Q3 2023 ACV Auctions Inc Earnings Call
Yeah.
Good day, and thank you for standing by welcome to the ACB auctions third quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask.
Your question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand, just raised to withdraw your question. Please press star one one again please.
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 <unk>, Vice President of Investor Relations. Please go ahead.
Thank you operator, good afternoon, and thank you for joining Acb's conference call to discuss our third quarter 2023 financial results.
With me on the call today are George Simone 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.
Both of which can be found on our Investor Relations website.
During this call we will discuss both GAAP and non-GAAP financial measures.
A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our investor Relations website.
And with that let me turn the call over to George.
Thanks, Tim Good afternoon, everyone and thank you for joining us.
Momentum continued in the third quarter.
Revenue at the high end of guidance.
Thank you once again.
Our guidance.
Our performance reflects another quarter of strong execution.
<unk> as we go.
<unk> market share and launched new innovation and expand our Tam and drive operating efficiencies.
Strong demand for eight Retrans for ACB capital contributed to revenue growth and revenue margin expansion.
And the continued focus on driving profitable growth result.
Adjusted EBITDA margin expanded 800 basis points year over year.
With that let's turn to a brief recap of Q3 on slide four.
Third quarter revenue.
$19 million increased 13% year over year.
With growth accelerating sequentially.
We sold 150000 vehicles in the quarter.
The resulting 13% year over year growth.
A further adoption of our marketplace solutions targeting dealer engagement.
Yes.
$2 1 billion.
That year over year, reflecting continued moderation of wholesale market prices.
Despite this price moderation.
<unk> once again increased year over year, reflecting the strength of <unk> core value proposition.
On slide five.
I will again frame the rest of today's discussion around the three pillars of our strategy to maximize long term shareholder value.
Growth innovation and scale.
I'll begin with drugs.
On slide seven.
I will share our observations about the broader automotive market as context for factors impacting the dealer wholesale market.
In Q3, new vehicle retail unit declines sequentially.
Increased approximately 10% year over year from depressed levels.
Volumes continue to lag pre pandemic levels.
Inventories improved.
Key to supporting a sustained recovery in retail sales trade and dealer wholesale supply.
Used vehicle retail unit modestly increase sequentially.
And year over year.
It also remained well below historical levels.
The affordability issues continue to pressure our consumer demand.
In terms of vehicle sourcing our data indicate that dealer to retain higher than normal percentage of trades for retail inventory.
A near term headwind for wholesale supply.
We believe the retail wholesale mix will begin to normalize inventory levels for both new and used vehicles recover.
While supply remains muted.
Depreciation and conversion rates across the industry have generally been following normal seasonal patterns.
Marginally improved in recent months.
In Stark contrast to industry trends in the back half of 2022.
All of that and challenging operating conditions in the wholesale.
Hi, Alan.
We believe the end markets are showing early signs of improvement.
Giving us confidence so again raise guidance for the year.
Turning now to slide eight.
We estimate that the U S dealer wholesale market remained well below normalized volumes Q3.
But grew modestly quarter over quarter.
Relative to Q3 2002.
It only declined about 2%.
He showed a significant improvement from the 14% year over year decline in Q2.
As the market begins to recover.
Both will benefit from market expansion and from market share gains.
In Q3, or 13% year over year unit growth and an estimated market contraction of 2% implies 15% market share growth.
Next I'd like to wrap up the growth section with highlights on our value added services.
First on slide nine.
The transportation team delivered another strong quarter and continues to scale ahead of schedule.
Our strong carrier network and improving cycle times resulted in a tax rate in the mid 50% range again this quarter.
Our technology investments and expanded carrier coverage of AI optimized pricing are driving both growth and operating efficiencies.
This combination yielded record revenue margins in the high teens.
Increased approximately 500 basis points year over year.
As a reminder, our 2026 financial targets assumed transport revenue margin in the high teens.
Margins may fluctuate modestly over time, the fact that we achieved our target last quarter speaks the value, we're delivering for our dealer partners and to the strong execution of our transport team.
Turning to slide 10.
Are you seeing in capital team once again delivered strong results in Q3.
Tax rate in the low double digits resulted in 40% loan volume growth year over year.
And combined with strong <unk> expansion delivered about 80% revenue growth year over year.
In addition to our floor plan offerings, we earned about a new ACB capital capabilities that will help our sellers source consumer vehicles leveraging Claire.
We remain confident.
Capital will be an important long term growth and profit driver.
Turning to the second element of our strategy innovation.
On slide 12, I'd like to touch on the formal launch of clearer.
Consumers for our Siem solution that Leverages, AI and real time market data to deliver highly accurate condition based pricing.
As a reminder, consumers looking to sell their vehicles, it's a very large market opportunity.
<unk> 10 million transactions that historically, our solid peer to peer and therefore do not end up at a dealership.
As I discussed earlier, but below normal supply of new and used inventory in the market, especially late model used vehicles and then the challenge for our dealer partners.
Addressing this challenge with clarifying which.
Which has experienced strong early adoption with hundreds of dealer rooftops.
And based on dealer feedback consumer conversion rates are significantly higher than competitive sourcing tools.
It speaks about the power of the offering and its effectiveness in driving qualified leads.
At its core cleared powerhouse decode vehicle condition influences vehicle value.
Allowing ECP dealers and commercial clients have more transparent conversations where consumers.
And consumers benefit from having greater visibility into how their vehicle values.
The solution consists of a clarifier price and clarify gotcha.
Price is that the emission control areas.
Website, providing consumers a precise value at <unk>.
Our capture allows consumers to submit photos of their vehicles are further documentation of conditioner through our AI imaging and self inspection tool.
Which we acquired for Marc.
Clarifier capture digitally the tax exterior damage during the photo capture process and <unk>.
<unk> dealers to update their condition enhanced pricing yet.
Without an onsite inspection.
We are very pleased with the early market momentum for this value added solution and the opportunity to both expand our Tam and add another growth lever to our business.
To wrap up on growth.
We are also pleased with the early stages of our commercial market strategy.
We are operating in a few markets, where we have the services required by these customers.
And even though it's early we're very encouraged with our progress and believe we can scale and capture the market share outlined in our 2020 financial targets.
On slide 13.
We highlight examples of tech investments.
<unk> into our operations delivering customer success, while reducing costs.
As we discussed last quarter, producing arbitration remains a key focus for both customer satisfaction and optimizing margins.
What are the key drivers as inspection accuracy.
Our field team is equipped with copilot, our dart apacs and our AI powered imaging apps to deliver high quality infections.
Power and RF guard leverage machine learning predictive analytics and sensor data inform our Dci vehicles specific issues before and after conducting an infection.
APAC delivered significant transparency and the vehicle operating conditions, while also increasing the inspection productivity of our ACI teammates.
We continue to expand our imaging AI capability to identify specific important conditions.
No damage and rust.
Together. These innovations have contributed to a low double digit reduction in arbitration unit cost this year, which is a great performance in the current market.
Our technology investments are also driving efficiency in our model with opex leverage increasing by over 200 basis points in Q3.
To wrap up on innovation.
We remain committed to delivering industry, leading technology to our dealer partners and to our own operations driving both growth and scale. We look forward to sharing more details with you next quarter.
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 very pleased with our Q3 financial performance.
With strong revenue growth and upside to adjusted EBITDA.
We also continue to demonstrate the strength of our business model with meaningful revenue margin and adjusted EBITDA margin expansion versus Q3 'twenty two.
Turning to slide 15, I'll begin with a recap of our third quarter results.
Revenue of $119 million was at the high end of our guidance range and grew 13% year over year.
Adjusted EBITDA loss of $4 million beat our guidance range and adjusted EBITDA margin improved approximately 800 basis points versus Q3 2002.
This demonstrates both the inherent operating leverage in our model and continued strong Opex management.
Next on slide 16, I will cover additional revenue details.
Akshay and assurance revenue, which was 55% of total revenue increased 17% year over year.
This revenue performance reflects 13% year over year unit growth in.
An auction on assurance <unk> of $439, which grew 4% year over year.
Note that <unk> grew year over year, despite a 10% decline in <unk> per unit, reflecting.
Our price increases from last fall and this September and we believe we still have pricing headroom going forward.
Marketplace services revenue, which was 38% of total revenue grew 11% year over year.
Results were driven by strong ACB transport performance at another record revenue quarter for ACB capital.
Our SaaS and data services products comprise 7% of total revenue and declined 6% year over year.
The decline was primarily related to our standalone inspection offerings, which continue to be impacted by the weak off lease market.
While Max digital revenue grew modestly year over year recall that we continue to take a measured approach to customer acquisition, while making significant improvements to the digital platform.
We're confident these improvements position Max for long term growth.
Turning now to slide 17, I'll cover costs for the quarter.
Q3 cost of revenue as a percentage of revenue decreased approximately 500 basis points year over year.
The improvement was driven by both strong auction insurance results and by ACB transport.
As George mentioned, we delivered high teens transport revenue margins in Q3, which is in line with our 2026 target.
We continue to focus on expense discipline, as we optimize and scale our business.
non-GAAP operating expense, excluding cost of revenue increased 9% year over year in Q3 versus 18% year over year growth the prior year.
This reflects a more metered approach to growing opex relative to our revenue and margin growth to deliver higher operating margins as we march towards profitability.
Moving to slide 18, let me frame, our investment strategy and path to profitability.
Our focus on spending discipline and operating efficiency is expected to result in a material decrease in opex growth this year.
Resulting in our adjusted EBITDA loss declined by over 60% year over year.
And as you've seen reflected in our Q3 results. We have delivered margin expansion, while preserving our go to market and technology investments.
I'm sure <unk> is in a strong position as market conditions improve.
Next I will highlight our strong capital structure on slide 19.
We ended Q3 with $450 million of cash and equivalents and marketable securities and $105 million of debt on our revolver.
Note that our cash balance includes $162 million of flow and our auction business.
Amount of float on our balance sheet will continue to fluctuate meaningfully based on business trends and the final two weeks of each quarter, which has a corresponding impact on operating cash flow.
Year to date cash flow from operations was $9 million a significant improvement from the $75 million outflow in the same period of 2022.
Now I will turn to guidance on slide 20.
For the fourth quarter of 2023, we are expecting revenue in the range of $116 million to $120 million.
Adjusted EBITDA is expected to be a loss in the range of $7 million to $9 million.
The sequential increase in adjusted EBITDA loss in Q4 reflects targeted investments to drive continued revenue growth in 2024.
For the full year 2023, we are raising our expected revenue to a range of 479% to $483 million.
Representing growth of 14% to 15% year over year.
We are also reducing our expected adjusted EBITDA loss to a range of $20 million to $22 million.
And we remain committed to achieving adjusted EBITDA breakeven exiting this year setting us up to deliver a full quarter profitability in Q1 24.
As it relates to our guidance, we are assuming that new and used vehicle supply to remain lower than historical levels in the near term.
That improve as production and inventory continue to recover.
We are also assuming that conversion rates in wholesale price depreciation.
Normal seasonal patterns for the balance of the year.
Let me wrap up on slide 21 by reviewing our 2026 financial targets were.
We are very pleased with our continued execution in a challenging macro environment and remain committed to achieving $1 3 billion of revenue at $325 million of adjusted EBITDA in 2026 with 25% adjusted EBITDA margins.
Our targets are underpinned by a number of factors, including sustained market share gains.
Wholesale market recovery to historical volumes.
Tam expansion into adjacent markets.
Technology innovation to drive growth and operating efficiency.
And a commitment to balancing growth and investment as our business scales.
And with that let me turn it back to George.
Thanks, Bill before we take your questions I will summarize.
We are very pleased with our strong execution in the third quarter.
We are especially proud of our teammates and deliver these results.
We continue to gain market share by attracting new dealer and commercial partners for our marketplace.
And by gaining wallet share, which positions ACB are attractive growth as market conditions improve.
We are executing on our territory penetration plans and gaining traction with our expanding suite of offerings.
We're delivering on an exciting product roadmap to further differentiate HCV and expand our addressable market.
We are on track to achieve our near term adjusted EBIT target.
Over the medium term generate over $1 billion in revenue with attractive margins.
We believe will drive significant shareholder value.
They are committed to achieving these results while building a world class team to deliver on our goals with that I will turn the call over to the operator to begin the Q&A.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
And our first question comes from Chris Pierce of Needham <unk> Company.
Hey, good afternoon everybody.
Hey, Chris Hey, Chris.
Just talk about your unit growth or the.
He used units, we see year over year as a publicly traded dealer groups. I know you don't have that handy, but they averaged about down 5% year over year in Q3, but you guys are up 13%.
I think it's because it can be leveraged to independent dealers, but I'd love to kind of hear why youre able to grow versus.
Sam kind of shrinking or just kind of just in general how are you able to kind of differentiate yourself.
Yes, Chris. Thanks. So so there is couple of factors of why our units grew even though to your point the used car retail market shrunk. So one is.
That we did see new car sales, which is where our supplies comes from so one is we are starting to see some of the health of the market come back which is positive.
Two.
We are continually in not only growing sellers by getting more wallet share.
So we're expanding.
Our our capabilities and growth within our footprint so look at the <unk>.
Two main reasons why being both cut.
Customer wins.
Our customer wallet share and also the fact that new car sales.
Is starting to come back and new car sales coming back.
It is helping us.
Trades coming into two dealerships, which then creates the wholesale opportunity now granted we didn't see dealer wholesale.
Grow year over year, but we are seeing the market.
At least incrementally get healthy, especially compared to last quarter.
Okay, perfect and then just.
Talking about normal seasonal depreciation to year end can you just speak to what gives you the confidence to say that given what we saw last year, where is it just the dealer inventories are bloated last year and they are tighter this year or is there something else to it.
Yes, Chris the normalcy, we were referring to on the call.
Both.
Regarding thus far I would say listings and sell through rate or.
Conversion rate I should say.
Where we're seeing a sense of.
Enormous Ian as it relates to both.
So so far we're feeling good.
Seeing the.
And then obviously last but not least.
I think to your point, though is the value of used cars. We do have in our plan used car values going down.
That is part of the plan.
We do.
We expect moderate a moderation on GMB happening sort of month over month.
Throughout the quarter. So so when you look at all of the trends listings conversion rate and also our expectations.
<unk> going down I guess is comfortable for the plan we've outlined.
Okay. Thank you.
Thank you one moment for our next question.
And our next question comes from Eric Sheridan of Goldman Sachs.
Thanks, so much for taking the questions hope everyone on the team as well maybe two if I could first longer term question about pricing. When you think about your long term plan and where you are relative to competitors today, how should we be thinking is pricing as a lever to either gain more market share versus gather more unit economics and <unk>.
<unk> more revenue growth so that would be number one just to refresh on pricing versus competition and then second just in terms of the adjusted EBITDA Guide for Q4 just.
I just want to make sure that is.
Maybe year end, one timer type technology investments as opposed to maybe a new run rate or thought we should be taking it on incremental margins going into next year I know, it's a little early to talk about 2024, but just want to understand the context around those investments.
Have some of the margin reversal in Q4. Thanks.
Yeah, certainly Eric Thanks Al This is George I'll go first.
And then let bill chime in on your second question. So.
On your first question.
We are long term targets at least at least in 2026 model is about $500 and combined buy sell fees.
<unk>.
We've been averaging around $4 50. This year. So when you look at the fact that we.
It's only about $50 more on now assuming <unk> does decline a bit from time to time, we feel very comparable.
We've got the room.
So instead of just giving you the gap the gap is larger than that $50.
Between us and some of our competitors I think that.
The way, we look at at least for now.
We feel very good about.
Where.
We've got our <unk>.
Got in the model between now and 2026.
Knowing that the buy and sell fees at the majority of traditional auctions is.
Pretty seasonally higher stink definitely well over $100 in room today, and that's not where the competitors may go in the future. So that goes to your first question.
The other one and second one yes, hey, Eric So in terms of your second question. The short answer is there's really no change in terms of our operating model going forward, but to give you a little bit of context.
So.
Even with even with the Q4 guidance, we are reducing our opex guidance for the year by about $2 million. So if anything we're actually in a better position.
In terms of heading into next year.
To achieve our EBIT breakeven if not EBIT profitability in Q1.
But.
There is an opportunity for us to make some targeted investments.
To drive growth next year, and we're taking an opportunity to bake that into our Q4.
Opex so yes.
Again these are pretty targeted.
We still have a lot of growth opportunities ahead of us not just in dealer wholesale but commercial peer to peer.
And our focus is basically setting ourselves up as best we can for next year's targets, while still again lowering our total opex.
For the year by about $2 million. So hopefully that gives you a little bit of context, but there certainly isn't anything.
On that or anything you should adjust your models to reflect.
And helpful on both fronts.
Yeah. Thank you Eric.
One moment for our next question.
And our next question comes from Nick Jones of JMP Securities.
Great. Thanks for taking my questions I guess, just maybe back on the normalization or timeline to normalization I think back in the analyst day, you said in 2025.
Give or take you expect kind of the industry to normalize.
How are you guys monitoring what can kind of do.
Dislocate or change that timeline as we see.
Various data points come out whether it be industry specific or.
Maybe more.
It really kind of affordability or consumer challenges, maybe causing an overcorrection and supply starts to build as consumer struggled to afford.
So any color on kind of I guess to boil. It down are there any changes in your timeline to normalization from here and then the kind of the second question is how are you thinking about consumer challenges auto affordability.
Playing into that thanks.
Yes.
Thanks, Nick.
The way to think about this.
As we have in our planning that the market returns by 2026.
Okay, and that's really how we've been thinking about it.
And so yes, it's 23.
Late in the year here, but we do have some time for us to kind of for the world to keep evolving.
Look at like dealer wholesale.
Units.
You've been over the last few years just in 'twenty one alone. It was over 10 22 is likely over eight.
This year might end up being under eight so we've seen these changes.
We are.
We're pretty comfortable in the fact that we will see improvements over the next couple of years the rate of improvement we should all see let me walk you through why I feel good saying, we should we should see improvements.
So one.
As new car sales are getting incentives in the new car sales incentives are important they helped drive affordability.
We're starting to see incentives even for across almost all Oems right now.
Hi.
That's a great thing for US okay. So we're starting to see interest rate incentives lease incentives.
As we are.
As you think about our primary source of supply today.
Being franchise dealers is where the primary source of supply come from as they drive.
As they drive.
New sales, we get more trades, so that's fine.
To the other part of what you mentioned as dealers here I want to be careful with all of our lives.
And.
Up until recently, you've heard us say dealer wholesale contracted for two reasons.
Sales went down new car sales went down and also dealers.
A higher percentage of cars you have heard us talk about that I mentioned it earlier on the call.
The later part of that becomes really important.
As used car inventory starting to start to add up we believe dealers will start to wholesale a slightly higher percentage throughout the next few years and return back to normal levels dealers are still keeping an elevated number of these trades even today.
So when you look at those two factors.
We feel pretty good that over the next few years, we should see improve.
Improvements how much of an improvement I've got till February to give you an opinion on next year at least.
I'll use those couple of months that weigh on our exact thoughts, but I'm feeling pretty good and some of the signs we're seeing.
We even thought slight quarter over quarter improvements in the market of dealer wholesale although really really small any type of improvement is a good thing. It feels like we are in that trough and even if interest rates stay high consumer affordability for used cars stay challenge for next year, I think new cars, we're going to see insert.
<unk> is coming out Oems are going to move that inventory, that's going to be more trades and I think franchise dealer should be careful on the cars that long winded answer I thought it was an important question xylene and a little bit more.
Okay.
Great. Thanks Raj.
Certainly.
Thank you one moment for our next question.
And our next question comes from Ron Josey of Citi.
Okay.
Great. Thanks for taking the question George I want to ask about conversion rates. I think you said, we're seeing a sense of normalcy here and I'm wondering if the conversion rates are getting back to call it 21 levels or before that.
To say and Thats. The curious maybe talk to us on what are the drivers here in the past we've talked about new auction format to two hour auctions et cetera.
And I have a quick follow up.
Yes sure.
We we.
We did a little bit better than the market and conversion rates I would say a couple.
Parties out there provide data and conversion rates.
Obviously, we were marginally better than the market.
Being better is always a good thing.
Probably two reasons.
One is we are benefiting to your plan from some of these innovations that we've been doing whether it be product enhancements timed auctions.
Enhancements, we're making to our.
Our condition report all of those things.
Are also helping us sort of incrementally.
<unk>.
I would say manage seasonality well, we always plan to go into the fourth quarter conversion rates are going to go down a little bit that's always the plan and.
That's the case every year, but I would say, where we were doing a good job in Q3 represented also a good job.
Yeah.
Is.
We went out we went to market this year being.
Being a little bit more careful.
Pressing our sales team and our inspectors for listings and customers.
We pressed for a little better a better conversion as part of the overall success.
Sorry.
And so think about that as being a little bit more selective.
And.
Typical.
I would say growing up as youre getting bigger as we're dealing with it more and more sellers more and more of listings you just really want to make sure be imprudent, if we got certain sellers have very low conversion.
We are more careful on that so those would be the two reasons.
That.
We are doing well from a conversion rate perspective, both those product intact and also from a operating policy perspective, we're definitely more careful and sellers, who remain low with their conversion rate.
Got it that's very helpful and conversion rates I just wanted to clarify maybe something you said on the call know that we're seeing.
The units Reaccelerate growth and I understand your point on incentives and supply.
Can you repeat or talk to us a bit more on pricing.
We've seen high singles low doubles down this year and do you expect that to continue as supply improves. Thank you.
Yes, when you speak to pricing, you're really saying the GMB meeting.
Selling on our platform right.
So.
Yes.
We.
We have in our plan.
Low single digits things like 2019, like one ish, one ish to two ish percent based on demand.
Depreciation rate.
As part of the plan. So we go into the quarter planning for that to be the case.
Which.
Is.
Which we're finding prudent right because youre sure.
As expected.
Expected.
So so far I feel really good about the team's ability to predict.
What we think is going to happen and.
The plan we've outlined.
We're confident with that guidance, yes, I think everyone's bill so just maybe a little more context here. So.
Last quarter, our <unk> per unit, yes it.
It was down year on year, 10% down quarter on quarter, 11%.
Steps, we managed to drive year on year actually a 4% increase in our <unk>.
Quarter on quarter was down a few points down about 3% so.
One of the one of the strategies and we've talked about this in the passes with the pricing power that we have as prices do decline because thats, what were assuming and thats, what we baked into our forward looking models.
We believe overtime, we can we can offset any of that downside in.
In terms of our buy fees.
Been able to do that thus.
Thus far.
And then maybe one more level of clarity. So if you look at in our example.
Our <unk> per unit about half of that is due to a modest shift in.
Mix to less expensive vehicles.
In response to a consumer affordability issues.
The rest of that is just the overall market decline in prices. So <unk> got a few kind of dynamics driving it but at the end of the day.
We were able to at least so far we've been able to protect our financial model from any of that volatility.
Okay very helpful. Thank you guys.
Thanks.
Thank you one moment for our next question.
Okay.
And our next question comes from Jon Cohen, <unk> <unk> of Jefferies.
Yes.
Hey, Thanks for taking my questions two from me.
Starting with the September price increase can you help size how it contributed.
<unk> and <unk> revenue.
It will.
<unk> contributed to <unk> revenue and second turning to your 2026 revenue target I think your outlook assumes 17% outperformance relative to the market and that's a bit above the 15% you saw this past quarter, which was down somewhat from recent quarters.
Despite the conversion tailwind from longer auction formats. So just talk about what drives helps drive the improvement in market share trends over time. Thanks.
Yeah, Hey, John It's George I'll go with your second question first and Bill can go to your first question.
Yes, we've been if you look at our last six quarters, we've been between <unk>.
16, and 17% average so 15% is pretty consistent with that range and keep in mind, how even do this math.
Math, where.
It is not perfect right talking about that so number two if you do a homework on our and the competitive.
The environment, I think youre going to see that 15% was really good.
One I'd say compared to our competitors, we really did a great job.
Two I would say I would call that rather consistent with the 16% to 17% for the last 16 six quarters.
So I feel great and the fact that when you look at what we've been putting up there in any given quarter lets you generally say between 15 and 17.
<unk>.
I felt really good about that so no change Bill you might go to the first question, yes. So.
Yes, so John in terms of Q3.
And the price increase it was roughly about 25 bucks.
Terms of sizing so well.
Also relatively small similar to the price adjustments, we pass through last year.
And that was only for one month in the quarter. So roughly one third of that or about eight bucks worth of impact.
On our auction ARPA.
And then obviously, we would get the full quarter benefit of that in Q4.
That's all other things being equal obviously, what what ultimately impacts.
ARPA or other factors, including.
The average car prices right so thats the.
The biggest variable, but if you just wanted to isolate the price increased by itself those would be those would be the numbers that would be the math.
Very helpful. Thanks, so much.
Yes. Thank you.
Thank you one moment for our next question.
And our next question comes from Bob <unk> of CJS Securities.
Good afternoon, and thanks for taking our questions.
Sure Charlie.
Sure.
Yes, no I wanted to start with the exciting discussion earlier unclear car and self self inspection and maybe tell us expand a little bit on the usage is at right now just for.
Dealers for consumer sourcing or is there an opportunity to use the self inspection for perhaps some more remote dealerships that have EC I can't get out to efficiently and therefore, just have a dealer inspecting their own cars.
Bring them on.
The network as well or how is it being used now and what are the opportunities for the self inspection that you are.
Pioneering.
Yes, certainly Bob.
We.
I would say so far.
<unk> heard us talking about is the first category you opened up which is dealer sourcing more consumer tires.
We've been pressing pressing that is a problem we want it solved.
Number one because it's the biggest complaint we hear from dealers as they need more inventory, especially late model.
Inventory of the cars that they would normally keep and they need help right. So theyre keeping cars that they typically would wholesale primarily because they still need the right inventory.
So we think by them sourcing more consumer car X will actually wholesale more alright, so youre seeing us focus there.
And the second.
Part of your question, even today dealers do self in fact, some cars it's low.
Today.
<unk> low.
Single digit percentage of our cars today.
We are expecting in.
First.
ACB is in fact think these.
These new tools, we're doing will make it easier.
Probably not ready to talk about that until somewhere around Q2 or Q3 of next year.
Somewhere in that timing.
We'll probably start talking about that a little bit more.
Already something we support so if a dealer does one impact.
Car launch it theoretically we support.
But the category would be dealers asking if we could make that a little bit more efficient.
And easier for them to do so that would be the category that you are opening up here for the call.
Goodbye.
We would be probably.
More comfortable to talk about.
Sometime in maybe the first half of next year.
Okay very fair. Please remind me to ask you how much that will increase your Tam.
At some point in the first half of next year.
Alright.
Okay.
So just for my other question then if you could give us an update on your penetration into the large dealer groups. Obviously, that's another driver of your.
Units and your opportunity in your growth and just kind of where you stand now and where you where you want to be.
Yeah, no. It's a great question.
<unk> been giving any data about our growth rate there, but what I will say this is.
Our growth rate with the major dealer groups has been materially higher.
When you compare that compare to the growth rate will be share with you all the growth rate with the major yellow groups is a higher percentage.
No.
It's going well.
We continue to.
Our focus on adding more value, whether it be private marketplace, whether it be products like clear car.
One of the large dealer groups out there one of the top.
<unk>.
Three or four I would say at least half the only top five is using us crazy.
Marketplace, they're using us for Max digital now use answer Claire car. So this is a top five dealer group using us literally all of our value added services and we're starting to have a material piece of their overall wholesale share. So.
Feeling really good about the strategy we are doing is working.
Where our value added service strategy is working and we're able to build a relationship.
With several of these dealer groups.
Super Thanks, so much.
Yes, Thank you Bob.
Thank you one moment for our next question.
And our next question comes from Michael Graham of Canaccord.
Hey, Thank you I just wanted to ask two the first one was on the transport attach rate.
And margin, which is going great.
Do you have any updated thoughts on like permanently.
<unk> port margin can get to.
I just wanted to ask.
A little closer to the new year here when you think about <unk>.
Achieving your 2026 targets any updated thoughts on whether over the course of like 2020 for 2025 and 2026.
<unk> updated thoughts.
Whether you think that expansion on the margin side.
As expected to be linear or.
Backend loaded or just any high level thoughts you could share would be great.
Yes, yes, certainly Michael.
Obviously, we're ecstatic about how well ACB transport has been coffee.
Both from take rate and margin, it's gone really really well.
I'd really rather keep everyone's expectations about what we've been doing.
For a couple of reasons.
One is look at the addressable market.
70%.
So when you look at the addressable market at 70.
Hitting the.
The take rates we've been heading.
It's really incredible right because theres always been a portion of your dealers who are local who can just go and pick up the car.
So one is when I look at the overall.
Hey, Brett take rate for transport, we'd rather not create higher expectations we've created.
And even if we do in any one quarter be a little higher than that I'd, rather you I'll keep the expectations, where we've had it okay. So that's one I think it's it's good to keep that.
Our expectations reasonable there.
Margin again.
We're doing a really great job.
I'd rather.
Until until were significantly higher end units.
We still at the end of the day.
We still deliver our margin profile and transport at the blended with both mature markets and less mature.
So instead of getting into a tangent here I'd, rather just say that at least the next few years I'd.
I'd like to keep our expectations, where they are and I think that gives us the opportunity to invest in the lanes that we wanted to.
Invest in and so take the revenue and margin we want another line so.
That's giving you a little bit behind the scenes of what why I didn't speak that post 2026 and that dialogue at least from now to 2020, I'd, rather keep the expectations where they are.
And then and kind of go from there.
Yes, I think I would add.
Just.
One of your questions was.
Growth in <unk>.
EBITDA margins will be linear.
The answer to that question is no I would not expect them to be linear obviously, we haven't provided 2024 guidance yet we.
We will do that on our next call.
I think in terms of the leverage of our model, which is very significant and as we start to accelerate our growth due to continued share gains.
Market recovery over time over the next several years penetrating commercial continuing to expand our <unk>.
There'll be a lot of leverage that will flow through to the bottom line.
In the out years right so think.
Kind of acceleration through 'twenty, five and potentially significant acceleration through 'twenty six as we get the benefit of that leverage so.
Again, we didnt at our analyst day break down what it would look like each year, obviously, but that's the overall concept and the reason why we are confident that we can execute on that path, assuming we can drive the topline revenue growth that we articulated.
A few months ago at the analyst day.
Okay. Thanks those are helpful answers. Thank you both.
Eric Thank.
Thank you one moment for our next question.
And our next question comes from Rajat Gupta of Jpmorgan Chase.
Great. Thanks for taking the question and congrats on the execution in the quarter.
Just had one on <unk>.
Just first one on you talked about.
The supply.
We're getting a little better you talked about dealers may be the reason.
Trade than what Youre doing right now into next year.
Youre going to see some challenges from the off lease from the off lease supply challenges.
Starting middle of next year from the low penetration in 'twenty, one and then after that.
How do you overcome that.
In context.
Your market expectations or maybe another way to ask games.
What are your expectation just used car retail industry volumes.
Our improving next year that give you comfort around the recovery in your market next year and I have a follow up thanks.
Yes, certainly.
I mentioned some of this earlier.
Repetitive too much but when you think about our primary supply today coming from franchise is granted we have new talent new channels that we're also building that we talked about at Investor day.
But just to focus first your first question on our primary channel.
I would at least today I would predict new car sales should at least marginally improve if not improve better than marginally year over year that would be like.
Sitting here predicting next year right. So like the rest of us trying to predict.
Macro things going on.
We've got better.
Actual Oems are having the challenges.
Building vehicles, so most of that behind US we have incentives starting to come out I would say better expectations for Oems.
We're not hearing you all ask questions like maybe Oems will never do incentives again I mean, those all those questions are all done right. We all know we're going to go back to incentives. So if you kind of go into next year, saying, okay consumers are going to be.
Incentive to buy a new car. Meanwhile, Paris eight cars are aging we have cars consumers are driving.
No.
Leased from an age perspective, the oldest cars, we've seen on record and it's getting worse.
And for the everyday consumer out there that's not a good thing, it's getting more and more expensive to fix these cars.
If any of you have friends or family.
<unk> gone through this you probably all hearing the stories everyday right now it's challenging.
When you go in there and Youre getting a repair that's 1500 box 2500 box for repair it's tough I'd much rather get in there too for a 500 dollar payment or a lease or something like that.
You've seen most recently in the TV commercials I noticed.
Even yesterday watching TV Chevy was promoting their cars that are brand new vehicles between 25 and $30000. There was a reason why they were showcasing.
That specific commercial right now theyre trying to tell consumers. There are products. There are new cars. They can buy it might not be the one they want it.
But their archive so when I think about.
Next year, I think we will see new cars.
<unk>.
Come back in favor.
We're going to have consumers that can afford and have the credit it means.
By those new cars and I think what that can mean for the used cars have been trading and dealers are only going to keep the one they know theyre going to make money on.
I think it is going to there is going to go into the year, Matt, saying, we need to keep everything like they have in the last couple of years, because they know interest rates might stay high.
To think they could.
Not every single one of these used cars is going to be the champion. They bought last couple of years, it's going to be a much more realistic mindset, which I think will press.
These trades to end up at a dealer and independent dealer someone else who's got a much lower cost of labor. They can fix these things cheaper than some of the franchise dealers I think some of the old trends will come back again.
Again long winded answer I think important question, but I feel good that.
At least sitting here right now how much whether or not the next year is just marginally better than this year or materially better I'm not ready to say.
It feels like we should at least improve.
Year over year, that's at least my current professional gas.
Got it that's helpful. And then maybe just a quick one on the price increases the September price increase a little faster than we had expected last year with December should we expect you to continue to do the other higher frequency or was it just more of a diamond ship with tiara and then go back to work next year.
Just maybe any more color on that would be helpful. That's all I had thanks.
Yes, I mean, our main goal is to hit the objectives, we've shown you all and ourselves.
Got up to about $500 in buying southeast between now and 'twenty sacks.
The rate well, we will always be determining how fast we do that but our.
Look at it as same gall cingal, we've been outlining.
$500.
In 2006, again will be lower than our.
Typical traditional competitors are today.
So there is room here for us to increase fees incrementally.
And we will decide when the right time is between <unk> between now and then.
But as Bill told you. This last one was about 25 ish box will just keep incrementally getting there until we have our pricing be competitive because today.
It's really a little bit lower than it should be.
Got it thank you so much.
Yes, certainly thank you.
One moment for our next question.
And our next question comes from Daniel <unk> of Stephens incorporated.
Yes, Hey, good evening, everybody. Thanks, taking my questions.
Certainly David.
On the volume backdrop.
I'm, just curious where floorplan rate with floor plan rates. This high for your dealer customers are you seeing dealers be more disciplined about moving aged inventory awful lot.
I think some of your peers have you have tools to help with this but do you have specific tools and maybe help dealers not only source cars, but determine okay. Like this is how long the hold this car for this card will be wholesale now how is that adoption going just a floor plan rate of seven 8% now not the one to three we thought a few years ago.
Yes, great question.
Dealers are getting more and more disciplined.
So we're seeing it I definitely with the larger groups, we're seeing dealers you're all hearing.
Youre seeing disciplined return.
In the ecosystem over the last couple of years.
Dealers really in a way paused all of their aging policies and for those of you that are new to this concept of Daniel's bringing up.
Okay historically of a car.
On a dealer's lot for over 90 days.
The owners of the dealership, where the operators would push the dealer to them wholesale to vehicle and they would deem H.
The category of Daniel's ran up so those policies are starting to be come back in place.
Some of them have been additive I said, Hey, we'll give you 120 for now, but we're going to push to 90 by the end of this year and some dealer groups have gone right back at it.
Gone right back to discipline.
Part of your question, Yes, we have tools.
We have a product within our Max digital offering that helps dealers both know their sweet spot and also helps dealers manage.
What dealers their cars theyre doing well where cars.
They should really just be wholesaling right now so that intelligence is currently in our Max offering and we're always brainstorming, how we can get some of this out to all of our dealers sort of internally, but yes part of what you're asking.
We provide those services for somewhere around 1000 rooftops out there today.
But yes, I think both great questions, we are starting to see the discipline come out.
Great and then maybe one.
A follow up wanted to follow up on Rob's question on pricing curious how does your competitors responded, but I think over the last 18 months I think your your large peers have raised fees with you each.
Each time fees have come up.
Have you seen the market response, so far to your fee increases thanks.
Yes, as far as I can tell we've been very fair to our end customers and our fee increases.
I don't know for keeping up with everybody or not honestly.
Yes.
If you went around and definitely looked at like the traditional physical auctions.
Fees have gotten really hot.
Ross the country so.
We're been fair where.
Or are buyers think warfare.
We got really very little negative reaction and just as much positive reaction to the buy fee increase then we can we had negative so our objective right now not be a peg.
We asked our fees are low were trying to increase these incrementally over a long period of time.
And just do this as well it is fair to our buyers I mean these guys are all trying to and gals are trying to build a business there I'll try and they've got their own struggles going on in gas Rfps are low.
But we're trying to incrementally to also be fair to our buyers and so far the team's recommendation to me and others. The teams recommendations have been spot on the planning has been spot on.
I'm, just really really proud of how we just keep doing the market intelligence, where are we compare them to market.
And you just know when you do these things if youre doing it well because your end customers <unk> been telling you.
You really handling them as well so I'm really proud of how the team has done it so far.
Great I appreciate all the color best of luck.
Okay.
Thank you. This concludes the question and answer session I would now like to turn it back to Tim Fox for closing remarks.
Thanks, Steve I'd like to thank everyone for joining us on the call. Today. Please note that we will be participating in several investor conferences. In November here, you can find all the details on our IR website, and we look forward to seeing you on the conference circuit hopefully this quarter and again. Thank you for your interest in the ACB and have a great evening.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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