ACV Auctions Inc.

Welcome to the ACV first quarter 2021 earnings conference 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 a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Tim Fox, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining ACB's conference call to discuss our first quarter 2021 financial results. On the call today are George Shimon, Chief Executive Officer, and Bill Zarella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding avenues for long-term growth and total addressable market expansion, our financial guidance for the second quarter of 2021 and the full year 2021, and opportunities for margin expansion. 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 these risks and uncertainties is contained in our final prospectus filed with the SEC on March 24th, 2021, and our quarterly report on Form 10-Q for the three months ended March 31st, 2021 that will be filed with the SEC following this earnings call. And our remarks during today's discussion should be considered to incorporate this information by reference. Also, during this call, we may present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short time ago. The earnings release is available on the investor relations page of our website and is included as an exhibit in the form 8K furnished to the SEC. Lastly, we will be referencing our earnings presentation today, which you can find posted on our website. And with that, let me turn the call over to George.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us on our first earnings call. It's great to talk to all of you again, now as a public company. ACV's IPO was a significant step in our journey to build the most trusted and efficient digital marketplace for used vehicles. And we accomplished this through a lot of hard work by many people. I want to thank my ACV teammates for achieving this milestone. We are very proud of how far we've come since ACV was launched in 2015, and we look forward to building on our success in the years ahead. For our call today, let me begin by providing some context on the ACV story by briefly recapping our 2020 results, then touch on first quarter highlights, and finally discuss our strategy to deliver long-term shareholder value. In 2020, we transacted over $3 billion of GMV and nearly 400,000 vehicles on our digital marketplace. This produced over $200 million in revenue, a 95% year-over-year growth. As you can see, our momentum continued in the first quarter of 2021, where we transacted over $1.3 billion of GMV and nearly 130,000 vehicles on our digital marketplace. And we delivered strong revenue of $69 million, which generated 64% year-over-year growth. Our performance in the quarter was driven by continued adoption of our platform as we attracted new dealers into our ecosystem and gained wallet share within our existing dealership customers. We also saw continued adoption of our suite of solutions that further enables a seamless experience for our dealers. Similar to other companies in the used vehicle sector, we benefited from favorable market conditions, which drove strong customer engagement on our marketplace and favorable unit pricing. We have been able to drive significant growth, despite the supply headwinds that our franchise dealers face, selling fewer new vehicles. and having less used vehicle supply. Turning now to our strategy to drive long-term shareholder value, let me frame this by focusing on the three top-level elements of our strategy, marketplace growth, TAM and product expansion, and operating scale. Marketplace growth is all about leading the digital transformation of the dealer wholesale market with our robust data-driven platforms. We serve a large and complex addressable market. And as Bill will discuss later, we are ramping our investments to continue capturing market share and further differentiating our digital platform. Next, we're expanding our total addressable market and creating exciting new growth factors for ATV. This includes delivering an expanding suite of innovative products and services into the dealer wholesale market. And over time, entering new domestic and international markets that we believe can significantly expand our TAM. The last element of our strategy is continuing to deliver operating scale. ACV has a proven business model that is delivering growth at scale with very attractive unit economics, with structural operating leverage that we believe can yield significant margin expansion over time. Before turning it over to Bill to discuss financial details on the quarter and guidance, I'd like to provide a background in ATV for those who are newer to our company. Since this is our first call together, we have many listeners who are just getting to know ATV, I will spend a bit more time on the company overview. With that, let me begin with ATV's mission. Our mission at ATV is to build and enable the most trusted and efficient digital marketplace for buying and selling used vehicles with transparency and comprehensive data that was previously not possible without our investment in technology and people. Some of you have previously heard my diamond analogy. Basically, imagine buying a diamond on the Internet without knowing the four Cs of color, cut, clarity, and carat weight. Used vehicles are also extremely complex, and the value of a used vehicle depends fundamentally on its condition. ACV has fundamentally changed the used vehicle industry forever because of our investment in technology and people. Exiting 2020, our digital marketplace had over 16,000 active participants operating in 125 territories across the U.S. As I mentioned earlier, we are aggressively investing in growth, and we made great progress in the first quarter towards achieving our goal of 160 active territories by year end. Turning now to automotive, the market we operate in today, which is extremely complex and fragmented. Our flagship product, ACV Auctions, targets the wholesale market, which accounts for over 20 million units sold annually. This includes 14 million units from dealer wholesale and 8 million units from commercial wholesale. Our True360 data product is positioned to serve the nearly 30 million retail units that dealers sell to consumers. And given the unparalleled transparency that True360 offers retail buyers, we see significant opportunity to expand this offering. In addition, our True360 offering serves the 8 million vehicles that commercial accounts sell to dealers. Now, let's put some numbers behind the market opportunity. We view our addressable market in terms of our near-term and long-term opportunities. Today, we focus primarily on the U.S. wholesale market, which has significant runway. At an average fee of around $500 per unit, we estimate the TAM to be approximately $10 billion in fees for our core marketplace. This would include transportation and other value-added services we offer. The $200 million we earned in 2020 represents a small fraction of the opportunity. The majority of our current transactions come from the dealer wholesale segment, and we are just now investing in the commercial wholesale opportunity, a multi-year commitment. Additionally, our data services, such as True360, have the opportunity to address transparency on approximately 40 million vehicles, including dealer-to-consumer and commercial-to-dealer. Longer term, we believe our platform approach will resonate outside of the U.S., and we also plan to continue developing products that help dealers purchase and trade in vehicles from consumers. And over the long term, we see the opportunity to expand beyond used vehicles. Bottom line, we believe we have a significant untapped opportunity for growth. Now let's dig into ACB's auction experience. Our team of over 750 vehicle condition inspectors go to vehicles, wherever they may be, at dealerships or consumer driveways. We inspect vehicles with our proprietary tools, then launch them into a 20-minute auction. The reason we can sell a vehicle so quickly is because we have our buyers' profiles informed by their favorite searches, including any customization to their filters, which enables us to send notifications to dealers when vehicles match their needs. The notifications include a link to view the vehicle's condition and ACV's market report to get pricing guidance from similar vehicles. Dealers then conveniently finalize their transaction where they can purchase our value-added services like ACV Transportation and ACV Capital. Every step of the transaction journey in our platform is powered by data and technology, which drives trust, transparency, and efficiency. Turning now to our technology. Our platform leverages data and technology to power our digital marketplace, and data services, enabling our dealers and commercial partners to buy, sell, and value vehicles with confidence and efficiency. ACV's platform is comprised of our digital marketplace products and our data service products, which are underpinned by the ACV technology and data platform. Additionally, our back-end technology leverages machine learning to reduce manual efforts and post-transaction processing, which continues to enable greater operational efficiency. So how does this all translate into our marketplace offering? We deliver a comprehensive suite of products that help create a seamless experience and remove the challenge our dealers face during the traditional wholesale process. This includes our flagship product, ACV Auctions, which facilitates instant transactions of wholesale vehicles. Thousands of dealers transact in our digital marketplace every day. Live Appraisals is used by dealers prior to owning a vehicle to quickly assess the value of a consumer's vehicle without taking any risk. Within 20 minutes, a dealer can auction a consumer's vehicle. While the consumer is in the dealer's showroom, bringing efficiency and trust to the transaction. We pioneered Go Green, which is a wholesale market's first seller assurance service. Go Green provides the seller with a guarantee against claims of defects and vehicles that are not disclosed in our condition report. With ACV Transportation, we help our customers manage the entire transaction journey by delivering vehicles to the front door of the buying dealer. And finally, with ACV Capital, we are becoming an integral partner for independent dealers by providing a credit facility, which is creating both liquidity and stickiness to our marketplace. Moving on to our data services. We offer data services for our dealer and commercial partners that bring transparency and insights into the condition and value of used vehicles, both on and off our marketplace. With Truth360, we provide a detailed vehicle report, including cosmetic and structural assessments. Truth360 enables us to extend the reach of our products to the dealer retail market, and some of the largest dealer groups in the U.S. are starting to use Truth360. Our reports are integrated into dealer websites and included within the leading vehicle history report providers. Our commercial partners are also leveraging detailed True360 inspection reports to better understand the value of their vehicle and sell their used inventory. And through our ACV market report, we provide transaction data and condition details to help dealers assess the value of used vehicles. This gives dealers another tool to determine pricing strategies for their vehicles. Let's now look at how our marketplace, data, and technology combine to power significant network effects. As more marketplace participants join our platform, we can provide greater liquidity and a better experience, leading to greater scale. This, in turn, enables us to collect more vehicle and market data, bringing greater efficiency and more products. These reinforcing flywheel effects continuously improve our digital marketplace. and data services for our customers. Ultimately, this drives greater liquidity, greater scale, and greater efficiency, which is demonstrated in our attractive unit economics. With our continued investment technology and people, we believe we have significant avenues to drive long-term growth. Within our marketplace, our growth will continue to be driven by adding new territory in the U.S. and further penetrating our existing territories by attracting new participants while gaining additional wallet share from our customers. In some of our more mature territories with our longest running customers, we see dealers that drive up to 100% of their wholesale traffic through ACV. We've already made strides introducing ancillary services like ACV Transport and ACV Capital. And there's a long runway of growth in these areas. But we see opportunities for more. On the data service side, we're focused on helping dealers navigate the used automotive landscape by providing trust and transparency and services they need to compete in the digital world. Everything we're doing represents incremental opportunity to provide more value for our dealer and commercial partners. And we think this opportunity extends internationally. Lastly, M&A can be an accelerant to all of this if we find businesses that match our objectives. Let me wrap up with our ACV leadership team. We founded ACV with the core principle of investing in people and technology to bring trust and transparency across the entire used vehicle market. We have a unique blend of talented teammates with a broad section of background and experience And I'm excited to have them by my side as we continue on the ACV journey. With that, let me turn it over to Bill.