Q4 2024 ACV Auctions Inc Earnings Call
Eerie Music Video Genes Tha...
Speaker Change: Greetings and welcome to the ACV fourth quarter 2024 Ernie's conference call.
Speaker Change: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad It is now my pleasure to introduce your host Tim Fox, Vice President of Investor Relations Thank you. You may begin
Speaker Change: Good afternoon and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2024 financial results. With me on the call today are George Chamoun, Chief Executive Officer and Bill Zerella, Chief Financial Officer.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
George Chamoun: Thanks Tim. Good afternoon everyone and thank you for joining us. We are very pleased with our fourth quarter performance which capped off another strong year of execution by the ACV team.
George Chamoun: Q4 revenue and adjusted EBITDA exceeded the high end of guidance.
George Chamoun: resulting in 32% full-year revenue growth and we delivered our first full year of adjusted EBITDA profitability.
Our 2024 results were driven by three key factors.
First, strong execution in our dealer wholesale business.
George Chamoun: We continue to gain market share and expand our dealer partner network with over half of dealers in the U.S. transacting on our marketplace.
George Chamoun: Second, we had record performance in ACV transport and ACV capital, along with marked attraction of our growing suite of dealer solutions.
George Chamoun: And third, we executed on an exciting product roadmap to grow our competitive moat and expand our TAM, while delivering significant margin expansion.
As we turn to 2025.
George Chamoun: ACV is focused on delivering strong top-line growth despite a muted outlook for the dealer wholesale market.
George Chamoun: We are also focused on driving meaningful adjusted EBIT expansion while continuing to invest in exciting long-term growth objectives.
George Chamoun: We're confident that executing on this profitable growth strategy will create significant long-term shareholder value.
George Chamoun: With that, let's turn to a recap of our results on slide 4.
George Chamoun: Q4 revenue of 160 million dollars was above our guidance range resulting in full year revenue growth of 32%. GMV increased year-over-year in Q4 and for the full year with nearly 10 million dollars of GMV transacted in 2024.
George Chamoun: We sold 183,000 vehicles in Q4 and 743,000 in 2024, growth of 24%.
George Chamoun: Unit growth was driven by continued market share gains and solid execution across our remarketing centers.
George Chamoun: Next, on slide five, today's discussion will focus on the three pillars of our strategy to maximize long-term shareholder value, growth, innovation, and scale.
I will begin with Groff.
George Chamoun: Turning to slide 7, I'll start with observations about the automotive market as context for dealer wholesale volumes.
George Chamoun: On the retail front, new vehicle sales increased 2% year-over-year in 2024, benefiting from solid 7% growth in Q4.
George Chamoun: With new vehicle inventories back to historical levels, along with more attractive OEM incentives, retail sales should continue to recover to normalized levels.
George Chamoun: However, the used vehicle market continues to tread water. According to NADA, sales declined modestly year-over-year in Q4, and for the full year. Consumer affordability has remained the primary headwind to a retail volume recovery.
George Chamoun: With used vehicle inventories about 25% below normal and off-lease returns still bottoming, we have yet to see a sustained improvement in the trade-to-wholesale mix. This resulted in flat dealer wholesale volumes in 2024.
George Chamoun: In terms of our outlook for 2025, we're encouraged by pockets of improvement in the broader automotive market.
George Chamoun: But we believe it's prudent to assume dealer wholesale volumes will be approximately flat year-over-year.
George Chamoun: Moving to slide 8. Let's cover highlights on our value-added services beginning with ACV transportation.
George Chamoun: The transportation team delivered another strong quarter, resulting in over 30% revenue growth and 410,000 deliveries in 2024.
George Chamoun: By leveraging AI, the team has optimized pricing across nearly the entire ACV transportation network, resulting in both strong growth and operating efficiency.
George Chamoun: Revenue margin expanded 300 basis points in 2024, exceeding our midterm target margin target of high teens.
George Chamoun: Lastly, our off-platform transportation service continued to gain traction with our dealer partners in Q4. We're excited to deliver these new value-added services that accelerate network densities and create additional long-term growth vectors.
George Chamoun: Turning to slide nine, the ACV Capital team delivered strong results with accelerated year-over-year revenue growth in Q4 and full year revenue growth of 26%.
George Chamoun: As we discussed in recent quarters, our ECV Capital team has been balancing growth and risk in an environment that has been challenging for independent dealers.
George Chamoun: Going forward, we are confident that we can accelerate ACV capital growth while continuing to manage risk.
George Chamoun: In addition to our core floor plan offerings, we are excited with the early adoption of new value-added offerings we began piloting in 2024.
George Chamoun: Recall that these include dealer financing for consumer-sourced vehicles and dealer trade-ins that are sold retail or wholesale on ACV's marketplace.
George Chamoun: This bundled ClearCar ACV capital offering supports dealer sourcing strategies and creates another long-term growth lever for our capital business.
George Chamoun: Next, I will address the second element of our strategy to drive long-term shareholder value, innovation.
George Chamoun: Turning to slide 11, I'll frame our tech investment around a core differentiator that underpins our products, services, and operations.
ACV AI
George Chamoun: It's not lost on us that investors are hearing a lot about AI these days. Technologies like machine learning and large language models are advancing at a rapid pace, and ECB is uniquely positioned to transform how decisions are made in automotive.
George Chamoun: Within our digital marketplace we leverage AI together with our proprietary data to deliver condition-enhanced pricing intelligence and to generate tailored buying experiences based on historical buying patterns and available inventory.
George Chamoun: We just released new features in ACV Max powered by ACV-AI that predicts prices with incredible accuracy.
George Chamoun: We can now predict what a retail vehicle will sell for within a few hundred dollars.
and within $100 of its wholesale value.
George Chamoun: This pricing capability, informed by specific vehicle and local market dynamics, is used to guide sellers on vehicle listing price.
George Chamoun: We are seeing sellers and buyers adopt our prices increasingly, driving higher conversion on our marketplace.
George Chamoun: ACDAI is foundational within our inspection platform, delivering the most transparent and accurate condition reports in the industry.
George Chamoun: Before our VCI's or dealers touch a vehicle, we flag known condition risks and guide them through the inspection process.
George Chamoun: These disclosures are added to condition reports based on insights from our vehicle data model.
George Chamoun: This model contains structured data from millions of inspections, augmented with third-party data, and we believe represents one of the most comprehensive vehicle condition databases in the industry.
George Chamoun: We're incorporating advanced technology into our emerging commercial platforms as we expand into this adjacent market.
George Chamoun: ACDAI powers our consumer-facing solutions like ClearCar and our trade-in solution for auto e-commerce partners.
George Chamoun: Dealer partners are piloting our new AI-enhanced applications to perform their own inspections for a number of use cases, and we've received incredible feedback, which has informed our product roadmap.
George Chamoun: To wrap up, as you know, innovation has been one of ACV's guiding principles since inception, and a key driver of our marketplace success.
George Chamoun: We're only getting started and we look forward to sharing some more exciting new AI enabled products and services at our upcoming Analyst Day in March.
George Chamoun: With that, let me hand it over to Bill to take you through our financial results and how we're driving growth at scale.
Bill Zerella: Thanks, George, and thank you for joining us today. We are very pleased with our Q4 financial performance.
Bill Zerella: Along with strong revenue growth, we delivered meaningful margin expansion and adjusted EBITDA growth, demonstrating the strength of our business model.
Bill Zerella: On slide 13, let's begin with a recap of fourth quarter results.
Bill Zerella: Revenue of $116 million was above the high end of our guidance range, representing 35% year-over-year growth.
Bill Zerella: Q4 revenue from our 2024 acquisitions was in line with expectations, so the overall performance was again driven by strong organic growth of approximately 20% year-over-year.
Bill Zerella: Adjusted EBITDA of $6 million exceeded the high end of guidance, with adjusted EBITDA margin improving 900 basis points year over year.
Bill Zerella: The upside was driven by strong, high-margin auction and assurance revenues, and by operating leverage.
Bill Zerella: Finally, non-GAAP net income was also above the high end of guidance, with margin increasing approximately 400 basis points year over year.
Next on slide 14, let's review additional revenue details.
Bill Zerella: Auction and Assurance revenue was 58% of total revenue and grew 40% year-over-year.
Bill Zerella: This performance reflects 27% year-over-year unit growth and auctioned an insurance ARPU of $500, which grew 10% year-over-year.
Bill Zerella: Marketplace services revenue was 37% of total revenue and grew 31% year over year, reflecting strong revenue for ACV transport and record revenue for ACV capital.
Bill Zerella: Our SAS and Data Services products comprised 5% of total revenue with growth accelerating to 10% year-over-year.
Next I'll review Q4 costs on slide 15.
Bill Zerella: Non-GAAP cost of revenue as a percentage of revenue decreased approximately 400 basis points year-over-year. The improvement was driven by auction and assurance results and by ACV transport.
Bill Zerella: Non-GAAP operating expense, excluding cost of revenue, as a percentage of revenue, decreased 400 basis points year over year.
Bill Zerella: These results reflect our focus on expense discipline as we optimize and scale our business.
Thank you for watching!
Bill Zerella: Moving to slide 16, I'll frame our investment strategy as we drive profitable growth.
Bill Zerella: Our focus on spending discipline and operating efficiency resulted in a decrease in OPEX growth in 2023, yielding a significant improvement in adjusted EBITDA.
Bill Zerella: In 2024, as expected, OPEC's growth increased to support our remarketing-centered strategy and commercial platform investments. Even with these growth investments, adjusted even margin increased by approximately 800 basis points year over year.
Bill Zerella: Next, I will highlight our strong capital structure on slide 17. We ended Q4 with $270 million in cash and cash equivalents and marketable securities and $123 million of debt.
Bill Zerella: Note that our Q4 cash balance includes $167 million afloat in our auction business.
Bill Zerella: In the figure on the right, we highlight our strong full-year operating cash flow of $65 million.
Bill Zerella: The significant improvement reflects our transition to positive adjusted EBITDA and strong margin expansion.
Bye-bye.
Now turning to 2025 guidance on slide 18.
Bill Zerella: For the first quarter we are expecting revenue in the range of 180 to 185 million, growth of 24 to 27 percent year-over-year.
Bill Zerella: Adjusted EBIT is expected to be in the range of 9 to 11 million reflecting growth of approximately 135 percent year-over-year at the midpoint of guidance.
Bill Zerella: For the full year, we are expecting revenue in the range of $765 to $785 million, growth of 20 to 23% year over year.
Bill Zerella: Adjusted EBITDA is expected to be in the range of 65 to 75 million, reflecting growth of approximately 150 percent year-over-year at the midpoint of guidance.
Bill Zerella: As it relates to guidance, we are assuming that dealer wholesale volumes will be approximately flat year-over-year for 2025.
Bill Zerella: We expect conversion rates and wholesale price depreciation to follow normal seasonal patterns.
Bill Zerella: We also continue to expect revenue growth to exceed non-GAAP OPEX growth, excluding cost of revenue and depreciation and amortization, by approximately 500 basis points.
Bill Zerella: And finally, moving to slide 19, we are updating key assumptions in our midterm target model.
The model continues to assume 1.5 million total units.
Bill Zerella: and we now expect approximately 15% of the mix to come from commercial wholesale.
Bill Zerella: Our targets also continue to be underpinned by sustaining market share gains and expanding margins through revenue mix and scale, which we've clearly demonstrated in our performance.
Bill Zerella: We're also factoring in higher auction and assurance ARPU based on the pricing power we've demonstrated in recent years by delivering value to our dealer partners.
Bill Zerella: As such, our new targets are revenue of $1.4 billion and adjusted EBITDA of $350 million.
Bill Zerella: We look forward to taking you through a deep dive on our updated targets at our March Analyst Day.
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 2024.
Bill Zerella: We are especially proud of our ACV teammates that delivered these results.
Bill Zerella: We continue to gain market share by attracting new dealer and commercial partners to our marketplace, while expanding our addressable market, which positions ACV for attractive growth as market conditions improve.
Bill Zerella: We are delivering on an exciting product roadmap powered by ACV AI to further differentiate ACV in drive operating efficiencies.
Bill Zerella: We are focused on achieving substantial adjusted EBITDA growth in 2025 and delivering on our updated midterm targets that we believe will drive significant shareholder value.
Bill Zerella: We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A.
Thank you. Thank you.
Thank you.
Bill Zerella: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys.
One moment please while we poll for questions.
Speaker Change: Our first question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.
Eric Sheridan: Thanks so much for taking the questions and great to talk to you. In terms of the market share gains that are embedded in your forward forecast, maybe talk a little bit...
Speaker Change: George, about some of the underlying assumptions you're making with respect to sort of same store dynamics, new initiative dynamics, elements of yield or return on some of the investments you've made in the platform over the last couple of years is sort of driving those market share gains, just so we can understand a little bit better some of the underlying assumptions. And with the one year out EBITDA forecast, I just want to refresh on how you're thinking about either hitting that kind of forecast versus outperforming it and the balance between
Thank you.
Yeah, certainly, Eric. So,
Speaker Change: First, on what were our thoughts on the market this year, the direct question was, we're assuming our share gains continue really at the same pace.
You know between interest rates
other market conditions.
some of the other concerns out there in automotive.
Speaker Change: Our thought is assume a flattish overall wholesale market, and we continue to take share at the same consistent rate.
So really no change in how we've been taking SHARE.
thus far.
Speaker Change: Just, you know, keep going. And to your point, with some of our new value-added services, we could grow faster.
Speaker Change: and that that is a possibility. But the thought right now is just the same message we've been giving you all is same consistent execution, same market share gains, but assume an overall market overall market conditions that dealer wholesale would be flat year over year.
Eric Sheridan: Is that helpful, Eric, on your first question? That is helpful, thanks.
Yep, and the second question
Speaker Change: We're, I'll start and Bill can lean in. You know, we're obviously, we continue to invest. We've got an exciting lineup of product and technology.
Speaker Change: Well, we're seeing a world where AI is changing everything quickly, very, very quickly. And we are investing as well. We believe we've got a unique advantage to continue to demonstrate very strong
Speaker Change: sort of overall health benefits. I believe we're at 130-plus percent year-over-year, right, when you look at our year-over-year EBITDA improvements.
Speaker Change: It's actually 150%. 150, thank you. 150% year-over-year improvement. So while doing that, an incredible improvement on overall. Eric, to your point, you'll see some of the things I highlighted today, we'll be showing quite a bit of this on Analyst Day as well.
We've got a really incredible product roadmap.
So we look at the strength in our current products.
our product roadmap.
Show.
that we continue to improve.
Speaker Change: are our overall path of EBIT expansion, but also invest in the core. Bill, I don't know if you want to add any more to that. Yeah, I would say, Eric, I mean, it's always a question of how you balance investment versus driving earnings growth.
Speaker Change: So when you take a step back, you know, we're driving 150% improvement in
Adjusted EBITDA on 22%.
Speaker Change: revenue growth, right? In the past, in terms of overall performance...
Speaker Change: You know we've we've tended to you know pass some portion of that through in terms of you know over performing which is what happened last year
Speaker Change: But we're always kind of thinking, you know, at the same time, how do we continue to drive future growth? So that's always the balance, and those are the calls that we make. So far, we've been able to overperform and still invest.
Speaker Change: at a rate we think is important to drive future growth. So we feel pretty good about the balance, at least for the initial guidance for the year. And, you know, like every year, we'll see how things kind of play out over time, especially with respect to market conditions.
Really appreciate it. Thank you.
here.
Thank you.
Speaker Change: Our next question comes from the line of Chris Pierce with Needham and Company. Please proceed with your question.
Speaker Change: Hey, everybody. I just wanted to hit on flat market volumes. You know, there's articles out there from the National Auto... I'm going to get the acronym wrong, but the Auto Auction Association.
Speaker Change: showing low double-digit growth in dealer volumes in January and similar in commercials. So, is it that you think maybe tax refund season was pulled forward somehow? I just want to get a sense of, you know, the market's been strong, but you guys are saying flat in 25. I just want to kind of understand where you're coming from.
Yeah, I think that's a great question. I think.
Speaker Change: It's really why we also have a range. Let's start with, you know, I think the whole process here to have a range is to
incorporate into that thought process, you know, what happens if.
Speaker Change: it's flattish like we're saying what happens if it's a little bit better or a little bit worse hence why we have a range but if you look at the specifics there's mixed data on what
Speaker Change: Economists are saying it's going to happen with retail this year. There's really a lot of mixed data out there and obviously we don't want to be wrong.
So to your point, January was very strong for ACB.
We had a really strong month.
Speaker Change: And if the whole year ends up being like that, that would be fantastic, Chris, but we're not going to bank on that, okay? February, as you're probably also reading, it's not like anything changed at ACV, right? But February, I think we're going to see retail sales will be – could end up being lower year over year.
Speaker Change: Now, whether or not retail sales end up being lower year over year, I'm not talking about wholesale, I'm even looking at retail.
Speaker Change: It would mean that whether it was weather, whether it was interest rates, whether it was other concerns, we could see that February's challenges are either temporary or not. And so when you take all this in, right, there's a lot of crosswinds out there. There's the.
Speaker Change: There's the macro stuff. There's all this concerns about tariffs and everything else We think it's prudent for us to assume right down the middle
Speaker Change: Sum Flatish. There's no reason for any of us to take all these different messages going on out there and predict it will be better. I don't think that's prudent for us and for our shareholders.
Speaker Change: So, but to your point, there could be a situation this year with dealer wholesales up and January showed us all, but keep in mind dealer, January wholesale was a result of December's activities. Wholesale is always a few weeks after retail.
Speaker Change: and so we'll see how much January retail was actually up or not year over year as the data starts to come out.
Speaker Change: And so let's start to follow that trend of how much really was January up? How much was February up or down? So I think we're doing the right thing for us and our shareholders, basically predict down the middle, hopefully it's better than that, and hence why we give you all a wrench.
Speaker Change: Okay and then I appreciate that and then just lastly for me can you talk about some of the changes boots on the ground that you're seeing from some of the power wholesalers out there like CarMax and Carvana updating their buyer-facing tech but is that something that would affect your volumes in any way or what do you see as there's these changes in the marketplace as things become more tech forward?
Yeah, I mean, at the end of the day.
I think we've been very consistent on competition, right?
Speaker Change: a lot of competition out there. There's hundreds of regional auctions. We've always had competition. We respect our competition. But I think, you know, there was other, like, marketplace things that have come up over the last couple of years that draw some question out there, that some of the things you all saw from other, like, marketplace companies.
you're hearing a very consistent message
We've got an incredible value proposition for dealers.
Speaker Change: We have marketplace offerings, we've got transportation, we've got capital, we've got pricing tools.
Speaker Change: We've got a broader value-added offspring than we believe anyone else in the world.
Speaker Change: and we feel really good about that. So there will always be competition, we respect that competition, but we really love the position we're in.
Okay, got it. Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Bob Labick with CJS Securities. Please proceed with your question.
Good afternoon, it's Pete Lucas for Bob.
Pete Lucas: Just on your recon network, as you build out to 40-plus locations, what are the key advantages that this gives you other than more storage space for repos and what are you doing differently than the incumbent players with your space and commercial offerings?
Thank you.
Pete Lucas: Yeah, two great questions. So one, to your point, your first part, just to sort of help everyone else understand, you need that land, to your point, for a repo and some of the other categories. So starting to have some of that land to allow us to broaden our TAM, we're really excited about.
Pete Lucas: and so having the right locations is important, but then to your point, the unique offering ACV brings is twofold.
One is...
Pete Lucas: The way our data service offerings works, we're going to be able to auction vehicles every day, not just once a week. And we're going to help commercial partners make the right decisions based on the condition of that vehicle.
Pete Lucas: That condition data will also go all the way upstream. We have one remarketer today in the rental car category who is starting to use our data to help them understand the value of their wholesale cars.
Pete Lucas: and that goes upstream before they even start to make decisions on who to remarket with.
Pete Lucas: Once you get to the actual physical location, we all we have some, we believe is some healthy disruption going on there. I'm just gonna tease it with that today. Those of you that go to analyst day, we'll get to see what that is, but we've built.
Some really incredible technology.
Once the vehicle gets there, that makes us more efficient.
allows us to
Pete Lucas: get the right condition of the car, expedite, and then last but not least...
Pete Lucas: The size and scope of our marketplace, obviously one of the fastest growing marketplace companies, means that you're going to have broader reach than the traditional local auction.
Pete Lucas: So, we've got buyers all over the country who love the ACV Condition Report. They would love to buy every car using the ACV Condition Report. And we're going to be able to leverage the dealer wholesale side and dealer scale to now take that buyer base and bring them commercial vehicles.
Speaker Change: Very helpful. Thanks. And then I guess just staying on that topic, just how many acquisitions are you looking at this year in terms of, you know, and how many would be greenfields? And what are you seeing in the market overall? Is it getting easier or harder to acquire locations?
We will end the year with our first Greenfield location.
Speaker Change: Our software and technology services will be ready for the back half of the year.
Speaker Change: and we'll be ready to break ground. Very exciting for ACV. There could still be M&A this year or next year. We're not banking on it. Of course, we're talking to folks whether something happens or not.
Speaker Change: But we're going to assume, moving forward, that if we want to be in a market and there isn't someone to acquire, we're just going to go ahead and open up a greenfield. When we look at the cost for rent,
Speaker Change: the rent costs are are really manageable for what we need so all we need to do is basically rent the location, put up the right reconditioning facilities, bring the tech that we have and we're up and running and we're really excited to have at least one up and running by the end of this year.
Speaker Change: Hey Bob and I would add obviously you know for successful you know with Greenfield rollouts you know that that could and should dramatically reduce our capital requirements.
right from an M&A perspective. So we're kind of anxious.
Speaker Change: to move forward and, as George said, by the end of the year have our first green field up and running.
and then we'll also better be able to gauge.
Speaker Change: you know what our capital requirements really will be since a lot of investors have asked us that question. It really depends upon the mix between M&A and greenfield. So having our first greenfield up and running will give us a little more clarity in that regard.
Very helpful, thanks. I'll jump back in the queue.
Thank you very much.
Thank you.
Speaker Change: Our next question comes from the line of Nick Jones with JMP Securities. Please proceed with your question.
Nick Jones: Thanks for taking the questions. Can you just remind us how you are thinking about pricing?
Nick Jones: in the business? Is that still a lever you could pull on? How are you thinking about it kind of strategically and how are kind of competitors behaving today?
Speaker Change: yeah thanks Nick yeah great question we're we're still our price our fees are still a little bit lower than the competitors so we do have a little room for this year that's how we're thinking about it at this point but obviously for competitive reasons I don't want to chat too much more about it on a call like this but we do have a little room for the air
Bill Zerella: I would just add, Nick, I mean, if you look at the numbers for last year, our marketplace ARPU was up 9%, right? As a result of some of the price increases that we were able to pass through. So we're certainly assuming a lower percentage of increase in our model for this year.
Got it.
Bill Zerella: If I could, I think you certainly recall about half of dealers are transacting on the platform.
Speaker Change: I think you normally update those numbers on the K. I guess we could wait for that to get those unless you can disclose them now. But can you speak to the stickiness of the businesses using the marketplace? I mean, how should we think about churn and just kind of the overall behavior of the users? It sounds like the churn is extremely low.
Speaker Change: You know negligible and it's really about kind of shifting wall to chair Can you just help us understand as you cut, you know plan to gain share You know, how are folks responding to the platform as the years go by?
Speaker Change: Yeah, Nick, I mean, the way to think about our retention is, you know, in the markets we've been at the longest in the Northeast, and you'll start to see some of this soon, we've built very substantial market share.
Speaker Change: you know the market share we have in our in our in our early markets is very significant.
Speaker Change: and so when you it gives us great confidence that even the markets where we've been at for eight, nine years
Speaker Change: We've continued to grow share. You only can keep growing share if you're retaining.
Speaker Change: early customers. So I'll point to that and I'll point to not only what you see in the 8k but also on Analyst Day I believe we're going to show a couple slides that shows how we've grown in some of these markets and that will kind of bring out what you're looking for which is we're not only bringing on new participants
Speaker Change: We've grown our share and our wallet share with early participants.
Great. Thanks, George. Thanks, Bill. Yeah. Thank you, Nick.
Thank you.
Speaker Change: Our next question comes from the line of John Colantoni with Jeffries
Please proceed with your question.
Thank you. Thank you. Thank you.
Great. Thanks for taking my questions.
Speaker Change: I'm just doing some back-of-the-envelope math to just pull your outlook in bed. Something like mid-teens organic unit growth.
Speaker Change: You know, given you're expecting the wholesale market to be about flat next year, I'm wondering if that mid-teens growth is the right way to think about...
ACV's normalized level of growth.
Speaker Change: And as part of that, I'm wondering if you could talk to the key growth vectors that could unlock incremental growth over time.
Thanks. I have a follow-up.
Speaker Change: Hey John, I'll start and then I'll let Georgette end. So you're correct, we are assuming mid-teens unit growth, which is basically essentially market share gains.
Speaker Change: That's very consistent with what we what we've seen last year and frankly on average the last few years
Speaker Change: So, that is an embedded assumption. You know, so that's correct. And that's pretty consistent with what we've been saying, I think, for quite some time now. I don't know, George, if you want to add to that. Yeah, I think if you look at...
George Chamoun: If you look at a way to think about how the year started, January versus February, it's sort of funny how you can start the year and have two different climates. January was very strong for us.
George Chamoun: and it was it was strong because we kept taking share but also dealer wholesale was up a little bit and that was nice so if we do see
George Chamoun: a good tailwind and we see less concern on affordability and we see consumers going back and buying cars like we saw in parts of the fourth quarter, then that could be great for us.
George Chamoun: Right, because we're just going to assume our execution, assume the market's flat. But yeah, we can see some of these market conditions change.
George Chamoun: which that would be helpful. Number two, that would be out of our control, within our control.
George Chamoun: is some of our new value-added services on pricing and helping dealers with trades and appraisals. For example, and you'll see some of this on Analyst Day, but we've got new tools that help dealers buy cars in their service drive.
George Chamoun: We're starting to win customers for wholesale because of these new products.
George Chamoun: So this bundle you've all been hearing us talk about for a long time is getting very exciting. You know our other part of our bundle with ACV Max
We can now predict the price of a car
George Chamoun: within a few hundred dollars of what it's going to sell for in retail.
George Chamoun: and within $100 of what it's going to sell for in wholesale. Like that guidance, when we say that to a dealer, first they think we're crazy. Because if you took all their general managers and used car managers and put them in a room and said you could predict the price within a few hundred dollars,
George Chamoun: Like that's impossible and with these legacy tools our competitors have you can't do any of this
George Chamoun: So we feel great having said that. These tools are new. Our bundles are still, you know, an early, early, you know, early adoption. We don't want to, as bullish I am about where we're going and how I think AI will change automotive forever. And it could be quickly, but there's still humans out there who have to make decisions and who have to change.
George Chamoun: So we'll see how fast, right? We'll see dealers go from the old tools and the old ways
George Chamoun: to these modern ways, but to give you two vast ways we could do better would be the market getting better Or we get even a higher Faster take rate for our broader value-added services either one of those could help us have an even more exciting year
Speaker Change: Great, and I was curious to just get your perspective on what you're seeing on the competitive front. And as part of that, maybe just give us your perspective on Carvana's plans to expand Odessa Clear. Thanks.
Speaker Change: I mean, listen, I think you should all do your own homework. I don't think most dealers.
Speaker Change: are going to embrace some of these products like others are saying. You've heard a lot of things kind of be talked about in this industry. So I'm not going to really speak to them. But, you know, we feel great about what we're doing. We're a neutral party. We're independent.
Speaker Change: We get a tremendous amount of data from our dealer partners.
Speaker Change: We're launching a broader value-added service offering and we're actually starting to get wholesale commitments from dealers That's a new thing because of our broad suite of offerings. So whether it's the company you mentioned or other competitors You're always going to have competitors. So the question is who should the dealers partner with?
Speaker Change: right? That's what the investors should be asking. That's what dealers should be asking is, who should dealers partner with?
Speaker Change: and we feel like we're in a great spot to be the right partner for dealers and commercial partners with the suite of offerings we're bringing to the market.
Thanks so much.
Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Rajat Gupta with J.P. Morgan. Please proceed with your question.
Rajat Gupta: Great, thanks for taking the question. I'm just wondering if there is an update you could provide us on ACV Max and the CARE car?
Rajat Gupta: Combo and just in terms of adoption and just go forward plans to scale Clearly, you know when you were at the NADS show it looked like, you know, ACD Max in particular
Rajat Gupta: was definitely like a significant improvement in mindshare so it's a curious if you're starting to see any inflection there and adoption you know just contribution and then how integral are these products you know to your midterm targets and have a quick follow-up. Thanks.
Rajat Gupta: Yeah, thanks for that. I mean, great question. So, you've obviously been doing some of your homework. We are, I would say, we're finally, like, arriving.
Rajat Gupta: as a brand for dealers and a consideration on these data services. Obviously, there was incumbents, right? So, we are in a way the new player for these data services, ACMAX and ClearCar.
The reception we're getting is incredible. You know, we recently
Rajat Gupta: won a dealer group, a regional dealer group, with over 30 rooftops, which we're really excited about.
When you look at those 30 rooftops...
Rajat Gupta: It doesn't materially change our revenue for the year. When you look at what we get per month in subscription. But what it does do...
Rajat Gupta: is we're now helping them price their wholesale and their retail cars.
Rajat Gupta: We're advancing them. They're now in this sort of AI era, powered by ACV-AI. And a way to think about this is that dealership to us is worth a lot more than $1,000 to $2,000 a month in subscription.
Rajat Gupta: So we're, when you look at if we were able to get 20 wholesale cars a month or more.
Rajat Gupta: It's a really important partnership, and they know that, and they know we're really leaning in, and we're giving them an incredible product offering for a very low subscription.
Rajat Gupta: So a way to think about our data services is they're quite inexpensive, right? We're not charging a lot. We're not banking on a huge SaaS business here right now. That's not, at least in the midterm plans.
Rajat Gupta: but what it's enabling is an incredible partnership where they also make a commitment on wholesale.
And when you have that, that's treated like a partnership.
Rajat Gupta: And when you're treated like a partner, you get invited to their annual meetings or quarterly meetings. I've recently been invited to where the owner has brought me in to speak to all the GMs, all the used car managers. Like, we're becoming a real intimate partner.
Rajat Gupta: Other vendors can't say that. Some of the other auction companies, marketplace companies that were discussed earlier, they really can't say that.
Rajat Gupta: So, long-winded way to say we like our position, we don't have a huge expectation in revenue on the SAS line, as Bill and I have discussed, we look at this as a way to build partnerships, but we feel great on where we're at.
Rajat Gupta: Got it, that's helpful. And then just like a couple levers in the form of, you know, off-platform financing and transportation services, you know, any appetite to incrementally lean, you know, into these verticals in 2025 or is it going to be more gradual in terms of contribution there?
, , , , , ,
Rajat Gupta: ready and you know our style we we tend to stay in like these beta periods for a while or we just want it to be right.
Rajat Gupta: So we don't have, on your first one with transport, we don't really have an off, you know, outside of our closed market. So we've grown that primarily within the ACV auctions.
and word-of-mouth. Word-of-mouth has been great.
Rajat Gupta: I'm not sure if this year or next year we'll start to lean in a little bit more. Maybe we'll add a couple more sales folks to sell off network.
Rajat Gupta: But that's a great offering that we've got it in us to do it, and because our margin profile's healthy there, and it's a great, our product is more differentiated.
Rajat Gupta: And probably I even realized I actually I'm gonna get off topic here for a second and I'm walking down I'm going down. I'm getting off the elevator at Neda and a dealer came up to me and said You have no idea how great ACV transport is
Rajat Gupta: And he pitched me on transport, on why he's now using AC Transport to do his retail cars, to do his store-to-store from Ohio to Pennsylvania, and it was so cool hearing a dealer pitch me on my own product, probably better than I could.
Rajat Gupta: On capital, we just started, ACB Capital, we did just start to lean in. I think we added a couple more sales, folks.
Rajat Gupta: We're looking at the cost to confirm we've done that. We feel really, really good. We're ready to now start to do more. We feel really good about our new platform on capital and how we're managing risk versus growth.
Rajat Gupta: We're still, I would say, a bit cautious. We still deny more dealers than we accept, but we feel really good about this year that we can start to grow capital a little bit faster.
Speaker Change: Yeah, I would just add on ACV Capital, Rashad, that we've talked about the investments we've made over the last couple of years in terms of our platform.
Speaker Change: and our loan management system and infrastructure. So, you know, we're now in a position where we also have a really good team in terms of managing risk.
Speaker Change: team has done an excellent job so you know we're we feel really good about being able to ramp ACV capital faster this year and we're we're certainly baking into our off X growth making sure we have the right go-to-market team in place to support that
Thanks for all the color and good luck.
Thank you, Rochelle.
Thank you. Bye.
Thank you.
Our next question comes from the line of...
Naved Khan, B. Reilly, please proceed with your questions.
Thank you for your question.
Thank you.
Speaker Change: Great. Thank you very much. George, maybe you can maybe talk about conversion rate in the fourth quarter, how that trended year-on-year and sequentially and the drivers for that. And the other question I have is on transportation margin. Looks like...
it was a pretty strong in fourth quarter because
Speaker Change: You had a pretty nice year-on-year uptick for the full year. I think you said you're about the target of a high teen, so fair to assume you're close to 20% and you can maybe sustain those levels of stats there. Thanks.
Speaker Change: And your first question, that's right. Q4 conversion rates were slightly up, which was nice. So that did end up being.
Speaker Change: A nice little tailwind for us. We obviously, in our business, conversion rate, it is helpful when you have conversion rates up a little bit higher than you're forecasting so that you're right on. And your second question.
I'm sorry, Vikas?
Speaker Change: Oh yeah, when you look at why on transport, one reason why transport margins are better and faster is what we're starting to do on bundling.
We're still early.
Speaker Change: on this, you know, bundling vehicles. But if you look at it, if you've got to move, a car is going from place A to place B, and it's going to cost you, you know, $250 or $300 to move that car. And we already have a truck going in that direction.
Speaker Change: One of the hardest thing about these one-off moves for transport, and probably for some of you that have done your research about the old ways to buy cars versus the new ways, is this thought process of, if I can put more than one car in a truck
Speaker Change: it does start to get your transport costs down. Well, we've been able to pass savings to our dealers on ACV transport while improving our margins.
Speaker Change: And we're early in this bundling, but we are growing. You can see it in our numbers. ACV transport getting popular not only on ACV auctions, but off our little closed network here. The bigger we get in transport,
The more bundling we'll be able to do.
Speaker Change: And this won't be overnight, right? Like bundling will take us, you know, probably, you know, like the next two years to get bundling to be a real significant percentage, but it could get there. And so it's just, it's great because, again, you, it's two benefits, both the dealers seeing a lower cost and also our margins increasing.
Speaker Change: Yeah, Navid, we will speak a bit about kind of an updated view in terms of margin expectations for the transport business at our Analyst Day in March, so stay tuned for that.
Great. I look forward to it. Thank you, guys.
Thank you.
Speaker Change: Our next question comes from the line of Curtis Nagel with Bank of America.
We'll proceed with your questions.
Curtis Nagel: Great, thanks very much for taking the question. Just one on, I guess, the shape of margins for the year.
Curtis Nagel: So, I guess, why would 1Q margins be lower than the full year rate by almost half, maybe not quite, when the revenue growth is a decent bit higher than 1Q than full year?
Curtis Nagel: Is this just maybe reflecting, you know, kind of basic seasonality? I think mid-year is typically stronger or perhaps the arc of investments. Just any help on that would be great.
Bill Zerella: Yeah, sure, this bill. So, a couple of things. So, first...
Bill Zerella: Q1 is when we have the largest trade show of the year for the company, NAIDA, which you know the industry is kind of the biggest event so you know that does kind of bake into every Q1 so you sort of you know have that drag if you will on OPEX.
Bill Zerella: There is also, you know, it's also a function of timing of investments.
So, you know, we made some increased investments in Q4.
Bill Zerella: That kind of support growth for next year or for this year rather
that could start flowing through in Q1, so.
Bill Zerella: You know, you sort of have some distortion there, but I wouldn't frankly read.
Bill Zerella: that much into, you know, the differential by quarter. It's just not that significant. You know, based on our guidance, we're growing just at even 130% year-on-year in Q1.
Bill Zerella: versus 150% for the year. So that 20% differential is frankly, not a large dollar amount. So there's a little bit of distortion there in that regard. So I wouldn't read too much into it.
Okay, fair enough. And then just maybe going back to...
Bill Zerella: The point on wholesale volumes flat sounds like, you know, a bunch of scenarios are being contemplated, but I guess anything in terms of kind of how you're thinking about, again, kind of the shape of the year.
Bill Zerella: start negative, turn positive, or just sort of, I guess, generally assuming the industry is kind of flat, you know, within some range for the year as a whole.
Bill Zerella: Yeah, I mean, we're, I mentioned some of this earlier, but I'll try to get a little more color. Yeah, so when you think about the year, you know, January was very strong.
Bill Zerella: It showed us a picture of what if we did get to see a little Optimus in this year, if we kind of think about like the higher side of our range, right, would be like the whole year's more like January, that'd be great.
Bill Zerella: But, you know, February, whether it was weather, weather with other factors, I think weather was quite a big part of it But there's other factors you're seeing out there And we talked to dealers. They don't think it's just weather
Bill Zerella: I think there's some, you know, they're just wondering how much of this is.
Consumers also.
So, thank you.
Bill Zerella: We just thought, with everything going on in the world, that it doesn't make sense for us to predict anything outside of our own control. So really, the thought is to go right down the middle.
Bill Zerella: And it's really ironic that the year has started out this way, with such an incredible January, and such a mixed February, that it almost gave us the confidence of saying, you know what, let's just...
Bill Zerella: Give all our investors what we know right now, focus on what we can control, and try to take the market out of it as best as we can.
Okay, fair enough. Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Josh Beck with Raymond James.
Please proceed with your questions.
questions. Thank you. Thank you.
Speaker Change: yeah thanks for taking the question maybe a two-parter so on the on the inventory I think you said it was kind of 25% below pre-COVID levels is it likely to
Speaker Change: kind of remain in that zone for the year and then, you know, maybe in...
Speaker Change: 26 and beyond you know we start to see that improve but just just curious there and then I know this is probably a little unfair just because there's so many scenarios going around but if we were to get some
heavy new auto terrorist
Speaker Change: would it widen that affordability gap versus used cars and be helpful? I mean, you could obviously argue that a lot of ways, but any scenario analysis, you can just help us think through tariff scenarios would be helpful as well. Thank you.
Yes, certainly. On your first question, we...
Speaker Change: Let's first assume, let's pretend tariff conversations weren't here on your first question, and then we'll try to entertain both your questions with and without tariffs.
Speaker Change: without tariffs I would have thought there would be a steady improvement throughout the year like ending the year like you know with only 10 to 15 percent and eventually going into next year again we're all guessing
But I would have thought we would have
Speaker Change: steady improvement. Dealers starting to gain more used cars. I also think we'll see some of them buy more cars from consumers. I think we're behind the scenes. We're doing more. Folks like ACV and others are doing more for them to buy. So I would have thought there would have been a slight improvement throughout the year, but not a big bang. It would be like improvement, you know, a little bit each month type of thing.
Speaker Change: Your second question, obviously, I think everybody in a lot of different industries is trying to figure out is tariffs. Like, what what could this mean?
Speaker Change: I think the first question is, you know, how do OEMs, you know, respond? Are they going to pass, you know, the full cost?
Speaker Change: both to their dealers and consumers, knowing there's already some affordability challenges. Some of these OEMs still have healthy margins, right, that they could consider not passing all of it.
Speaker Change: So, you know, OEMs are going to have to, if the tariffs truly come in, they're going to have to get creative. I think we're going to see lease payments and other things, and they're going to be thinking, okay, I'll assume a higher residual value, or whatever they're going to assume. They can't just force the dealers.
to have more cars in their lives.
Speaker Change: and pay these high floor plan fees. It's gonna be tricky to figure out. And so I'm first starting with the OEM before the dealer, before the consumer. And then you kind of flow that through.
Speaker Change: then obviously new retail could be impacted, at least for the brands that are priced higher. Maybe the brands that are priced lower would be less impacted. I hate to have all these ifs, right? It's such a tough topic to go through.
Speaker Change: But you know and then when you think on the flip side of all that
Speaker Change: You know, yes, to your point, dealers might have to keep a few more trades, so that would be the negative. But on our platform, marketplace conversion, if dealers kept more trades, marketplace conversion would likely go up.
Speaker Change: So we would probably get more efficient, you know. So if it hits supply in a meaningful way, all of a sudden we get more efficient. You guys saw a couple quarters where we had really crazy conversion rates in COVID. So those are a lot of this.
Speaker Change: Hence, with all this stuff going on in the world, some of the analysts had the market recovering quite a bit this year in their assumptions for the ACU model for this year.
Speaker Change: We're telling you all is whatever your assumptions were last year That was before all this tariff craziness was going out there all this other craziness out there assume a flat market
Speaker Change: Soon we're going to focus on weak control and I think we're going to be in good shape.
Super helpful. Thank you for framing that.
Thank you.
Thank you.
Speaker Change: And we have reached the end of the question and answer session. I'll now turn the call back over to Tim Fox for a closing remarks.
Tim Fox: Great thank you and thanks everybody for joining us on the call today. We look forward to seeing those of you who can join us live in in New York on March 11th and if not obviously we'll have a webcast available and once again thank you for your interest in ACV and have a great evening.
Bye.