is our condition adjusted machine learning model for vehicle valuation.

This integrated appraisal tool provides an end to end experience or selling a consumer's costs.

Our ability to deliver trusted vehicle valuation.

Because of our expansive proprietary data enables dealers to provide attractive offers to their consumers.

Which means sourcing more customers for the dealership.

Which in turn drive more wholesale supply.

We also plan to leverage months, AI, driven imaging technology to enable consumers to do a self inspection right from their own mobile device.

Which will further inform the price dealers can offer consumers.

We are in the early stages of launching dealers on this new platform and we are very excited about consumer sourcing and attractive Tam expansion and wallet share opportunity for HCV.

Moving to slide 16.

We are very pleased with the market traction, we're seeing with our Max digital path and data enabled.

And the synergies created by the ACD Max combination.

<unk> combination so powerful Max is a significant volume of data and suite of services from our long history in retail automotive.

ACB has amassed a huge volume of data and wholesale automotive.

Urging all of that data and intelligence together creates insights for our dealers that will help power both Max and all these new products.

Leveraging our growing moat of dealer retail and wholesale data, we can make recommendations that are localized and personal lines for a particular deal.

The ability to drive dealer specific insights is key as it drives better outcome for both the retail and wholesale side of the business.

Moving to slide 17 I.

I am pleased to share an update to our advanced biofuel.

Including the previously shared programmatic buying Keith.

We are about to increase our go to market presence.

Including the introduction of our brand initiatives.

These tools will now be offered under the brand <unk>.

<unk>.

An acronym for smart acquisition manage it.

Thanks to Sam buying an ACB has never been easier.

Creating specific and relevant notification.

As well as powering intelligent auto bidding.

Sam brings broad and persistent demand for the platform.

Complementing our marketplace and driving price realization and.

And conversion for our sellers.

And Sam also informs our algorithms and pricing engine to help dealers understand vehicle pricing.

Sam it's already contributing over 5% of our quarterly unit volume.

And we believe it will be a big growth driver for us as we expand its use cases and capabilities.

Simply put every dealer needs that.

So to wrap up on innovation, we are very excited about our growing suite of data enabled solutions and technology roadmap that expands our competitive moat.

<unk>, even more value for our dealer partners.

And drive sustainable long term growth.

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're pleased with our Q1 financial performance.

We delivered upside to our revenue guidance with adjusted EBITDA within our guidance range. Despite the challenging macro factors George outlined earlier on the call.

Turning to slide 19, I will begin with a review of our first quarter results.

Revenue of $103 million was above the high end of guidance and generated year over year growth of 49% versus strong results in Q1 'twenty one.

Adjusted EBITDA loss of $18 million or 17, 5% of revenue.

Within our guidance range, but as I will detail later was negatively impacted by the cost of revenue headwinds.

Turning to slide 20, I will cover some additional detail on revenue.

Note that we are providing revenue by product line that aligns with our analyst day presentation. As we believe this provides investors with more fidelity into our business trends.

Total revenue of $103 million represented 56% CAGR since Q1 'twenty.

Auction and assurance revenue, which was 57% of total revenue grew 31% year over year.

<unk> auction unit growth and strong auction and assurance of our peers.

The year over year growth in <unk> of 36% was driven by higher <unk> due to the strong mix of vehicles sold on our platform and the pricing increase we instituted last December .

Marketplace services revenue, which was 35% of total revenue had impressive growth of 87% year over year.

Reflecting the strong adoption of transport and capital that George outlined earlier.

Our SaaS and data services products comprised 8% of total revenue and had very strong growth of 72% year over year, primarily reflecting revenue from the Max digital acquisition.

Turning now to slide 21, I will review costs in the quarter.

Cost of revenue as a percentage of revenue increased approximately 300 basis points year over year and was above our expectation.

The increase was driven by two factors.

First due to the softening market conditions in Q1 that George described we increased our incentives to help our dealer partners acquired vehicles.

While still delivering on our EBITDA guidance.

As market conditions improve and buyer and seller expectations converge, we will pull back on these incentives and expect less of a headwind in Q2.

The second factor impacting cost of revenue was arbitration costs.

While rising inflation has increased cost for automotive parts and labor. We were also more liberal arbitration practices.

We acquired this approach of bearing degrees during market shifts, but do so while staying within our cost envelope at achieving our EBITDA guidance.

We will obviously can't control inflationary pressures, we are taking steps to mitigate the overall impact on our business.

From an operating cost perspective results in Q1 were positive as we increased our leverage by approximately 300 basis points offsetting the cost of revenue pressures.

Okay.

Moving to slide 22, let me provide further context on our investment strategy operating leverage our path to profitability.

As we outlined at our analyst day, 2022 is a year of investment invest.

Investment in growth and in the technology to extend our competitive moat.

However, we remain committed to driving profitable growth and expect our EBITDA margin to be flat year over year. Despite a 28% increase in operating expense.

We also remain committed to achieving EBITDA breakeven exiting 2023.

Based on our outlook for the balance of 2022, we believe that Q1 will represent the peak EBITDA last quarter.

Next I'll highlight our strong capital structure on slide 23.

We ended Q1 with $564 million in cash and equivalents in marketable securities of $152 million, which reflects the auction marketplace.

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 Q1 with $60 million of long term debt to finance our rapidly growing the capital business.

Moving away from financing this business off our balance sheet due to the significant growth of our portfolio.

Now I will turn to guidance on slide 24.

The second quarter of 2022, we are expecting revenue in the range of $190 million to $112 million a growth rate of 12% to 15% year over year.

To put this revenue growth into context, it's important to remember that Q2, 'twenty, one with a very strong quarter with 117% revenue growth.

On a two year basis, our Q2 'twenty two revenue growth is expected to be 146%.

Adjusted EBITDA is expected to be a loss in the range of $16 million to $17 million.

For the full year of 2022, we are raising the low end of revenue guidance and now expect a range of $452 million to $460 million a growth rate of 26% to 28% year over year.

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

Let me wrap up on slide 25 by reviewing our 2026 financial targets.

We are very pleased with our execution in what has proven to be a very challenging macro environment.

We remain confident in our ability to achieve $1 3 billion of revenue at $325 million of EBITDA in 2026.

And with that let me turn it back to George.

Thanks, Bill before we take your questions, let me summarize.

We are very pleased with our continued strong execution, while navigating through unprecedented times in our industry, we are especially proud of our ACD team at <unk>.

Delivered these results.

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 growth.

We are executing on our territory expansion plan.

Our marketplace offerings are gaining traction in the market and.

And see some very promising growth synergies emerging from our SaaS and data enabled services.

We are delivering an exciting product roadmap that further differentiate ACB and expand our addressable market.

We are on track to generate over $1 billion in revenue with attractive margins through our proven business model that we believe will drive significant shareholder value.

Lastly, we remain committed to continuing to build a world class team to deliver on our goals.

With that I'll turn the call over to the operator to begin the Q&A.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need.

Press Star then one on your telephone.

To withdraw your question press the pound key.

Thats Star one to ask a question we ask that you limit yourself to one question and one follow up.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Rajat Gupta with Jpmorgan. Your line is open.

Great. Thank.

Thanks for taking the questions.

Just the first one.

Some of the recent developments in the industry.

Yes.

Carvana was acquisition of ADESA.

<unk> seen many Oems announce.

They're looking to switch to other platforms and some of them already.

Named Manheim.

Including some of our own survey work suggested that many dealers are also looking for alternatives.

So could you give you a sense of.

What youre seeing on the ground.

Have you already started to capture some of these customers.

It did impact our first quarter results on our second quarter guidance.

A follow up thanks.

Okay.

The air permit so.

We are.

We provided a bunch of data that suggests that.

At the market.

Obviously.

Smaller sort of year over year.

On a quarterly basis, but yet our listings.

<unk> tremendous site.

And so.

Our listing throughout our customer growth is coming from from obviously competitors, so whether it be the one you mentioned or others.

We're taking share.

And we.

When you look at the backdrop of the.

Macro things going on in automotive.

And the data we provided to you all in today's earnings call.

We are providing it for a reason right, it's basically demonstrating to our investors that amongst all of these things going on.

Still out there taking share so.

Sure.

As you mentioned are part of that.

Part of the dealers, we want are probably folks that were using it outside but also other auctions.

And it all sort of contributes to part of our growth.

Alright.

Got it.

Did you see any change in the velocity of those.

Interaction more recently or has it just been steady as you've seen in the past.

In terms of.

Increased customer engagement.

Yes, I don't think we are ready to speak specifically about.

Where we are winning share from today.

I think more broadly I think what we're trying to lean in and suggested yes, we're winning share from a number of competitors.

I think as you all do your research you'll see that.

We're.

It's not only them Theres also others in the industry, where we are more than likely taking share.

Got it great. Thanks for the color.

Maybe one follow up in terms of your staffing levels.

Sectors.

Given what youre seeing in the overall auction industry in general.

Youre, obviously, gaining share but there continues to remain a lot of choppiness in the market.

Are you are you pulling back a little bit versus what you may be talked earlier this year in terms of new staffing levels.

Or are you just continuing to hire drastic position.

Yourself, we're going into the market recovers.

Yes.

Eric.

From a go to market perspective.

We are.

We're really dialed in every month.

Every territory across the country and the number of inspectors were hiring and in generally were trying to hire a couple of months in the event. It sounds like youre hiring a year in advance or two years of that so thanks, Greg.

How our internal processes work.

The territory managers.

They are basically provider their forecast on on the customers are talking to their growth rate.

And then we open up can we open up the hires.

Have something like over 100 Inspector also opened right now that we're recruiting for.

Suggest that we see growth right.

Rob with website Youll see we're hiring we're hiring and where we're hiring for a reason for hiring because the feedback we're getting.

Today is that we.

We believe we're going to need more inspectors right to take on this new things new customers, but we're always managing this growth within our EBIT guidance.

And so we've been extremely disciplined and when you when you take a business like ours and asset like business.

There we can have great controls in place we're investing in people.

But you're investing it.

Within.

Specific metrics that help us make the right decision.

None of this is new to us we've been doing this for a number of years.

Okay.

Got it great. Thanks for the color I'll jump back in queue.

Thanks.

Thank you.

Our next question comes from.

Ali for Gary with Guggenheim Your line is open.

Yes, hi, good afternoon, thanks for taking my questions.

Just your volumes will improve sequentially into the second quarter.

We're trying to use for today.

Stabilized if you would where we're not.

We really that.

And Bill you can lean a little bit more on this as it relates to Q2, but.

The quarter end.

So we think from the quarter started.

Quarter, It started stronger than Q1, but I would say there is a macro reasons why not just one which is like new car sales one theme as dealers.

Going to be less willing to hang on hang on to all of their trade.

So if you look at all the different themes.

New car supply, we certify it is not yet back to where it was obviously, but last year.

New car dealers kept almost everything right they kept everything.

There was so much consumer demand did they cut things that they shouldn't have.

There was even a new term in the industry, we're going to make a car out of this.

Which makes no sense, which means they're going to spend a ton of time on re commissioning an older car. So think theres multiple factors going on right, yes, new car supply has not yet returned back to sort of prior prior levels, but where the current new car and used car T.

Total sales in the trade ins that come as part of those sales.

Give me a little bit more careful.

So those arent going to keep all of the inventory like they were before.

And theyre going to be.

More conscientious that the macro environment has changed so I think those are like a little bit of puts and takes sort of helps you think about the macro environment Bill I don't if you want to add any more to that.

Yes, what I would add is again the backdrop here is some.

Recent data published the retail sales in April were down 13% quarter on quarter and 20% year on year.

So.

There is this dynamic obviously out there in the macro environment that George is referring to but yes.

Yes.

Did see a solid start to two.

Q2.

And recall that we had really strong listings growth in Q1.

37%.

It's continued into Q2, so even though the supply.

<unk> is still very very tight.

We're seeing really strong growth in our marketplace.

And I think for US you couple that with you.

As we think about <unk> going forward and.

A reduction in some of the incentives that we we pass through in Q1.

To see some benefit there as well so so all those kind of combined to to get us to our Q2 revenue guidance and the full year guide as well.

Following all of these fee changes and do you see an opportunity to continue increasing your fees over time.

Where we.

Our price.

<unk> way to continue to take share for both sellers and buyers to feel like they're getting incredible value in HCV and a number of you have heard me talk about this over the years like to me pricing as something where especially in these growth years.

<unk> priced the product, where we've got great unit economics, but price in a way. It's also going to help us just gain a lot more shares on our marketplace and I think we're doing an exceptional job in that way and you will see folks constantly copy us like that will be a norm youre right theres always sort of again as we sort of.

Go up stream as we start to show confidence that we're providing value.

You'll always see that in every marketplace leader position.

Yes.

Great. Thanks George.

Thank you.

Our next question comes from the line of <unk> Khan with <unk> Securities. Your line is open.

Yes, I think about it.

Curious about here.

Xena sourcing.

And it hit it and what's your go to market approach, we're supplying to drive consumer traffic.

And then secondarily on the desk.

Outlook.

What are you baking in in terms of to the expansions.

The high end and the low end of your guide.

So jaime.

I'll do my best to answer your questions.

Because I think I understood your question, but ill.

I'll ask the question and answer so I think on the first one.

On the consumer side of the equation.

Whether it's the Resourcing and what is the go to market there.

We mentioned sort of two parallel go to market efforts, one we continue to leverage <unk> appraisal.

Which is R.

Dealers across the country.

Who are doing events.

They'll have let's say, a saturday event and consumers come in come in an auction their car.

We'll also be at the dealerships to help them with vehicles that the consumers would like to appraise.

So it really doesn't add more resourcing per se, it's just a part of our scheduling our inspectors throughout the week.

It's been part of the playbook from day, one so I don't want to look at that as sort of additional resourcing look at it as like.

Leveraging the Resourcing in any one territory I believe the second question.

Was about more broadly how are we looking at our field expenses when it comes to our sales and inspection team. So.

We already have as part of the plan.

Our territory managers across the country, we look at the U S is.

Around 160 territory, there's about 22 regional sales directors managing these folks. So that's helped us already part of the current spending and plan.

All of that are the inspectors, which goes to.

<unk> question earlier was about the inspectors and their more mature territory. We may have let's say 12, or 14 inspectors and there might be selling over 1000 cars a month and a less.

The mature territory, you might have two or three inspectors may only be selling.

Dozens of 100, Carvana, so so think about that maturity.

As we hire more inspectors.

In the less mature markets.

We're bringing on new dealers.

Which is part of our model here part of our go to market and it's almost more like rinse repeat.

If you look at other sort of analogy of other industry as it is just what we do we go in we bring on a few sellers, we bring on tomorrow salary for higher morning factors and all the cohort data. We gave you when we went public and then recently on our analyst day help you all kind of look at why hiring inspectors.

Our proven plan and with strong unit economics.

Sure.

Thank you.

Yes, certainly thank you.

Thank you. Our next comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks for taking the questions and hope everyone in the team is doing well.

A lot of the supply demand side has already been asked but I wanted to come back at the analyst day, a couple of months ago, you really pull on display a lot of the tech investments youre, making and how that can improve.

Efficiency and productivity on the platform over the medium to long term can you, maybe reframe and revisit some of the investments you see as mission critical in 'twenty, two and 'twenty, three and how investors should be thinking about those investments broadly and tech on the platform is driving mixture of volume and efficiencies over the medium to long term. Thanks guys.

Yes, Thanks, Eric.

I think that's really important so when you look broadly and I'll just start with the inspection side of the business because obviously our brand essence of HCV transparency and trust. So no particular at about let's start with our brand assets.

We have as many folks not necessarily already know about virtual lift in App is two of the great R&D items that are helping dealers get more transparency online, helping us reduce arbitration et cetera. The next one is APAC apex as Iot device that we are we will be more formally announcing.

Throughout the year this year as we go to market now and so we mentioned at analyst day that it was in.

We were just finishing up with that Tech investment is now actually next week going into.

Into the field, where we're going to start getting our early data samples before we broadly say is live we always go into sort of a measured approach, but we're going to be able to not only listen to the engine, but we're going to see vibration, we're going to be able to get to smell and understand whether or not a vehicle has any issues.

The whole factor here on the inspection side.

Digital requires transparency and trust as you see as you all see what happens not only with us but with the initial look at some of our competitors.

Got to get this stuff right.

Dealers want to transact digitally, but they don't want surprises.

And when you.

When you have the right tech there.

Great less friction so that was one big area, we've talked about another big area, we've talked about with the driver really in month month was the south.

Inspection platform, we bought out of Paris, It's an unbelievable way for consumer walk around their car.

Leverage AI to.

To detect any visual.

Challenges with the vehicle that will be integrated with drive I believe for a launch later this year driver Blake is the consumer answering questions it'll be on dealers' websites you saw a couple of examples of that in the slides today.

The whole area of our investment is.

As a player more cars for consumers the average dealer only acquired 8%.

All of their retail transactions.

From consumers or from the curve the large.

Used car retailers are as much as 50% that drives my customers Crazy.

Yes.

Turning to us, saying, we want to buy more cars from consumers and then they'll keep let's say, 40% to 60% of that breakout and then wholesale 40% to 60% with a profit otherwise and they will do that with our tools. So they are asking HCV. We wanted to compete in that area and we are delivering we are bringing the products from customer acquisition consumer acquisition.

When you look at more broadly on the management of your inventory, we launched private marketplace. We now have a number of both public and private automotive dealers now using our private marketplace. So the buying cars from consumers and they are leveraging the private marketplaces aside what's the state what should stay within the group.

What they should wholesale.

And it's our tools, helping them do that with products like Max digital we're taking even a step further and say this specific vehicle you should hope that this one you said retail. This is your margin on the car in a matter of fact this car belongs with desktop not this store and it helps you actually go through and you make your decision. So a simple way because I don't spend the whole call is rather.

It's sourcing the cars managing the cars that are merchandised in the cars.

We are the dealers partner, we are here to help them improve.

Improve and execute in this digital world and that pulls us in to a partnership level that is quite unique.

Great. Thanks for all the color.

Thank you Sir.

Thank you our next <unk> comes from the line of Chris <unk> with Needham Your line is open.

Good afternoon.

A quick question you said you have levers to pull to hit the 2022 revenue guidance, even if the macro stays.

Just to confirm what we're talking about marketplace services SaaS and data services.

Increased penetration there.

Yeah, Hey, Chris.

It's actually less of that and it's more the dynamic between supply.

And used car prices.

Alright, so so that tightens the supply.

The higher prices will remain.

Conversely, as supply improves potentially.

Potentially prices come down even further.

And that dynamic you've got higher units been expected at a lower ARPA. So what we observed several quarters is that these tend to offset each other.

So that's number one number two since we increased our biases in December of last year.

Okay perfect and then are there levers you can pull to drive higher conversion that arent.

<unk> dilutive to gross margin is programmatic part of that because if I'm thinking about it right. It's more of a kind of set my bid and forget it type thing versus someone having a certain feeling around being prices.

Based on what they are feeling in the marketplace is that something that can kind of drive higher conversion.

Yes.

You kind of look at the conversion is maybe two different areas. So one is on the demand side I think youre going with your question is yes.

With products like Sam right Smart acquisition manager it allows a dealer to be more engaged with ACD by putting these automated bids or just getting better alerts and getting more activity on a specific so that's the demand side and there is more than that but we yes, we've got more and more we can do.

To help get.

Infinite amount of demand any one asset, but a big part of this conversion rate.

It's really the expectation of the seller.

So we already have lots of virus.

Jim.

The demand the demand the incremental demand will help.

But the biggest tipping point is how we leverage our data to say to a seller we had eight dealers fighting over here.

Okay.

Another car.

Retail I understand that this vehicle.

<unk> last year right used cars didn't historically.

Sure they are decreasing right and basically to say in a nice way that honeymoon is over.

You're no longer going to see vehicles I appreciate it and our data helps you ask it more and more demand our products within our data helps us understand okay. You had a number of dealers fighting over this one asset you got the market price if you really want to wholesale it.

Versus trying to retail it.

Better now because it's just going to depreciate more next month, so think about our products and our data helped both the supply side and the demand side to help on the execution of conversion.

Okay. Thank you.

Thanks, Chris.

Thank you.

Our next question comes from the line of John <unk> with Jefferies. Your line is open.

Hey, John .

Hey, How's it going thanks for taking my questions.

How.

We should think about conversion rates for the cadence of the year what are some guard rails that we should be thinking about.

So.

Bill do you want to start here.

Kickoff.

I want to make sure.

Howard talking really about from a guidance perspective, but as you kick off and then I'll follow behind it.

Yes, sure So hey, John .

Conversion rates have been coming down.

And based on the charts that we showed in the deck.

You can see.

How far down they've come back closer to the historical norms right. So we certainly saw that happen at the beginning of Q1.

At the end of Q1, they actually bumped up a bit in March.

March is typically a strong month, you do get tax.

Refunds, so we did see an increase in activity.

And there certainly was higher sell through.

In Q2, we're assuming it starts to kind of move back down a bit right.

Closer to historic norms.

So April was it was a pretty strong month for sell through but in our guidance and our our modeling going forward, we're assuming it moderates down a bit through the rest of the quarter.

And then for the rest of the year, we're assuming again for the most part that it's it hovers around the historical norms right. So we're kind of back in a tighter range versus the huge volatility that we saw last year.

Drove.

Huge increases in conversion and huge growth in unit volume. So I would say this is starting to look a little more normalized.

Based on the trends that we're seeing.

And maybe a little bit more color. Thanks, Bill starting in a little more color on that would be behind like broad averages you've got different asps segments.

Like lower priced cars.

We'll have very high conversion rate. They just sell the orders were sort of like I would say just kind of getting rid of them and lower segments had high conversion last year have a little bit lower conversion now, but generally have very high conversion and then these higher priced assets. The one that we decided to really retail or wholesale.

Those are sort of the areas where dealers from the from the seller's perspective.

They are really just trying to decide what do I want to do with this asset to own a cell it turning around our retail and that helps you kind of look at theirs.

There is a deeper story behind conversion then you go okay. What can we do about this right I mentioned earlier, our data can help inform the seller on price guidance I mentioned earlier that on the demand side of things.

Our new products, whether it be Sam whether our marketplace improvements.

R R.

Other products that we have in product development right now to help guide valuation.

Each of these helped guide the seller and the buyers to make the right decision. So they all really sort of work towards conversion, whether you're influencing sort of the supply or the demand side hopefully thats helpful.

Okay, that's very helpful.

Wanted to ask a second one on guidance.

I was playing around a little bit with revenue per unit.

For the cadence of the year and.

At the conclusion that I came to at least Directionally is that full year guidance in the second quarter guidance implies that units increased sequentially.

In each of the back three quarters.

Could you just help at least give us a sense for.

Whether that's directionally the way, we should be thinking about it.

Or if there's kind of any sort of kind of high level Guardrails, you can give around the puts and takes on your guidance. Thanks.

Sure sure.

Yes, so and as you know, we don't guide to units, but I will try to give you.

As much as much color as I can.

We are certainly assuming in our guidance for Q2 that units will will grow.

Quarter on quarter.

Alright, which is what you would expect.

There seem to be staying elevated for potentially longer than we expected since the supply chain issues appear to be such that they will persist through the rest of the year.

So we've kind of modulate our assumptions a bit there, but we are assuming that <unk> will come down.

Over time, so you can.

You can use that as a basis to try to back into a unit assumption.

Understanding this is again not a precise science right as I said earlier right.

We know <unk> and units are correlated to each other so to the extent one is higher and the other is lower and vice versa.

But.

Again, I want to stop short of giving you specific guidance certainly beyond Q2 other than to say that.

We are assuming <unk> comes down a bit as we go through the rest of the year.

I appreciate the color. Thank you.

Okay.

Thank you.

Question comes from the line of Robert <unk> with CJS Securities Your line so.

Hi, Good afternoon, it's John on for Bob Thanks for taking my questions.

You previously identified the off lease market is an area of incremental opportunity but.

But it's looking like there really won't be many off lease vehicles for a pretty long time to come does it change your expansion priorities maybe in international markets first and then go back to the office markets later.

Yes, Dan Thanks for the question so.

Where we've prioritized first I would call it the commercial sector as well.

We've been leaning in and what rental car companies would like from a product.

And rental car companies are an interesting category.

Study that Tam.

They tend to sell vehicles directly to dealers as their primary objective not.

Not all of them, but most of them first tried to sell a car directly to a dealer and then if they can't then they use that physical auction that would be the historical way we've done.

Built out a product strategy that you'll hear us talk about maybe towards the end of this year.

Yes.

We believe we have a great product strategy of FERC rental car companies.

And so we kept that going we don't we're not like.

No.

Think about this is that because the steady machine.

Instead of just looking out of the cyclical things in changing your roadmap too much.

Pretty simple.

Here Youre inspecting a vehicle and providing data to the seller and helping them make informed decisions, whether theyre going to sell it directly to our dealers through our marketplace leverage the data.

So it also helps US now go into a new market, let's say for example, first rental than it might be fleet after that as an example.

Firstly, let's say by the end of next years from now.

Youll see.

The other parts of the commercial market sort of comeback so instead of thinking like we stopped working on those efforts.

We kept going on inspection, we kept going on data services in that area. We're actually about the launch some new capabilities over the next couple of months I think we had we actually one of them launching technically and I think like six to eight weeks.

And and that will go to a part of the commercial task and we will go get a few wins this year.

Okay. Thank you for that color and then second I was wondering if you could give us more color on the programmatic buying.

Maybe how is it performing with the early adopters there.

What's the rate of sign up of new customers that you're seeing right now.

Yes, certainly so I would think dealers are an interesting point.

Youre seeing let's say last year and early this year.

Yes.

Screaming for inventory.

I'm willing to buy anything.

They were so hungry.

I would say programmatic right now is still a big need in the industry.

NSE dealers, a little bit more cautious.

Okay, because some of the other things they may have tried they might've gotten vehicles that were in the condition. They were looking for okay and so.

What we've tried to do is.

As we've gone to market is step people into programmatic, where hey for the first couple of weeks, let us give you a great alert and the platform and then from there you can start to move towards programmatic and it's working.

So think about I think I babysat, especially if they've tried others before trying ours, we really wanted to make sure you can trust our condition you can trust what's going on here so that we're.

We're still in the early days, but we're still in the early days I think.

A few hundred dollars a month or approximately a.

Couple of hundred dealers, a month are sort of coming onto the platform. So think so early days.

Very happy, but haven't even done an internal campaign to my own dealers, yet we didn't have a brand name yet.

The main programmatic is fun to talk about with investors, but not the right word even say to a dealer like so we had a lot of work to do I've mentioned on this call. We're still in the early days in the next sort of month or two months, we will launch our brand, which I always give you guys a little heads up of what we're up to.

And then we'll launch spam and how Sam is going to help you and then I'm, hoping to sort of.

Leverage that tool even more so towards the end of this year going into next year. So that's pretty much all transparent as I can give you at this point.

No. That's helpful. Thank you very much.

Okay.

Thank you.

Our next question is from the line of Daniel.

<unk> with Stephens Your line is open.

Yes. Thanks, good evening guys. Thanks, taking my questions.

Bill I wanted to start on the balance sheet.

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

Respond to the first question.

In terms of M&A targets.

So yes so.

I think the way investors should be thinking about this is we are very committed to managing.

Towards exiting next year at EBITDA breakeven, if not slightly profitable.

That goalpost is not changing as far as we're concerned and we will manage our P&L to hit that.

Again keep in mind, if the supply environment continues to be very challenging that implies that used car prices probably remain somewhat elevated.

I would say the wildcard obviously is the macroeconomic conditions and consumer demand but.

All of that being said, we still feel very confident we can get to our targets in terms of EBITDA breakeven by the end of next year and there are other levers obviously in terms of opex growth and the like.

We could potentially modify as we go along depending upon how things play out so I wouldn't think of us necessarily backing off of that commitment.

And then George on your first question, yes, So obviously our balance sheet is strong.

Our balance sheet is strong.

We've got a great business here, we've got great unit economics.

And to your question on M&A.

Always we're always reviewing the market.

And you're seeing us be.

<unk> be a great steward of this capital we brought in some great products, we're extending the value added capabilities.

And how we go to market.

We have a dedicated team who is always looking at assets.

But you also CSB being smart and not rush into anything.

So.

Obviously, I don't really know what else I can say from an M&A perspective, but we're always on this we're always doing our diligence we're always looking at various ways, we can expand.

Our product suite and our go to market.

But I think that's all I can say at this time.

Charity or penetration going in and then really from a sales level, we're kind of operational standpoint. When your sales person is pitching themselves against your digital dealer to dealer peers. I mean, what are the points of differentiation you highlight to dealers on the ground.

Yeah sure Dan So we.

We started our journey.

With different dealers and sort of different ways. Okay. So we might start with the dealer for example, where.

Please start their journey using lateral appraisal.

We don't yet replace let's say, a physical auction or whoever either current or the incumbent auction company as well.

We may start with that product and when we start with that product, we might only be getting let's say.

Three or four or five cars, a month being sold on ACB and they might Q3 or four but we started our journey. We've begun our partnership we may start our journey with Max Digital we may start our journey with driver, but we may start our journey with selling higher end cars in that lower end cars. We may start our journeys on lower end cars, but not higher end cars.

And so each one of these dealer relationships.

They start out with a relationship with a used car manager for the dealer principle.

With a dealer group for example, a large group our relationship might start with a rooftop by the group growing with HCV for private marketplace.

Theyre exchanging Carter's is the <unk>.

As a group and then we're starting our journey by saying, Hey, you're using US right now for <unk>.

For private marketplace, let's look at how we can help either buying more cars or sell more cars.

So so we have different ways. We start our differentiation is we believe we have the number one condition report and inspection process with World class technology. The best team in the industry with David have support how these dealers can make the right sufficient so that's an area of differentiation.

Step backs all of this.

And then we've got at the end of the day. These different products that are customized on whether it's a dealer group whether its a single store that helps them achieve their goals.

Got it that's helpful Best of luck.

Thank you. Thank you.

Thank you, ladies and gentlemen, due to the interest of time. Our final question comes from the line of Michael Graham with Canaccord. Your line is now open.

Yes.

Hey, Michael.

Yes.

Squeezing me in here.

Just two quick ones one is on the.

Could you just comment on how promotional you were at with some of the selling dealers and you're.

And your newer newer territories versus your older territories, and just how youre thinking about that.

And I just wanted to ask you it seems like.

The new card market coming back is definitely sort of like a precursor to some of these model normalization trends that you are anticipating and I'm just wondering.

If that's true and what do you see as sort of the lag.

Necessarily when the used car market is going to or the new car market is going to come back because it is hard to predict but what sort of a time lag between when that happens and when you start to see some of these other model dynamics unfolding.

So hey, Michael its <unk>.

Sure.

And the <unk>.

The other side.

We we try.

Many thanks, and I think if there's one thing going on here. So for example, we will take our sellers through sort of volume commitment is an example of the type of incentives we made in let's.

Let's say for example were only getting 10 cars, a month and there might be 10, or 20 cars going to a competitor or incentive might be hey, do mark higher so that will give you. An example of one type of incentive program.

Whether it be by the way in a mature market or a less mature those types of things that always kind of at a high level part of the model.

Another type of incentive would be.

Specific transaction base of saying, Okay, let's move this car.

And as we move this car right now will make five or $10 whatever it is reduction and do something like that.

Moving specific vehicles, so think some of these or more.

I would say run as a program.

<unk> again, our strong unit economics and position and in some of these are more.

We're trying to not just specific deal or along to help them with their decision, making like hey come on we got we got your seven buyers. We did all of this so let's move this along and maybe give him a little other incentives. So Michael I was like I'm trying to frame it a little less about just like the new markets with some mature markets I would say, it's a little bit more.

Programmatic than that in our in our approach, where we have a bunch of intelligence and the things we're doing and just part of the overall plan.

And all part of our EBITDA guidance. So as you can see no matter, what's going on cost over here costs over here.

Bill runs a pretty tight ship around here a basically it gives the team alright areas where.

Here's what you can do.

And and.

And we've got that discipline that that discipline to go out and grow.

Hit the numbers, where we are.

Basically telling you all but do it within an EBITDA range.

I'm really proud of that and so yes, there is some of that going on behind the scenes but.

Those types of things are new we've been doing that for years, it's sort of just part of our operating plan Michael The second question was.

Remind me.

Yes.

Sorry accumulate.

I was just wondering like.

When when the new car market comes back how long.

Much time Elapses do you think until.

The wholesale used market comes back and starts to heavier model unfolding.

That you are talking about with units coming out and pricing coming down and things like that like what's the time lag there.

So we're.

Yes.

But I believe this is going to be a sort of iterative.

I believe one of the things, we shared Tim but I'm not sure we shared and as I said, we had a 4% gain quarter over quarter and listings that we share that.

We didn't share it in the slides, but I just shared it okay. So we had a 4% quarter over quarter look at this as I got.

Again in sort of listing sort of on a per dealer basis, Okay and micro that to me is an example.

That's not a huge number right, 4%, but it all it all adds up I just like the fact that it's more not less meaning we are starting to see a trend now.

We're starting to see a trend of a dealer willing to wholesale a little bit more before all that supplies even come back.

Michael <unk>.

Not like this right.

This.

Upheld climb all at once like this one quarter.

Im sorry.

Dealers are going to be.

Taken trades.

Smarter.

Theyre going to know inventories coming they're going to keep the ones they should retail.

And there is a wholesale the ones they should be wholesaler.

And and and no different than what the largest used car marketplace. This year. If you look at some of the largest used car market places base retail so on the wholesale side right. So once they get enough supply they make the right wholesale this shifts so Michael hopefully that helps but I look at us more iterative throughout the year that as supply starts to change as <unk>.

<unk> demand.

Changes franchise dealers will make the right decisions on what's your retail whats the wholesale.

Okay. Thanks, a lot George Thats helpful. Thank you.

Thank you Michael.

Thank you.

This time I would like to turn the call back over to Tim for closing remarks.

Great. Thank you and thanks, everybody for joining the call today.

We'll be on the road.

A number of conferences over this next quarter you can find all those details on our IR website.

So we do look forward to seeing you do on the road and thank you again for your interest in the ECB have a great evening. Thanks.

Thanks, so much.

Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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