Q1 2023 ACV Auctions Inc Earnings Call
Speaker 1: You have T follow.
Speaker 2: Good day and thank you for standing by. Welcome to the ACV first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speakers presentation there will be a question and answer session to ask a question there in a session you'll need to press star 1-1 on your telephone.
Speaker 2: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Fox, Vice President of Investor Relations.
Speaker 3: Thank you, operator. Good afternoon, and thank you for joining HB's conference call to discuss our first quarter of 2023 financial results. Let me be on the call today, our George Ramon, Chief Executive Officer, and Bill Zarella, Chief Financial Officer.
Speaker 3: Before we get started, please note that today's comments include forward-looking statements, regarding future financial guidance.
Speaker 3: 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. Please note that this is a valuation analysis.
Speaker 3: A discussion of the risks and uncertainties related to our business can be found in our SAC filings and in today's press release, both of which can be found on our investor relations website.
Speaker 3: During this call, we will discuss both GAAP and non-GAAP financial measures.
Speaker 3: A reconciliation of gap to non- GAAP financial measures is provided in today's Ernie's materials, which can also be found in our investor relations website. And with that, let me turn the call over to George.
Speaker 4: Thanks, Tim. Good afternoon, everyone, and thank you for joining us.
Speaker 4: We are very pleased, the strong start of the year, highlighted by a number of record achievements in the quarter.
Speaker 4: This includes record revenue, which was well above the high end of our guidance range.
Speaker 4: record ACV capital attach rates, and record margins in ACV transport.
Speaker 4: But we benefited from positive market talent in the quarter. It was continued execution by the AECB team. It drove market share games, while also delivering to the bottom line. Looking at the balance of 2023, we expect the industry had to experience for the past two years.
Speaker 4: to continue to moderate, while remaining focused on growing market share, expanding our technology mode and driving scale to deliver on our adjusted EBITDA targets.
Speaker 4: With that, let's turn to a brief recap of first quarter 2023 results on slide 4. First quarter revenue of $120 million was $10 million above the high end of guidance.
Speaker 4: resulting in 16% growth year over year. GMV of $2.4 billion was flat year over year, with solid unit growth in the quarter offsetting an 8% decrease in GMV per unit.
Speaker 4: as wholesale vehicle prices decrease from historical highs in the first half of 2022.
Speaker 4: We sold 152,000 vehicles in our marketplace.
Speaker 4: which was 21% sequential growth from last quarter and 8% growth year-over-year, which exceeded our expectations due to continued market share gains and conversion rates improving from low levels of the experience in the back half of last year.
Speaker 4: On 5-5, help frame the rest of today's discussion around the three pillars of our strategy to drive long-term shareholder value.
Speaker 4: Growth, innovation, and scale.
Speaker 4: I'll begin with Rob.
Speaker 4: On slide 7, we're again providing context on the dealer wholesale market in relation to the broader automotive market.
Speaker 4: In 21, new light vehicles are increased 8% year over year, which is the third quarter in a row of growth.
Speaker 4: Of course, SAR is still running about 12% below pre-pandemic levels.
Speaker 4: But inventory are slowly building, which is key to a more robust recovery in retail sales. Use vehicle retail sales increase quarter or quartering Q1. But we're down in the mid single digits year-to-year.
Speaker 4: and the portability issues impacted demand and segments of the use vehicle market.
Speaker 4: Combined, new plus used retail sales increase modestly year over year, which is a positive sign for supply in the wholesale market. As I mentioned earlier.
Speaker 4: Conversion rates bounce back in Q1 as wholesale price depreciation normalizes. And we have two conversion rates that will normalize throughout the year.
Speaker 4: On balance, I think it's fair to say that end market conditions are showing some early signs of improvement.
Speaker 4: giving us confidence to raise guidance for the year, which Phil will take you through later.
Speaker 4: Turning out a Friday, we estimate that the U.S. dealer wholesale market continues to remain below normalize volume. We'll show a nice sequential improvement in the seasonally strong first quarter.
Speaker 4: We remain focused on executing against our key growth initiatives in gaining market share. Given our 8% year-over-year unit growth and an estimated market contraction of 11%, this implies the ACB Group market share by approximately 19% in Q1.
Speaker 4: Next, I would like to wrap up the growth section with highlights on our value-added services. On slide 9, I'm pleased to share that A2 Transportation delivered another impressive quarter and continues to scale ahead of schedule.
Speaker 4: given that ACV transport was break-even a year ago.
Speaker 4: As a reminder, our current 2026 financial target assumes transport revenue margins of 15%. Much of the With a new
Speaker 4: So, we managed to achieve this target three years ahead of plan.
Speaker 4: We managed to achieve this target three years ahead of plan. 20 to 5 times.
Speaker 4: Our AC capital team also delivered great Q1 results. Capital attach rates exceeded 10% for the first time.
Speaker 4: driving over 85% loan volume growth.
Speaker 4: Combined with our approved expansion, the result is over 100% revenue growth.
Speaker 4: We have continued to ramp our investments to drive dealer engagement and scale to ensure that AC capital is an important growth and profit driver going forward.
Speaker 4: Turning to the second element of our strategy to drive long-term shareholder value, innovation. On slide 12, I'd like to highlight a few of our growth-oriented product innovations that help contribute to our strong Q1 results.
Speaker 4: Tuer is a focus for dealer acquisition and conversion rates. On a dealer acquisition front, solutions like private marketplaces, and consumer sourcing tools like drivingly a month, or key to attracting new dealers to these marketplaces. This is especially true with large dealer groups.
Speaker 4: which continue to be a attractive source of Nutila partners.
Speaker 4: Next, we expanded several capabilities to enhance conversion rates.
Speaker 4: including new auction formats and pricing intelligence.
Speaker 4: As you know, ACV's traditional format is a 20-minute live option.
Speaker 4: As you know, ACV's traditional format is a 20-minute live option, which has experienced broad market adoption.
Speaker 4: Based on Gila feedback, we began testing new formats and the results were very encouraging, especially on higher end vehicles.
Speaker 4: We will continue to invest in testing.
Speaker 4: enabling us to continuously optimize auction formats for different types of vehicles.
Speaker 4: Additional innovation in the Alignard Road is our pricing engine.
Speaker 4: Additional innovation enabling our growth is our pricing engine powered by machine learning.
Speaker 4: leveraging both our industry-leading vehicle condition data and a growing curated automotive data set.
Speaker 4: This innovation is leading to better guidance for our dual partners.
Speaker 4: For the past year, we've expanded the price blank coverage.
Speaker 4: Last year, we've expanded the price point coverage and its use cases.
Speaker 4: creating a broader range of guidance for our dealer price. The AT pricing engine outpowers several ACB products.
Speaker 4: including H-to-D options marketing report, consumer tools such as Drivably, and elements of Max Digital.
Speaker 4: On slide 13 are examples of tech investments that extend into our operations.
Speaker 4: On slide 13 are examples of tech investments that extend into our operations, delivering customer success while reducing costs. On slide 14 are examples of tech investments that extend into our operations,
Speaker 4: In Q1, our costs are revenue decline year over year despite delivering 16% revenue growth.
Speaker 4: As I mentioned earlier, ACV transport was a key contributor to these results. We also benefited from lower arbitration frequency, which reflects ACV's investment in technology and inspector training.
Speaker 4: Several innovations that are improving inspection accuracy and efficiency are APEX.
Speaker 4: Several innovations that are improving inspection accuracy and efficiency are APEX, Co-Pilot, and ARPGUARD.
Speaker 4: Our next-term collection device, APEC, delivers significantly higher transparency into vehicles operating conditions.
Speaker 4: predictive analytics, and sensor data to inform our BCIs on vehicle-specific issues before and after conducting an infection.
Speaker 4: Again, driving inspector accuracy and efficiency.
Speaker 4: To wrap up on innovation, I think you'll create that our team is delivering industry-leading technology to the market and our own operations.
Speaker 4: We have an exciting roadmap of innovation to drive both growth and scale.
Speaker 4: And we look forward to providing more detail at our analyst day in June .
Speaker 4: With that, let me hand 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 very pleased with our Q1 financial performance.
Speaker 3: We delivered record revenue above our guidance range with upside to adjusted EVA.
Speaker 3: We also demonstrated the strength of our business model with meaningful revenue margin and adjusted even a margin expansion versus 2122.
Speaker 3: Turning to slide 15, I'll begin with the review of our first quarter result. Revenue of 120 million was above the high end of our guidance range, and grew to 16% year over year, compared to the strong results in Q1-22.
Speaker 3: adjusted even a loss of 6 million, also feed our guidance range, and even a margin improved approximately 1200 basis points versus 2122, demonstrating the attractive operating leverage in our model.
Speaker 3: Next on slide 16, I will cover additional revenue details.
Speaker 3: Total revenue of $120 million represented a 32% pay growth from Q1-21. Option and assurance revenue, which was 57% of total revenue, increased 17% year-over-year versus strong results from Q1-22.
Speaker 3: This revenue performance reflects 8% year-over-year unit growth and record auction at Assurance ARPU of $454, benefiting from our fee increase last October .
Speaker 3: Marketplace Services revenue, which was 36% of total revenue, also increased 17% year over year.
Speaker 3: Results were driven by strong performance in both ACV transport and ACV tassel.
Speaker 3: Our SAS and Data Services products comprise 7% of total revenue and grew 2% year over year.
Speaker 3: As I mentioned last quarter, we are taking a more measured approach to customer acquisition, while we make significant improvements to the MAX digital platform.
Speaker 3: positioning ourselves for re-acceleration of growth entering 2024.
Speaker 3: Turning now to slide 17, I will review costs in the quarter.
Speaker 3: The wind cost of revenue with a percentage of revenue decreased approximately 900 basis points year over year. The improvement was driven by both strong auction and assurance results and by ACV transport.
Speaker 3: As George mentioned, we achieved our 2026 transport revenue margin target in Q1, three years ahead of schedule.
Speaker 3: non-GAAP operating expense, including cost of revenue, increased 9% year-over-year in Q1 versus 42% year-over-year growth in Q122.
Speaker 3: This reflects the significant investments we made in prior years to support market expansion and technology initiatives.
Speaker 3: and reflects our continued focus on expense discipline as we optimize and scale our business. Moving to slide 18, let me frame our investment strategy and path to profitability.
Speaker 3: Our focus on spending discipline and operating efficiency is expected to result in a material decrease in op-x growth in 2023.
Speaker 3: And as you've seen reflected in our Q1 results, we have accomplished this while preserving our go-to-market and technology investments to ensure ACV is in a strong position as market conditions improve. that I does however require ACV CBD and C Films toUTE the next generation of hydrocarbons
Speaker 3: Next, I will highlight our strong capital structure on Flight 19.
Speaker 3: We ended 2-1 with $526 million in cash and equivalents and marketable securities.
Speaker 3: and 96 million of long-term debt to finance the growth of ACP capital.
Speaker 3: Note that our Q1 cash balance includes $188 million of float in our auction business.
Speaker 3: As we discussed previously, the amount of float on our balance sheet can fluctuate meaningfully based on business trends in the final two weeks of each quarter and has a corresponding impact on operating cash flow.
Speaker 3: In Q1 cash flow from operations with 43 million driven by the sequential increase in flow and with a significant improvement from the $31 million loss in Q1.22.
Speaker 3: Now we'll turn to guidance on flight 20. For the second quarter of 2023, we are expecting revenue in the range of 117 to 120 million.
Speaker 3: And I just could even expect it to be a loss in the range of 8 to 10 million.
Speaker 3: For the full year 2023, we are raising our expected revenue to a range of $468 to $478 million.
Speaker 3: representing growth of 11 to 13 percent year over year. Adjusted EBITDA is expected to be lost in the range of 27 to 32 million, an improvement of nearly 50 percent versus 2022. And we remain committed to achieving Adjusted EBITDA breakeven exiting this year.
Speaker 3: As it relates to our guidance, we are assuming that new vehicle supply remains constrained in the near term. It improves as production and inventory continue to recover throughout the year.
Speaker 3: We're also assuming that conversion rates normalize throughout the year as wholesale price appreciation moderate.
Speaker 3: We are very pleased with our execution in a challenging macro environment, and we remain confident in our ability to achieve $1.3 billion of revenue and $325 million of adjusted EBITDA in 2026. We are very pleased with our execution in a challenging macro environment, and we remain
Speaker 3: with our execution in a challenging macro environment, and we will remain confident in our ability to achieve $1.3 billion of revenue and $325 million of adjusted EBITDA in 2026, with 25% adjusted EBITDA margin.
Speaker 3: Our confidence is reinforced by a number of factors, including strong dealer penetration and increased wallet share resulting in sustained market share gains. Opportunities to expand our TAM into adjacent markets, including commercial wholesale. Our broad technology platform.
Speaker 3: enabling durable long-term growth and operating efficiency, consistent improvement in revenue margins, and a commitment to balancing growth and investment as our business skills.
Speaker 3: We look forward to providing you with the details on our long-term targets at our upcoming analyst thing on June 1.
Speaker 3: you with the details on our long-term targets at our upcoming Adderley Stay on June 1st. And with that, let me turn it back to George.
Speaker 4: We are especially proud of our ACD teammates that delivered these results.
Speaker 4: We continue to gain market share by attracting new dealers to our marketplace.
Speaker 4: and by gaining wallet share, which positions ACV for attractive growth as market commissions improve.
Speaker 4: We are executing on our territory penetration plan and gaining traction with an expanding suite of offerings. We are delivering an exciting product roadmap to further differentiate ACV and expand our addressable market.
Speaker 4: We are on track to achieve our near-term adjusted EVA to Target and, over the medium term, generate over $1 billion in revenue with attractive margins that we believe will drive significant shareholder value.
Speaker 4: We are committed to achieving these results while building a world-class team to deliver on our goals.
Speaker 2: With that, I'll turn the call over to the operator to begin the Q&A. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker 2: Our first question comes from Daniel Imbrough with Stevens, you may proceed.
Speaker 5: Hey, good evening guys and congrats to the quarter Daniel.
Speaker 5: Do you want to start on the volume growth? Up 8 market was down double digits. When we look at that out performance, is that growth coming more from new dealerships added or are you making progress on that vehicles per rooftop metric you've talked about? And then what are you learning about the cost of growth in terms of incremental investment needed relative to your expectations as you scale? Our alliance at 10000 feet.
Speaker 4: answer the first two and a half bills, kind of answer the third. When you look at our growth, obviously to the overall market that contracted once again, the market contracted 11% in the wholesale side of things.
Speaker 4: We grew 8%. It was both a combination of new customer acquisition. So we saw a new Listers have another impressive quarter for us of new Listers.
Speaker 4: But we're also doing a great job within the wallet share itself, meaning more listings from existing dealers. So I would say, instead of thinking one or the other, it was really both.
Speaker 4: So we had great success in the quarter and I think moving forward, you know between now and 2026
Speaker 4: I think it would be that same drumbeat. It would be just additional lifters and additional wallet share. And obviously, between now and then, the market itself is starting to come back, meaning the size of the whole submarket. But I would say, at a really high level, it was both customer acquisition and expanding wallet share. Bill, if you want to jump on the second part of the question. Hey, Daniel.
Speaker 3: So I would say the way to think about this is kind of this two pieces on the go to market side. So in terms of our field sales organization, we're essentially fully staffed across the country.
Speaker 3: So we can continue to generate more volume there with the existing staff. Really the only incremental cost is us adding inspectors as we continue to kind of add the number of listings on the marketplace. So that's the only variable cost otherwise essentially we're already.
Speaker 5: kind of incurring the cost structure to support our future growth for the rest of the year. Yep, that's great. It's a good update. Thank you. And then I wanted to actually ask my follow-up on the cost take-out side. I think about transportation initiatives and profitability is a good example of some of those tech savings you guys have generated. But can you be quantify?
Speaker 5: where some of those efficiencies or cost savings have been so far and talk about maybe where the cost savings are relative to the 2026 timeline you guys laid out last year. Thanks. So I'll start building, you can go ahead and chime in. I just started to enumerate.
Speaker 4: you know, the big ones.
Speaker 4: Our investments that we in our transportation technology and platform, we look at areas like pricing and intelligence, it allowed us to price our lanes more effectively. So instead of just having to take historical data.
Speaker 4: Two is scale as relates to transport as an example. As you have more scale, you're able to get better pricing from your carrier. So those two things are examples within the area of transport. When you look at areas like utilization of inspectors and our team becoming more efficient,
Speaker 4: investment scenarios like auction format, getting a higher conversion rate, it allowed for us to have better utilization of our resources because increased conversion rate. Then I would also say generally, one way to better have conversion is having better price guidance. When you think about, for example, where technology helps you.
Speaker 4: Convert better is you're walking in and if a car if you know cars and it's best they worth $20,000 And that's them and it's best saying the dealers asking for $24,000. We know we're going to be wasting our time So we now have a pricing engine like a health inform our dealers what these assets are right. So there's many more those are like the ones and
Speaker 4: top of my tongue here, that are areas where we're becoming more efficient. It's also in areas of better title management. We haven't had to really scale up in areas of titles and other parts of our org because that team has become much more efficient in terms of having new tools.
Speaker 4: leveraging AI, where we can now scan these titles, make a bunch of decisions just by scanning them. And so it's many areas of this, Daniel, but those will be the ones sort of top of mind. Yeah, I would just add a couple of other points, Daniel. So first on transport, 80% of our dispatches this past quarter were automated.
Speaker 3: So, no human intervention. That's just another example. We've talked about that in the past in terms of how we're using technology to basically become more efficient. The other big driver during the quarter actually were, we were much more effective during the quarter in terms of our arbitration costs. The frequency was better managed by our team.
Speaker 3: And it was material benefit to our overall margins for the quarter. So as we talked about in the past, there's an evidence flow to arbitration. But directionally, we're going to be talking about this more on June 1st at our analyst in terms of driving towards our target model.
Speaker 3: that directly over time we believe we'll be able to more effectively manage our costs, and that'll be a great time. Great. I appreciate all the color of this evening and best of luck going forward.
Speaker 3: we will be able to more effectively manage our costs and that will be increased in markets. Great, appreciate all the color this evening and best of luck going forward. Thank you.
Speaker 6: Thank you.
Speaker 2: Our next question comes from John Colantoni with Jeff Rees. You may proceed.
Speaker 7: Hey, thanks for taking my questions. Wanted to start with conversion rate. In your prepared remarks, you talked about the expectation is for conversion rate to moderate throughout the years, as wholesale depreciation begins to moderate. But when I look at an overall conversion rate...
Speaker 7: looks like they were elevated in January and February and sort of trended back towards 2019 levels in March and April . And I'm curious are you saying your expectation is for conversion rates to remain consistent with 2019 levels for the remainder of the year? Just some clarity on that. And then
Speaker 7: Second question is based on your revenue guidance looks like growth is expected to moderate to low single digits in the second quarter before accelerating to around 10% in the second half Can you give us? Can you sort of help us with?
Speaker 7: the growth cadence of prices and units in the auction segment, along with other revenue sources like capital and transportation. Thanks. Yeah, certainly, John . I'll start, and Bill will go ahead and fill in. So, we're – conversion rates, we're strong, and obviously there's also a seasonality here.
Speaker 4: part of the auction industry, meaning Q1 is typically your strongest quarter when you look at conversion rates. So, we think about our return to normalization over the next few years.
Speaker 4: At least from a forecasting perspective, we'd like to forecast that conversion rates start out higher in Q1 and moderate down. And then we'll see how these world events see if that actually is true or not. But I think that's a prudent thing to assume. And as we start to return to normal.
Speaker 4: Obviously there's a lot of factors on whether or not we'll see it go.
Speaker 4: all the way back down to the, you know, like a historical average we're not, we shall see. But that's at least to be put in what we're expecting. And that's at least, you know, what we would expect in the non-COVID years.
Speaker 4: The second question was about Q2. You know, we're the quarter, you know, to start off in a positive way. I really want to read into this too much either way. It's more of, there's so many moving.
Speaker 4: parts right now in the industry, right, across the volume, new car volume being higher, used car volume looking at Q1, used car sales, retail sales were about 3% lower sort of year over year, obviously quarter over quarter.
Speaker 3: Again, as George said, so Q1 is typically the strongest quarter of the year. And Q2 is also a pretty strong quarter backdrop here, though, is that what we've talked about is we're assuming in the second half of the year supply continues to improve.
Speaker 3: and our market and our TAM continues to recover. And that's kind of the backdrop for our guidance at this point that we're basically assuming Q2 is a good quarter, but it's gonna be subject to supply chain issues and how quickly those resolve over time.
Speaker 3: because that will affect the supply into the wholesale marketplace. So on balance for the year, again, we're raising our overall guidance and growth targets. At this point, we're still early, of course, in the year. So right now, that's the way we think about it.
Speaker 3: And hopefully that helps you understand the backdrop that we're using in terms of our assumptions for growth. Thanks. Appreciate the details.
Speaker 3: helps you understand the backdrop that we're using in terms of our assumptions for growth. Thanks, appreciate the details. Okay, stay tuned.
Speaker 2: with JP Morgan you may proceed.
Speaker 8: Good evening, good afternoon. Thanks for taking the questions.
Speaker 8: compare the prior implied guidance for the second to the fourth quarter.
Speaker 8: It would have equated to somewhere close to like a 20 million UB at the midpoint. And the guidance today, you know, the two key guidance and the rest of the year implies like a 24 million.
Speaker 8: even the last ultimate point. Obviously, smaller numbers in context of the bigger picture, but curious what's the driver there. Anything in the end market that has changed versus what you were thinking prior for the remainder of the year. I know you gave some color out here. Or maybe there's just more cushion you're adding in terms of more spending on some initial.
Speaker 3: are being a little cautious since it's so early in the year. You know, obviously we're still going to be pretty focused in terms of managing our expenses and operating efficiencies. We feel comfortable with this guidance at this point, and we'll see how the year kind of continues to unfold.
Speaker 3: But it's not because that's changed in terms of like, you know, how you thought about the industry in general for the foliar works like three months ago. No, not at all. I mean, we're giving ourselves a little bit of room to potentially make some other investments if we think there's a good ROI. Yeah, and again, as you would expect, there's still a lot of puts and takes this early in the year.
Speaker 3: So we're giving ourselves a little bit of room at this point, but, you know, directionally we're passing the majority of the of the feed for Q1 through to the full year.
Speaker 8: Got it. And then just on the on the non gap op-x guidance, you know, previously your guidance was for it to grow at half the way to revenue for the foyer. Is that is that still the case, you know, with the new revenue guidance as well?
Speaker 6: Yes, yes it is.
Speaker 3: Sorry, I'll jump back in. Hey, Rajat, just a clarification. Don't forget that excludes DNA. Yep, yep, yeah. Excealing cost-receiving and DNA, right?
Speaker 6: Correct. Thank you. Thank you.
Speaker 2: Thank you. Our next question comes from Chris Pierce with Needham & Company. You may proceed.
Speaker 7: How are you doing? On the first one, I want to make sure I heard you right. Longer auction times are helping with higher priced vehicles. I would like to get a sense of what the opportunity is in the higher priced vehicles, how you guys see that opportunity and why that would be the case. Just out of curiosity. Thank you.
Speaker 4: Hey, Chris.
Speaker 4: There's, we're winning market share for higher priced vehicles in several ways. One category would be dealers that use us for private marketplace, they first try to sell their vehicle to stores within their own group. And then if it's not successful, then they launch in our open market.
Speaker 4: base are mix of units on an ACV. So over the last two or years, we've continued to increase.
Speaker 4: And we now have a significant percentage of our vehicles being purchased by franchise dealers in addition to independence.
Speaker 4: So that two hour format versus a 20 minute format allowed for more participants in the higher AST sectors. Where the lower priced cars, let's say a car that was between $3,000 and $15,000, the larger time really didn't make a material difference. It might have helped on the fringes, but not material.
Speaker 4: the higher price vehicles that additional time has made a difference. And look at it, we're still testing. I mean, we tried a 24 hour auction model. We tried a four hour auction. For right now, there's a sweet spot around the two hours. Maybe the two hours goes down to one hour as an example. So don't look at these as like, yeah, a perfect science.
Speaker 4: We are testing a lot. You'll see us keep tweaking. I can imagine a future where there will be a one minute auction.
Speaker 4: There'll be a 20-minute auction, and there'll be a one-hour auction and a two-hour type auction. I don't know if you'll ever need more time than that or not. But you'll basically have the...
Speaker 4: minute auction, there will be a one hour auction and a two hour type auction. I don't know if you'll ever need more time than that or not. You'll basically have these.
Speaker 4: I was going to say, is there a frame where you think your market share is, say, at an industry average price vehicle versus where it is at the entire price vehicle levels? Not today. I don't think we have – if I had it, I would share it. I don't think we have enough data to suggest what our market share is at one ASP versus another just yet. Okay. And just lastly, based on what that record probably is, we are probably out of place here. Hi, Ben C Here it is with the higher excel seats like we were, distinctions and the slightlyapers
Speaker 7: I've been hearing about banks pulling back on floor plans. I'm just curious what that does for the ACV capital opportunity, if this is the right time to go hard to rent floor plan given macro economic conditions, and what makes a dealer that's not taking the floor plan product right now a good candidate for the floor plan product.
Speaker 3: Hey, it's Bill. So what you've seen is some of these regional banks have pulled back on the forefront market. They're mostly smaller players and they primarily service franchise dealerships. Frankly for our business, our prime competition is AFC and Next Gear. Those are the two biggest.
Speaker 3: players in our space. You know look this past quarter we grew our revenue again north of a hundred percent. You know so we're continuing to invest and grow that business as aggressively as we can. That said we are being much more sensitive to risk obviously with the macro economic conditions.
Speaker 3: But even with that, for example, this past quarter, we cut our bad debt expense in half, quarter on quarter. So I think our team is doing a great job in terms of continuing to manage strong growth while also managing our risk. So we're pretty happy and we're gonna continue with that path through the rest of the year.
Speaker 2: Okay, thank you. Thanks, Chris. Thank you. Our next question comes from Bob Lubick with CJS Securities. You may proceed. Hey, Bob. Thanks, and hi, congratulations on a great quarter. Really good stuff. I wanted to talk a little bit about the auction formats, as we've been discussing a little here. Do you have a question about thearrying of ShawnSaid Youth 497, and she's at Iowa choices for $churchwards. She says it works a lot better with the original 2 potassium 2k steel, the refining region of the red.
Speaker 2: use resist that you have a starting point of a follow-up also on auction uh... format
Speaker 4: Yeah, sure. Thanks, Bob. So not to repeat myself, but one is our ability to secure these units. But like in any segment, the more you can secure from a sourcing, in a way more supply.
Speaker 4: the more attention you get from demand. So one is we're starting to secure some of the sourcing. I mentioned some of the tools like Private Marketplace and other products helping us.
Speaker 4: secure, actually get these assets. Number two is related to demand side. Now that several of the large dealer groups use ACV internally for private marketplace to bid on vehicles, it actually brings demand.
Speaker 4: So those tools not only help on supply, but when you go to a product like H3 Private Marketplace to buy cars within a group, they're now there to buy cars in the open market.
Speaker 4: So that's an example where that one product helps us get supply, helps them. And if you look at areas of just generally what I would say themes in the industry is dealers are going to pay more attention to aged vehicles. So whether they're using private marketplace or not.
Speaker 4: you're going to see dealers pay attention to, do I have the right inventory on my lot? Generally, there's still not enough supply, I would say. We're still down about, last quarter, overall supply in dealers' lots was still 20 to 25% lower than 2019 levels. So we're still
Speaker 4: missing supply and dealers lots. Having said that, you may have many dealers will start to age out on any one given vehicle, whether it's a certain ASB class or certain types of vehicles. So several reasons Bob not one that dealers need help in this category. Our product mix has helped us get buyers and sellers.
And we're starting to really become more well known in the category.
I could double down a little bit on inspections as well. When you think about the value of an inspection like ours.
double down a little bit on inspections as well. When you think about the value of an inspection like ours, when you're buying an expensive car,
I would say that our inspection being known as the best condition reporting industry is very helpful. So probably more to come between now and analyst day. We'll probably go a little bit deeper in some of the things we're doing, but hopefully those are some good things to say. You said you had a follow up question.
Oh yeah, no, that was great. And yes, for my follow up, it's really, you talked about, you know, new auction formats from 20 to two, and you said you can envision one or 10 or whatever. What about bid ask marketplaces and how do you think about that? Because, you know, a couple of your competitors, you know, have, you know, multi-day or, you know, just bid ask period out there.
How do you think about that relative to the timed auctions? And does one play better to higher level units, higher cost units, GMV and lower, or just give us a sense there, might you ever experiment or dabble in just a, it asks for three days or something? Yeah, so we, I don't know the exact number.
of private marketplaces we have today. So we have, let's say at least 15, at least 15 private marketplaces today. Each one of those are configured differently. So one of them might be three days, one might be two days, but it's really fascinating. So we're probably supporting 15 different.
format and the private marketplace. And you get to learn from that. And you get to learn, okay, what's working well? We also have other elements like, we've got a run list capability that helps a dealer.
is promote their vehicles before they go live. So look at it more like wherever the industry wants to go, we're gonna be able to support it. The idea of having the most flexible and robust technology platform.
is really the key. You know, not to get too techie here, we can actually change our formats without even doing a code change in our private marketplace. Meaning we can change it from one day, two days, three days. We're that crazy about building the right tech. So, look at wherever the market's going, we're ready. Now, what we did find was we saw no benefit over two hours.
which was interesting. If you were to make a bet on two hours for 12 or 24, you mentioned three days, we saw no benefit. We saw some benefit going from an hour to two hours, but I would say less material. So yeah, going from 20 minutes to more was helpful, but I think...
If I was a gambler right now, I would embed on two or three days. I don't think you need that much time, so I think it's probably somewhere between 20 minutes an hour is all you really need. For some vehicles, two minutes is fine.
Okay, that's super. I appreciate all the detail. Thanks. Thank you. Thank you.
Our next question comes from Eric Sheridan with Goldman Sachs. He may proceed. Thanks so much for taking the questions. Hey everyone, thanks for taking the questions. Maybe two on the costs and margin side of the equation. You know in terms of your broader goal of getting to where you want to get on EBITDA, you know, we're going to see the EBITDA break even towards the end of this year.
can you help us better understand what flex there is or how to think about torque in the business model for different outcomes on the top line versus base case versus how that might shift in a broader economic environment and how to continue to maybe achieve that goal within different bands of outcomes on the top line. And then the second part of the question and not to front-run analyst day but obviously you've got this longer term.
profitability target out there and we think about the incremental margin you'll be exiting the year about Can you help maybe investors get a better sense of how to think about the exit rate of incremental margin this year Against your broader long-term goals on on EBITOP. Thanks so much
Hey Eric, that's Bill. Yeah, first I would start by saying I think our Q1 performance kind of reflects
our ability to manage our cost structure and really improve our revenue margins over time. In fact, this is only the second time that we've reached 50% revenue margins.
with the previous time being before the company was public and when COVID hit and a significant amount of costs were taken out of the business. So that was kind of a normal run rate environment if you will. But frankly I think the team here has just done a phenomenal job both in driving our revenue margin profile.
and managing op-X, but not really just managing op-X in terms of reducing costs, but really optimizing the way we run the VISP, right? You know, and we talked in the past about, you know, a lot of the initiatives that we've undertaken, you know, for example, you know, opening up shop in a little cost geography in India.
Sorry, to ramp those resources much more, you know, allows us that capacity much more cost effectively. We've talked about kind of optimizing and lowering our arbitration costs. We've talked about how our go-to-market engine right now is basically fully staffed. So we'll be able to generate incremental revenue and margin.
without any change in that cost structure whatsoever. A lot of the rest of our costs are kind of more fixed in nature, if you will. But even those costs are subject to really discretion. You know, in terms of whether or not we need or them up, we need or them down or maintain kind of neutrality. So I would say we still feel really good about.
kind of pushing more levers as we go through the year. And we'll talk a little more obviously about how we hit our long-term targets on June 1st in terms of how we see kind of more leverage just continuing to a crew over time as we scale and grow the top line. I think other examples obviously what you've seen, we've hit our transport, margin target, literally three years I had a schedule in 2-1. We've done that during the 30th anniversary of ensemble lovers, we've been tenerly deployed in the last 30 years and was being focused on how to achieve success. Danny Aguls is today at the start, the Lord Ensign vielä. We're receiving family support from the of Professor also. And because in the early course of the year, I have student I particularly also
So, you know, what I guess we're trying to show investors is that we have strong command over our business in terms of our model, how we think about optimizing operations over time. And you know, literally every quarter, it seems that we're kind of layering, you know, another area of improvement that
that we're achieving our targets well in advance of what we committed to investors. So we feel really good. Again, I expect to go through this in a lot more detail at the analyst stage. Hopefully, that gives you a little bit of color and it helps you think about how we will hit those targets exiting this year especially.
Great, really appreciate it Bill and look forward to June 1st. Thanks. Thank you. Thank you. Our next question goes from Ron Josey with City. You may proceed.
Great, thanks for taking the question guys. Hey guys, I wanted to ask a little bit more, George, you mentioned earlier on the call just new listers, new dealers, new listers joining the platform, an impressive quarter I think for you all. And you talked about sort of what's driving overall volume out performance, but for these new listers, can you just help us understand these new listers joining the platform? Is that just broader market improving?
just driving a tailwind, do you want to come on to the site or is this the team is now fully staffed, the sales approach has improved and I know the answer is probably a little bit of both, but I'm trying to understand specifically what's driving new listers on the market place, so it's just broader, greater adoption of these share games that we talked about. That's point number one. And then Bill, I know you just commented to Eric's question on where gross profits could go from here, particularly in the...
we talked about. Thanks guys. Sounds good. Always good questions Ron. So on the dealer acquisition, what you've seen us do to help you all think about dealer acquisition and wallet share, in the past we used a cohort method.
In June , not to like spoil some of my content, Tim's going to kick me in a second, but in June we're going to talk about market share, Ron, and that'll be helpful for you all. It'll be another way for us to think about our dealer acquisition and at a high level think about it how there's some regions where we have lower single digit market share of number of dealers. Keep itENS Weddingplate and
using the platform. And then some dealers, we have significant double digit dealers. And this is simply a matter of how long we're in these regions. You know, the ACV story here, I would say it's been consistent. Those who've been following us, whether for months or for years, this isn't like we woke up this quarter and we're winning Waller share or new listers. It's better.
I would say it's been consistent. We consistently are driving dealers to both a cell and buy in the platform. So I think that's for today. I think we'll leave it there. Maybe Bill, we go to the second question. Yeah. Yeah, so Ron, I will tell you that.
You know, we, what we will discuss June 1st is actually hitting the same target revenue margins of 60% by 2026 that we discussed last year, except the path to get there is going to be a bit different. You know, a few things have changed since since last year, and we've talked about some of those things, but I think you'll find, you know, pretty intriguing in terms of.
some of the new dynamics that we see that allow us to hit that same target just in a little bit of a different way. Okay, we'll see you all in June . Thank you.
that we see that allow us to hit that sink target just in a little bit of a different way. Okay, we'll see you all in June . Thank you.
Thank you.
Our next question comes from Michael Graham with Canaccord. You may proceed.
Yeah, I will not ask a question about June 1st, but I wanted to ask about two things. One is just on the territory expansion cadence that you expect here. What should we be looking at in terms of territory expansion? And no one should be looking at that andinal defence. Is there any bias at all of this?
You mentioned in the prepared remarks I think Bill did about adjacent businesses being a potential contributor to those 2026 growth targets and you mentioned specifically commercial wholesale. So I just wondered if you might expand on that a little bit here as a preview. You said you weren't going to ask any questions that were in quilber in June .
of our 2026 objectives. So, look at this as the, these are my teammates who are out there going out and building the relationships with dealers on the field. In addition to those territory managers, we also have 21 regional sales directors that manage that team. So, we're sat there. We have several vice presidents that then are managing that team. We have a major accounts team.
that they're ready, you know, all these teammates are ready on staff here, ready to keep growing our relationships. We have another team of inside sales that's a pretty good-sized team already today that could, we could be doing a lot more units than we have today with the current inside sales team. So we've invested, we were in shy about building a world-class
team to go after this really large TAM. So yes, there'll be a few more folks, but I would say not material. I'm adding a handful of folks as it relates to, I would generally call field. I would say, we will talk a little bit more about us going after the commercial segment in the June meeting.
We, you might hear about a little bit more hiring in that specific area, you might hear about the new leaders in that area. Yes, that's an area where we're focused a little bit more on. I don't want to spoil our great content. But we do have intentions between now and 26.
growing the amount of business we're getting in the commercial category. All right, thanks so much guys. Yeah, thank you. Thank you. Our next question comes from Nick Jones with JMP Securities. He may proceed. Great, thanks for taking the questions. Hey, how's it going? I'm George Bell.
If I kind of back in, no, it wasn't released. If I kind of back in to auction marketplace revenue per year, it looks like it's stepped up mid-single digits sequentially. So I guess kind of question one, anything to call out there. And then question two, just any update on how you're thinking about pricing on the platform. Thanks. Yeah, hey Nick. Um.
Yes, our auction and assurance are to basically went out about a little more than ten bucks quarter on quarter. It was up about 35 bucks or so year on year. So a lot of that benefit is associated with the fee increase that we did in Q4. Plus we had pretty good mix on the marketplace.
Well, you know, and GMV pre-unit went up quarter on quarter slightly down year on year, but you know Again, that was offset by the by the fee increase so you know, we're in a pretty good place in terms of our fee structure and It's you know healthless drive. You know really strong margins as well that combined with
with the arbitration frequency that I mentioned and how well the team has been managing that. Yeah, I think one of the themes Bill said earlier is that more to come and how we get to the 2026 numbers. Again, not to spoil our content, but I would say you're seeing us confident in the higher ARPU range.
That would be one of the areas as an example of how we get there being different. Not to mention specific, like other people in the marketplace, we look at some of like co-parts revenue per unit. We're still a lot lower than that. Having said that, I feel comfortable on our revenue per unit, like this area we've been in, I think between now and 26.
our poo is an area that could grow. And that's just one theme. It might be, you know, we'll see in any one back to back quarters, we'll see as sometimes GMB is going down and we'll increase price again each year. You know, when you look at it broadly year over year, we're pretty confident in our poo. Right, thanks, George. Thanks, Bill.
an area that could grow. And that's just one thing. It might be, you know, we'll see anyone back to back quarters. We'll see as some HMBs going down and we'll increase price again each year. We'll, you know, when you look at it, but broadly year over year, we're pretty confident in our and our post. Great. Thanks, George. Thanks, Phil. Thank you, Riftew.
Thank you. Our next question comes from Nat Schindler with Bank of America. You may proceed. Hey, Nat. Hey, guys. Hey, thanks. And partially related to the last question, if I look, GMV was flat year over year. And if you look in the Mannheim Index, it's averaging about down 7.5%. So pricing from an average of them.
previous year, so that would be 8% rise in units. Makes perfect sense, right? Dead flat. But revenue was up by 17% in the marketplace side. Obviously there were price increases. You talked about that in dollar terms, $35 on a year-over-year basis. Could you help me do that in percentages and kind of bridge that number so that I can understand how much are you getting more because of just price increasing and how much are you getting because
the 8% unit volume increase. Yeah, hey, Nat. It's actually 8% unit growth and roughly 8% alpha growth. So split, literally 50-50 between the two. So pricing is pretty, your price on an unit basis is about half you're getting from 9% from its trade debt and around that bigger, the bottom point that it has. This France is just
The cost of the vehicle and the impact you're getting from the fact that you're just moving the vehicle this unit So no, no, we were you're asking a question. I think about you know revenue. Yeah, I know but Yes, the 8% unit growth is contributing 8% of the revenue growth Even though the GMR is flat. Correct.
the cost of the vehicle and the impact you're getting from the fact that you're just moving the vehicle, this unit? No, no. You're asking a question, I think, about revenue. Yeah, I know. But if the 8% unit growth is contributing 8% to the revenue growth, even though the GMV is flat, the GMV is flat.
Our GMV year on year is actually down. GMV per unit. GMV per unit. Okay, it's flat in terms of dollars. GMV per unit, yeah.
Yes, so GMV pre-units down. It's flat in terms of dollars because you know, basically our RPU increase, right? I'm sorry, a unit increase.
offset the reduction in GMV dollars in total. So the two offset each other. In other words, in other words, we... 17%. Yeah, so now let me restate it so it's clear, okay? So we grew our units, 8%, okay? GMV was flat.
Okay. You know, because we basically offset what was an 8% decline roughly in GMV per unit with more units. So we sold more units, right? And offset the dollar decline. That's why the dollars were flat year on year. Does that make sense?
Yeah, no, this is not what I was trying to get at is the 17 percent increase in marketplace revenue with GMV being flat, but units up 8 percent. What I'm trying to get at is how much of revenue growth is GMV related and how much of revenue growth is unit related.
And very specifically, because obviously you raise price. So price would be part of the 17% growth and the other part would be some fixed component of the unit growth.
Yeah, well, yeah, again, it would be just half and half.
right of 8% but those units actually carried a higher output.
Which was also roughly up about 8% year on year. Right, so we sold 8% more units at roughly an 8% higher price for you.
Yeah, a revenue per unit, even no revenue per unit. Revenue per unit. Yes. Yes. With average people being at a lower. Yeah. Yeah. So what I'm trying to get at is, as the year over year. So yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Um. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Mhm. Yeah. Mhm. Mhm. Yeah. Yeah. Mhm. Mhm. Mhm. Mhm. Mhm.
If you look last quarter, it was about an 8% hit on the Manhattan Price Index for pricing versus this Q1, 22 versus 20 or 23 versus 22. Here are the stockholders Model 8 owneren ratings at Para,new
say like April , it looks like 5%. So ARPU grows, not ARPU, as GMV grows because of sale price of the car. How much does that translate to ARPU? Yeah, I think, I think, I think that I hear what I think your question, I think, the here's two things. And I think we'll prepare for you an answer. I think at a high level.
that is understanding that.
or buy fees, right? Because our sell fees are fixed. So our buy fees are the only variable portion of market. Yeah, so. Right? So okay, so that's just the reason. Just one part of it. The other part of it is mixed on the marketplace.
again is regardless what the GMD is the only variable part of our equation are biases
So you get a muted impact either up or down in terms of the ARPU impact at any given court. And we can spend more time offline with you, Nat, on this. And walk you through some actual numbers. Maybe that will help. Maybe like everybody else.
Sorry, I'm taking a picture first. I didn't mean to. Oh, good. Oh, good. Oh, good. Thank you.
I didn't mean to. All good. All good. All good. Thank you. All right. Thank you, Matt. Thank you.
But you can find registration details in today's press release and on our website. We look forward to seeing those of you who are joining us then. Thanks again for your interest in ACV and have a great evening. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.