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spk07: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the ACV first quarter conference call. During today's presentation, all parties will be in an only mode. Following the presentation, the call will be open for questions. I would now like to turn the call over to Tim Fox, ACV's Vice President of Investment Relations. Please go ahead.
spk02: Good afternoon, everyone, and thank you for joining ACB's conference call to discuss our first quarter financial results. With me on the call today are George 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 future financial guidance. These forward-looking statements are subject to risks and uncertainties, and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, which can be found on our investor relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. The 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.
spk13: Thanks, Tim. Good afternoon, everyone. Thank you for joining us. ACV delivered solid top-line results above our guidance range, despite the persistent supply constraints weighing on the automotive industry and softening retail demand for used vehicles. We delivered EBITDA within our guidance range while continuing to invest in key growth expansion and technology initiatives. We continue to broaden and deepen our relationships with our dealer partners who underpin our long-term growth opportunity. Automotive dealers face the macro challenges I referenced earlier, but they have proven to be resilient and are a critical part of the automotive ecosystem. Dealers have also embraced digital transformation NACE CV is increasingly well-positioned to enable them to improve their ability to source, manage, and sell vehicles with greater transparency and efficiency. With that, let me turn to the first quarter highlights on slide four. Our market momentum continued in the first quarter with a revenue of 103 million, growth 49% year-over-year. We transacted $2.4 billion of GMV growth of 83% year-over-year. We sold 140,000 vehicles in our digital marketplace, a 9% increase year-over-year, and an increase of 70% on a two-year basis. Overall, we are very pleased with strong execution by the ACV team and continued customer adoption of our growing suite of services. Turning to slide five, to frame the rest of our discussion today, we will focus on the three pillars of our strategy to drive long-term shareholder value, growth, innovation, and scale. I will begin with growth. Moving to slide seven, given the continued headwinds facing the automotive industry, we are providing context on the dealer wholesale market in relation to the broader automotive retail market. First, to understand the demand side of our market, we provided data overall used car transactions, and wholesale pricing trends. As you can see in the chart on the left, retail sales of used vehicles in Q1 experienced a seasonal, sequential improvement over Q4, but was down about 10% year-over-year versus very strong performance in Q1 2021. Consumer demand for used vehicles is a key driver of wholesale demand and supply. because consumers purchasing a used vehicle typically have a trade-in. The chart on the right illustrates how the modified consumer demand in Q1 impacted wholesale prices. After experiencing historically high wholesale prices throughout 2021, prices declined during the first quarter, which does not mirror typical seasonal historical patterns. As I will describe in more detail later, this price deflation resulted in compression to conversion rates across the industry, as dealers increasingly became more price sensitive while buying vehicles in the wholesale market. Now, turning to slide eight, let's look at the supply picture. New vehicle sales remained well below historical averages and were down about 16% year-over-year in Q1 due to the ongoing supply challenges impacting vehicle production. This is reflected in the chart on the right, which shows that supply of light vehicles at franchise dealerships remains historically low. New vehicle supply is important to our business because consumer trade-ins for new purchases are a significant input into the wholesale market. With new vehicle inventories at these acute levels, the volume of trades entering the wholesale market has declined, resulting in a near-term contraction in the market we serve. While the exact timing for supply to return to historic metrics may be unclear, what is clear is that our ongoing investment in growth and differentiated products positions ACV to benefit from the resulting recovery in the wholesale market. So, what gives us confidence in our strong market position? On slide nine, we provided additional insight into our business. The chart in the left shows quarterly listings in our marketplace. Think of listings as a measure of dealer growth and marketplace adoption. As you can see, listings have grown consistently quarter over quarter, with a notable exception at the beginning of the pandemic, Q2 2020. Listings growth moderated in the second half of 21, and supply pressure has mounted in the industry. However, Q1 2022, listings recovered nicely, growing 37% year over year. reflecting strong execution on territory expansion, dealer penetration, and wallet share growth, including higher price segment of vehicles. This is also a reflection of the changing sentiment, as dealers are increasingly becoming more willing to wholesale vehicles. In the figure on the right, we've provided the quarterly variance of the marketplace conversion. There are three key takeaways here. First, pre-COVID, you can see that conversion rates in our marketplace were quite consistent, varying just a few percentage points from the average. Second, once COVID hit, conversion rates significantly increased, driven by the supply, demand, wholesale pricing factors I covered earlier. And third, as I mentioned, vehicle prices began to decline in Q1-22, resulting in incrementally cautious buying behavior and further softening of conversion rates back to normal pre-COVID levels. For context, the year-over-year change in conversion rates in Q1-22 was a 30,000-unit headwind versus Q1-21. We believe conversion rates on our platform will increase in the future as we continue to invest in our data products to help dealers manage price expectations. Obviously, the historically high conversion rates we in the industry experienced last year benefited the macro environment. but it's important context when assessing our year-over-year unit growth. Turning to slide 10, you can see that units grew 9% year-over-year, compared to 55% unit growth Q1-22, and 70% unit growth on a two-year basis. And despite softening wholesale prices, GMV grew 83% to $2.4 billion, resulting from a broader mix of vehicles on our marketplace. Moving on to slide 11. Based on our internal analysis, we estimate that the U.S. wholesale TAM from retail dealers was flattish quarter over quarter, but contracted around 18% year over year. So despite ongoing industry headwinds, we continue to access it, gain market share, and attract new dealers to our marketplace. Given our 9% year over year unit growth in Q1, and an estimated market contraction of 18 percent. This would imply ACV grew market share by 27 percent year-over-year. Next, I would like to wrap up the growth section with highlights on our value-added services. We continue to invest in the technology and resources that scale ACV transportation and ACV capital. These investments are driving strong top-line growth by delivering highly differentiated services to the market. while also creating efficiency for both our partners and for ACV. On slide 12, you can see that ACV transportation continues to deliver strong results and remains a key enabler for attracting new buyers to the platform. Our growing carrier partner network and fast cycle times resulted in attach rates once again exceeding 50% in Q1, with the number of transfers growing 45% year over year. In Q1, over 50% of our transports were automatically dispatched, which drove more efficiency in our transport operations. We also just recently launched the ACB Carrier Transportation App, which is a digital tool for carriers to efficiently manage their vehicle pickups and deliveries. Technologies like Auto Dispatch and the Carrier App help attract new carriers to our transport marketplace and drive efficiencies. which is an important element of ACV's overall margin expansion strategy. Turning now to slide 13, we are pleased with the execution in our ACV capital business. Attached rights and capital have more than doubled year over year, resulting in 140% loan volume growth. The increased mix of higher-priced vehicles transacted in our marketplace, along with new ACV capital offerings, resulted in a 50% increase in revenue per loan in C1. We are also investing in the technology powering our capital business to drive adoption and improve dealer engagement, which we believe will drive additional wallet share. The new ACV Capital Online portal equips dealers with a seamless post-auction financing solution. This enhanced platform aligns with ACV's commitment to leveraging technology to deliver easy-to-use solutions and transparency to our dealer partners, and will further enable ATV Capital to be an important growth and profit driver going forward. Turning to the second element of our strategy to drive long-term shareholder value, innovation. Now to slide 15. I would like to highlight the innovations we're delivering to enable our dealer partners to drive consumer-sourced inventory. Five Appraisal was our first offering in this category. that contributed to our strong unit growth in 21 and continues to be a unique and effective way for consumers to sell their vehicles on the ACV's marketplace through our dealer partners. Live appraisal once again contributed a high single-digit percentage for our units in Q1-22. The live appraisal is just the beginning. With the acquisitions of Driveably, Monk, and Max Digital, we are able to create a more comprehensive solution for our dealers on the consumer acquisition front, which we believe will increase our wallet share of dealer wholesale. Driverly provides a seamless consumer buying experience and is powered by the ACV pricing engine, which is our condition-adjusted machine learning model for vehicle evaluation. This integrated appraisal tool provides an end-to-end experience for selling a consumer's car. Our ability to deliver trusted vehicle evaluation because of our expansive proprietary data, enables dealers to provide attractive offers to their consumers, which means sourcing for more customers for the dealership, which in turn drives more wholesale supply. We also plan to leverage Monk's AI-driven imaging technology to enable consumers to do a self-inspection right from their own mobile device, which will further inform the price dealers can offer consumers. We are in the early stages of launching dealers on this new platform, and we are very excited about consumer sourcing and attractive TAM expansion and wallet share opportunity for ACB. Moving to slide 16, we are very pleased with the market traction we're seeing with our Max Digital SaaS and data-enabled offerings, and the synergies created by the ACB Max combination. Why is the combination so powerful? Max has a significant volume of data and suite of services from its long history in retail automotive. ACV has amassed a huge volume of data in wholesale automotive. Merging all that data and intelligence together creates insights for our dealers. It will help power both Max and all ACV products. Leveraging our growing moat of dealer retail and wholesale data we can make recommendations that are localized and personalized for a particular dealer. The ability to drive dealer-specific insights is key as it drives better outcomes for both the retail and wholesale side of the business. Moving to slide 17, I am pleased to share an update to our advanced buyer tools, including the previously shared programmatic buying capabilities. We are about to increase our go-to-market presence including the introduction of a brand initiative. These tools will now be offered under the brand SAM, an acronym for Smart Acquisition Manager. Thanks to SAM, buying an ACV has never been easier. By creating specific and relevant notifications, as well as powering intelligent auto bidding, SAM brings broad and persistent demand to the platform. complementing our marketplace in driving price realization and conversion for our sellers. And SAM also informs our algorithms and pricing engine to help dealers understand vehicle pricing. SAM is already contributing over 5% of our quarterly unit volume, and we believe it will be a big growth driver for us as we expand its use cases and capabilities. Simply put, Every dealer needs SAM. So to wrap up on innovation, we are very excited about our growing suite of data-enabled solutions and technology roadmaps that expands our competitive moat, creates even more value for our dealer partners, and drives sustainable long-term growth. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth at scale.
spk11: Thanks, George, and thank you, everyone, for joining us today. We are pleased with our Q1 financial performance. We delivered upside to our revenue guidance with adjusted EBITDA within our guidance range, despite the challenging macro factors George outlined earlier on the call. Turning to slide 19, I'll begin with a review of our first quarter results. Revenue of $103 million was above the high end of guidance and generated year-over-year growth of 49 percent versus strong results in Q1 2021. Adjusted EBITDA loss of $18 million, or 17.5 percent of revenue, was within our guidance range, but as I will detail later, was negatively impacted by the cost of revenue headwinds. Turning to slide 20, I will cover some additional detail on revenue. Note that we are providing revenue by product line that aligns with our analyst day presentation, as we believe this provides investors with more fidelity into our business trends. Total revenue of $103 million represented a 56 percent CAGR since Q1 2020. Auction and assurance revenue, which was 57 percent of total revenue, with 31 percent year-over-year, reflecting auction unit growth and strong auction and assurance ARPU. The year-over-year growth in ARPU of 36 percent was driven by higher GMV due to the strong mix of vehicles sold on our platform and the buy fee increase we instituted last December. Marketplace services revenue, which was 35 percent of total revenue, had impressive growth of 87 percent year-over-year, reflecting the strong adoption of transport and capital that George outlined earlier. Our SaaS and data services products comprised 8 percent of total revenue and had very strong growth of 72 percent year-over-year, primarily reflecting revenue from the max digital acquisition. Turning now to slide 21, I will review costs in the quarter. Cost of revenue as a percentage of revenue increased approximately 300 basis points year-over-year and was above our expectation. The increase was driven by two factors. First, due to the softening market conditions in Q1 that George described, we increased our incentives to help our dealer partners acquire vehicles while still delivering on our EBITDA guidance. As market conditions improve and buyer and seller expectations converge, we will pull back on these incentives and expect less of a headwind in Q2. The second factor impacting cost of revenue is arbitration costs. While rising inflation has increased costs for automotive parts and labor, we were also more liberal in our arbitration practices. We apply this approach to varying degrees during market shifts, but do so while staying within our cost envelope and achieving our EBITDA guidance. While we obviously can't control inflationary pressures, we are taking steps to mitigate the overall impact on our business. From an operating cost perspective, results in Q1 were positive, as we increased our leverage by approximately 300 basis points, offsetting the cost of revenue pressures. Moving to slide 22, let me provide further context on our investment strategy, operating leverage, and path to profitability. As we outlined at our analyst day, 2022 is a year of investment, investment in growth and in the technology to extend our competitive mode. However, we remain committed to driving profitable growth and expect our EBITDA margin to be flat year-over-year, despite a 28 percent increase in operating expense. We also remain committed to achieving EBITDA break-even exiting 2023. In fact, based on our outlook for the balance of 2022, we believe that Q1 will represent the peak EBITDA loss quarter. Next, I will highlight our strong capital structure on slide 23. We ended Q1 with $564 million in cash and equivalents and marketable securities, $152 million of which reflects the float in our auction marketplace. The amount of float on our balance sheet can fluctuate meaningfully, driven by business trends in the final two weeks of each quarter. We ended Q1 with $60 million of long-term debt to finance our rapidly growing ACV Capital business, moving away from financing this business off our balance sheet due to the significant growth of our portfolio. Now I'll turn to guidance on slide 24. For the second quarter of 2022, we are expecting revenue in the range of 109 to 112 million, a growth rate of 12 to 15% year-over-year. To put this revenue growth into context, it's important to remember that Q2 21 was a very strong quarter with 117% revenue growth. On a two-year basis, our Q2 22 revenue growth is expected to be 146%. Adjusted EBITDA is expected to be a loss in the range of $16 to $17 million. For the full year of 2022, we are raising the low end of revenue guidance and now expect a range of $452 to $460 million, a growth rate of 26 to 28 percent year over year. Adjusted EBITDA is still expected to be a loss in the range of $53 to $57 million, or 12 percent of revenue at the midpoint of guidance. As it relates to our 2022 guidance, Although used vehicle supply and demand trends remain difficult to predict, we continue to believe we have multiple levers in our business model and therefore multiple paths to achieve our 2022 revenue guidance. Let me wrap up on slide 25 by reviewing our 2026 financial targets. We are very pleased with our execution in what has proven to be a very challenging macro environment, and we remain confident in our ability to achieve $1.3 billion of revenue and $325 million of EBITDA in 2026. And with that, let me turn it back to George.
spk13: Thanks, Bill. Before we take your questions, let me summarize. We are very pleased with our continued strong execution while navigating through unprecedented times in our industry. We are especially proud of our ACV team that has delivered these results. We continue to gain market share by attracting new dealers to our marketplace and by gaining wallet share within our existing customer base. which positions ACV for strong growth. We are executing on our territory expansion plans. Our marketplace offerings are gaining traction in the market and see some very promising growth synergies emerging from our SaaS and data-enabled services. We are delivering an exciting product roadmap that further differentiate ACV and expand our addressable market. We are on track to generate over $1 billion in revenue with attractive margins through a proven business model that we believe will drive significant shareholder value. Lastly, we remain committed to continuing to build a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A.
spk07: Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then 1 on your telephone. To withdraw your question, press the pound key. Again, that's star 1 to ask the question. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rajat Gupta with J.P. Morgan. Your line is open.
spk05: Great. Thanks for taking the questions. Just the first one on some of the recent developments in the industry. Post Carvana's acquisition of Odessa, we have seen many OEMs announce that they are looking to switch to other platforms. Some have already named Mannheim. And including some of our own survey work suggested that many dealers are also looking for alternatives. So could you give a sense of what you are seeing on the ground Have you already started to capture some of these customers? And did it impact the first quarter results or the second quarter guide? And I have a follow-up.
spk13: Thanks. Good to hear from you. So we provided a bunch of data that suggests that the market obviously was – smaller, sort of year over year, sort of on a quarterly basis, but yet our listings have grown tremendously. And so our listings growth, our customer growth, are coming from, obviously, competitors. So whether it be the one you mentioned or others, we're taking share. And when you look at the backdrop of sort of the macro things going on in automotive and the data we provided to you all in today's earnings call, we're providing it for a reason, right? It's basically demonstrating to our investors that, you know, amongst all these things going on, we're still out there taking share. So I'm sure the parties you mentioned are part of that, you know, part of the dealers we want are probably folks that we're using at ESSA, but also other auctions. And it all sort of contributes to part of our growth.
spk05: Got it. Did you see any change in the velocity of those, interactions more recently, or has it just been steady, as you've seen in the past, in terms of those increased customer engagement?
spk13: Yeah, I don't think we're ready to speak specifically about, you know, where we're winning share from today. But I think, broadly, I think what we're trying to lean in and suggest is, yes, we're winning share from a number of competitors, right? I think as you all do your research, you'll see that, you know, it's not only them. There's also others, you know, in the industry where we're more than likely taking share from.
spk05: Got it. Great. Thanks a lot, Kalar. And just maybe one follow-up, you know, in terms of just staffing levels, you know, inspectors. Given what you're seeing, you know, in the overall auction industry in general, You're obviously gaining share, but there continues to remain a lot of choppiness in the market. Are you pulling back a little bit versus what you maybe thought earlier this year in terms of the staffing levels? Or are you just continuing to hire so as to position yourself for whenever the market recovers?
spk13: Thanks. From a go-to-market perspective, we're really dialed in. every month, every territory across the country and the number of inspectors we're hiring. And generally, we're trying to hire a couple months in advance. It's not like you're hiring a year in advance or two years in advance. So things like how our internal processes work is the territory managers basically provide their forecast on the customers we're talking to, their growth rate, and then we open up and we open up the hires, we have something like over 100 inspector roles open right now that we're recruiting for, which suggests that we see growth. If anyone of you went to our website, you'll see we're hiring. We're hiring, and we're hiring for a reason. We're hiring because the feedback we're getting is that we believe we're going to need more inspectors to take on these new listings, these new customers. But we're always managing this growth within our EBITDA guidance. And so we've been extremely disciplined. And when you take a business like ours, an asset-like business, where we can have great controls in place, you're investing in people, but you're investing it within, you know, specific metrics that help us make the right decisions. And, you know, none of this is new to us. We've been doing this for a number of years.
spk05: Got it. Great. Thanks for the cover. I'll jump back in here.
spk02: Thank you. Thanks, Azad.
spk07: Thank you. Our next question comes from the line of Ali Faghiri with Guggenheim. Your line is open.
spk01: Hi. Good afternoon. Thanks for taking my questions. So looking at the volume outlook into the second quarter, are you seeing any signs that the macro headwinds are normalizing? It seems like conversion is going to continue to be a sizable year over year headwind, looking at the chart you provided. But are you seeing anything on the new car supply or used car demand side that suggests your volumes will improve sequentially into the second quarter?
spk13: You know, the word we're trying to use for today is more stabilized, if you would. We're not, you know, we really, and Bill, you can lean in a little bit more on this as it relates to Q2, but, you know, the quarter and how we think from the quarter started, the quarter started stronger than Q1. But I would say there's macro reasons why, not just one, which is like new car sales. One theme is dealers... are going to be less willing to hang on to all their trades. So if you look at all the different themes, you know, new car supply is not yet back to where it was, obviously. But last year, new car dealers kept almost everything, right? They kept everything because there was so much consumer demand that they kept things that they shouldn't have kept. There was even a new term in the industry called, we're going to make a car out of this. which makes no sense, which means they're going to spend a ton of time on reconditioning an older car. So think there's multiple factors going on, right? Yes, new car supply has not yet returned back to sort of prior levels. But with the current new car and used car total sales and the trade-ins that come as part of those sales, dealers are going to be a little bit more careful because dealers aren't going to keep all of the inventory like they were before, and they're going to be, you know, more conscientious that the macro environment has changed. So I think those are like a little bit of puts and takes, sort of helps you think about the macro environment. Bill, I don't know if you want to add any more to that.
spk11: Yeah, what I would add, Ali, is, again, the backdrop here is, you know, some recent data published that retail sales in April were down 13% quarter on quarter and 20% year on year. So, you know, there's this dynamic, obviously, out there, you know, in the macro environment that George is referring to. But, yeah, we did see a solid start to Q2. And recall that, you know, we had really strong listings growth in Q1, 37%. And that's continued into Q2. So, you know, even though the supply environment is still very, very tight, you know, we're seeing really strong growth. growth in our marketplace. And I think for us, you know, you couple that with, you know, as we think about ARPU going forward and a reduction in some of the incentives that we pass through in Q1, you know, we'll start to see some benefit there as well. So all those kind of combine to get us to our Q2 revenue guidance and the full year guide as well.
spk01: And thanks. That's helpful, Collar. I guess a good segue since you mentioned the fee increases, you know, it looks like You took price in December and then two of your main digital competitors have also implemented fee increases relatively recently. I know you're still priced below physical auction, but how are you relative to your digital competitors at this point following all of these fee changes? And do you see an opportunity to continue increasing your fees over time?
spk13: I think we're competitive right now. We're probably still lower than one or two of them. We might be higher than one of them. But in the bigger picture of things, I feel good about our pricing for this year. I think we're priced in an effective way to continue to take share, but for both sellers and buyers to feel like they're getting incredible value on ACV. And a number of you have heard me talk about this over the years. Like, to me, pricing is something where, especially in these growth years – you know, price the product where we've got, you know, great unit economics, but price in a way it's also going to help us just gain a lot more shares on our marketplace. And I think we're doing an exceptional job in that way. And you will see folks constantly copy us. Like that will be a norm, right? There's always sort of guys, we sort of, you know, go upstream as we sort of show confidence that we're providing value. You always see that, right? In every marketplace leader positions. Great.
spk01: Thanks, George.
spk07: Thank you. Our next question comes from the line on the VCon with Truist Securities. Your line is open.
spk08: Yeah, thanks a lot. Curious about your consumer sourcing initiative and what's your go-to-market approach there? What's the plan to drive consumer traffic? And then secondarily, just from the annual outlook, What are you baking in, in terms of territory expansion? What are the high end and the low end of the guide?
spk13: So, I'll do my best to answer your questions. I think I understood your question, but I'll ask the question and answer it. So, I think on the first one, you know, on the consumer side of the equation, you know, what is the resourcing and what is the go-to-market there? We mentioned sort of two parallel go-to-market efforts. One would continue to leverage live appraisal, which is our dealers across the country who are doing events where they'll have, let's say, a Saturday event and consumers come in and auction their car. We'll also be at our dealerships to help them with vehicles that the consumers would like to appraise. That really doesn't add more resourcing per se. It's just a part of how we're scheduling our inspectors throughout the week. It's been part of the playbook from day one. So I wouldn't really look at that as sort of like additional resourcing. Look at it as like leveraging the resourcing in any one territory. I believe the second question was about more broadly how we're looking at our field expenses when it comes to our sales and inspection teams. So we already have, as part of the plan, territory managers across the country. We look at the U.S. as, you know, around 160 territories. There's about 22 regional sales directors managing these folks. So that's all just already part of the current spending and plan. Below that are the inspectors, which goes to what Rajit's question earlier was about the inspectors. In a more mature territory, we may have, let's say, 12 or 14 inspectors, and we might be selling over 1,000 cars a month. In a less mature territory, we may have two or three inspectors, and we may only be selling dozens or 100 cars a month. So think about that maturity as we hire more inspectors in the less mature markets, As we're bringing on new dealers, which is just part of our model here, part of our go-to-market, and it's almost more like rinse-repeat. You know, if you look at other sort of analogy of other industries, it's just what we do. We go in, we bring on a few sellers, we bring on some more sellers, we hire more inspectors, and all the cohort data we gave you, when we went public and then recently on our analyst day, help you all kind of look at why hiring inspectors is a proven plan with strong unit economics.
spk08: Thank you.
spk13: Yes, certainly. Thank you.
spk07: Thank you. Our next one comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Thank you.
spk03: Thanks for taking the questions, and I hope everyone on the team is doing well. A lot on the supply-demand side has already been asked, but I wanted to come back. At the Analyst Day a couple months ago, you really put on display a lot of the tech investments you're making and how they can improve efficiency and productivity on the platform over the medium to long term. Can you maybe reframe and revisit some of the investments you see as missing critical in 22 and 23, and how investors should be thinking about those investments broadly and tech on the platform? as driving mixture of volume and efficiencies over the medium to long term. Thanks, guys.
spk13: Yeah, thanks, Eric. Yeah, and, you know, I think that's really important. So when you look broadly, and I'll just start with the inspection side of the business, because obviously our brand here, the essence of ACV is transparency and trust. So no particular order, but I'll just start with our brand essence. We built the single inspection platform to allow us to, whether it's a wholesale inspection, an off-lease inspection, an internal private marketplace type transaction between dealers, we built this sort of universal inspection platform that plugs into plugs into various applications. For example, we introduced, you know, many folks in the industry already know about Virtual Lift and AMP as two of the, you know, great R&D items that are helping dealers get more transparency online, helping us reduce arbitration, et cetera. The next one is APEX. APEX is this IoT device. that we will be more formally announcing throughout the year this year as we go to market. So we mentioned at Analyst Day that we were just finishing up with that tech investment. It's now actually next week going into the field where we're going to start getting our early data samples before we broadly say it's live. We always go in this sort of measured approach. But we're going to be able to not only listen to the engine, but we're going to see vibration. We're going to be able to get to smell and understand whether or not a vehicle has any issues. The whole factor here on the inspection side is digital requires transparency and trust. As you all see what happens not only with us but with the industry, look at some of our competitors, you've got to get this stuff right. Dealers want to transact digitally, but they don't want surprises. And, you know, when you have the right tech there, you create less friction. So that was one big area we talked about. Another big area we talked about with Driveably and Monk. Monk was the self-inspection platform we bought out of Paris. It's an unbelievable way for a consumer to walk around their car where we leverage your AI to detect any visual challenges with the vehicle. That will be integrated with Driveably for a launch later this year. Driveably is the consumer answering questions. It will be on dealers' websites. You saw a couple examples of that in the slides today. That whole area of our investment is help dealers acquire more cars for consumers. The average dealer only acquires 8%. Of their retail transactions from consumers or from the curb, the large used car retailers are as much as 50%. That drives my customers crazy. They're turning it off saying, we want to buy more cars from consumers. And then they'll keep, let's say, 40% to 60% of it for retail, and they'll wholesale 40% to 60% with a profit, by the way. And they'll do that with our tools. So they're asking ACV, we want to compete in that area, and we're delivering. We're bringing in the products from customer acquisition, consumer acquisition. When you look at it more broadly on the management of your inventory, we launched private marketplace. We now have a number of both public and private automotive dealers now using our private marketplace. So they're buying cars from consumers, and they're leveraging the private marketplace to decide what should stay within the group or what they should wholesale. And it's our tools helping them do that. With products like Max Digital, we take it even a step further and say, this specific vehicle, you should hold that. This one, you should retail. This is your margin on the car. As a matter of fact, this car belongs at this store, not this store. And it helps you actually go through and you make your decision. So a simple way, so I don't send the whole call, is whether it's sourcing the cars, managing the cars, better merchandising the cars, we are the dealer's partner. We are here to help them. improve, and execute in this digital world. And that pulls us in to a partnership level that is quite unique.
spk03: Great. Thanks for all the color.
spk13: Thank you, Eric.
spk03: Thanks, Eric.
spk07: Thank you. Our next one comes from the line of Chris Pierce with Needham. Your line is open.
spk06: Good afternoon.
spk07: Good afternoon.
spk06: Quick question. Bill, you said you have levers to pull to hit the 2022 revenue guidance, you know, even if the macro stays unfriendly. Just to confirm, we're talking about marketplace services and SaaS and data services and kind of increased penetration there?
spk11: Yeah. Hey, Chris. No, it's actually less that, and it's more the dynamic between supply and used car prices, right? So the title of the supply... the higher prices will remain. And we certainly saw that in Q1. Even though prices came down a bit, they held up actually better than we previously expected. But with tight supply comes potentially lower units at the top of the funnel. That's offset by higher ARPU, though. Conversely, as supply improves, potentially prices come down even further. So in that dynamic, you've got higher units than expected at a lower ARPU. So what we observed the last several quarters is that these tend to offset each other. So that's number one. Number two, since we increased our buy fees in December of last year, that's also kind of a mitigating factor in terms of any downdraft in GMV and the resulting reduction in ARPU. But those are the two levers, and they're very much related to each other in terms of units and the resulting ARPU.
spk06: Okay, perfect. And then are there levers you can pull to drive higher conversion that aren't, you know, diluted to gross margin? Is programmatic part of that? Because if I'm thinking about it, right, it's more of a kind of set my bid and forget it type thing versus someone having a certain feeling around bidding for prices that's, you know, based on what they're feeling in the marketplace. Is that something that can kind of drive higher conversion?
spk13: Yeah, I'll help you kind of look at the conversion as maybe two different areas. So one is on the demand side, where I think you were going with the question is, you know, with products like SAM, right, Smart Acquisition Manager, it allows a dealer to be more engaged with ACV by putting these automated bids or just getting better alerts and getting more activity on a specific unit. So that's the demand side, and there's more than that. But, yes, we've got more and more we can do, to help get infinite amount of demand in any one asset. But a big part of this conversion rate is really the expectation of the seller. Because we already have lots of buyers. And, you know, the demand, the incremental demand will help. But the biggest tipping point is how we leverage our data to say to a seller, we had eight dealers fighting over your car. Okay, we had eight dealers fighting over their car. The retail, you know, I understand that this vehicle appreciated last year, right? Used cars didn't historically... appreciate it. They depreciate it, right? And basically, to say it a nice way, that honeymoon is over. You're no longer going to see vehicles not appreciate it. And our data helps yachts get more and more demand, our products out, but then our data helps the seller understand, okay, you've got a number of dealers fighting over this one asset. You've got the market price. If you really want to wholesale it versus trying to retail it, you know, better now because it's just going to depreciate more next month. So think about our products and our data help both the supply side and the demand side to help on the execution of conversion.
spk06: Okay. Thank you.
spk02: Thanks, Chris.
spk07: Thank you. Our next question comes from the line of John Colantino with Jefferies. Your line is open. Thank you.
spk10: Hey, John. Hey, how's it going? Thanks for taking my questions. I wanted to start with conversion rates. Looks like they've gone back to pre-pandemic levels in the first quarter. Can you just talk about how conversion rates have trended in recent months and weeks and how we should think about conversion rates for the cadence of the year? What are some guardrails that we should be thinking about?
spk13: So, Bill, do you want to start here, or do you want me to kind of kick off? Because I want to make sure how we're talking really about it from a guidance perspective. Why don't you kick off, and I'll follow behind you.
spk11: Yeah, sure. So, hey, John. So, you know, look, I mean, conversion rates, you know, have been coming down, and they, you know, based on the charts that we showed in the deck, you know, you can see, you know, how far down they've come, kind of back closer to the historical norms, right? So, You know, we certainly saw that happen at the beginning of Q1. At the end of Q1, they actually bumped up a bit in March. You know, and March is typically a strong month. You know, you do get tax refunds. So, you know, we did see an increase in activity, and there certainly was higher sell-through. In Q2, we're assuming it starts to kind of move back down a bit, right, you know, closer to historic norms. although April was a pretty strong month for sell-through. But in our guidance and our modeling going forward, we're assuming it moderates down a bit through the rest of the quarter. And then for the rest of the year, we're assuming, again, for the most part, that it hovers around the historical norms. So we're kind of back in a tighter range versus the huge volatility that we saw last year which drove just huge increases in conversion and huge growth in unit volume. So I would say this is starting to look a little more normalized based on the trends that we're seeing.
spk13: And maybe a little bit more color. Thanks, Bill, for starting that. And a little more color on that would be behind these broad averages, you've got different ASP segments, right? So, like, lower-priced cars still have very high conversion, right? They just sell. Dealers are sort of like, I would say, just kind of getting rid of them. And, you know, lower segments had high conversion last year, have a little bit lower conversion now, but generally have very high conversion. And then these higher-priced assets, the one they're deciding, really, retail or wholesale, right? You know, those are sort of the areas where dealers, from the seller's perspective, you know, they're really just trying to decide, what do I want to do with this asset? Do I want to sell it? Do I want to retail it? And that helps you kind of look at, you know, there's a deeper story behind conversion. Then you go, okay, what can we do about this? I mentioned earlier our data can help inform the seller and price guidance. I mentioned earlier that on the demand side of things, you know, our new products, whether it be SAM, whether our marketplace improvements, you know, our other products that we have in product development right now that help guide valuation, each of these help guide the seller and and the buyers to make the right decision. So they all really sort of work towards conversion, whether you're influencing sort of the supply or the demand side. Hopefully that's helpful.
spk10: Yeah, that's very helpful. And I wanted to ask the second one on guidance. This was playing around a little bit with revenue per unit for the cadence of the year. And the conclusion that I came to, at least directionally, is that full year guidance and the second quarter guidance implies that units increase sequentially in each of the back three quarters. Could you just help, you know, at least give us a sense for whether that's directionally the way we should be thinking about it or if there's kind of any sort of kind of high level guardrails you can give around the puts and takes on your guidance. Thanks.
spk11: Sure, sure. Yeah, so, and as you know, we don't guide to units, but I'll try to give you, you know, as much color as I can. You know, we are certainly assuming in our guidance for Q2 that units will grow quarter on quarter, right, which is what you would expect. I would tell you that directionally through the rest of the year, we are assuming and we continue to assume that our pool will come down, potentially not as much as we originally thought because used car prices seem to be staying elevated for potentially longer than we expected since the supply chain issues appear to be such that they'll persist through the rest of the year. So we've kind of modulated our assumptions a bit there, but we are assuming that our pool will come down over time. So you can use that as a basis to try to back into a unit assumption Understanding this is, again, not a precise science. As I said earlier, as we know, ARPU and units are correlated to each other. So to the extent one is higher, the other is lower, and vice versa. But, again, I want to stop short of giving you specific guidance, certainly beyond Q2, other than to say that we are assuming ARPU comes down a bit as we go through the rest of the year.
spk10: Appreciate the color. Thank you. Okay.
spk07: Thank you. Our question comes from the line of Robert Lubick with CJS Securities. Your line is open.
spk12: Hi. Good afternoon. It's John on for Bob. Thanks for taking my questions. You've previously identified the off-lease market as an area of incremental opportunity, but it's looking like there really won't be many off-lease vehicles for a pretty long time to come. Does this change your expansion priorities, maybe in international markets first and then go back to the off-lease markets later?
spk13: Yeah, Don, thanks for the question. So where we've prioritized, first I would call it the commercial sectors, we've been leaning in on what rental car companies would like from a product. And rental car companies are an interesting category as you study that TAM. You know, they tend to sell vehicles directly to dealers as their primary objective. Not all of them, but most of them first try to sell a car directly to a dealer. And then if they can't, then they use the physical auctions. That would be the historical way. We've built out a product strategy that, you know, you'll hear us talk about maybe towards the end of this year, where we believe we have a great product strategy for rental car companies. And so we kept that going. We're not like, you know, we're like, think about this as a steady machine. You know, instead of just looking at all these cyclical things and changing your roadmap too much, pretty simple, right? You're inspecting a vehicle and providing data to the seller and helping them make informed decisions, whether they're going to sell it directly to a dealer through our marketplace, leverage the data, And so it also helps us now go into a new market. Let's say, for example, first rental. Then it might be fleet after that, as an example. And then after fleet, let's say by then, next year or from now, you'll see the other parts of the commercial market sort of come back. So instead of thinking like we stopped working on those efforts... We kept going on inspection. We kept going on data services in that area. You know, we're actually about to launch some new capabilities over the next couple months. I think we have actually one of them launching technically in I think the next six to eight weeks. And that will go to a part of the commercial TAM. And we'll go get a few wins this year. And then we'll start to take those lessons learned, those capabilities, and when the blog, Tim, comes back in commercial, we'll be in a great spot. So hopefully that helps at least your first question there.
spk12: It does. Thank you for that, Collin. And then second, I was wondering if you could give us more color on the programmatic buying. Maybe how is it performing with the early adopters there? And, you know, what's the rate of sign-up of new customers that you're seeing right now?
spk13: Yes, certainly. I would say dealers are an interesting point. You're seeing, let's say last year and early this year, dealers were screaming for inventory and willing to buy anything because they were so hungry. I would say programmatic right now is still a big need in the industry, but you're going to see dealers a little bit more cautious about Okay? Because some of the other things they may have tried, they might have gotten vehicles that weren't of the condition they were looking for. Okay? And so what we've tried to do is we've gone to market is step people into programmatic where, hey, for the first couple weeks, let this give you a great alert on the platform, and then from there you can start to move towards programmatic, and it's working fantastic. So think about it like a baby step, especially if they've tried others before trying ours. We really want to make sure you can trust our condition, you can trust what's going on here. So we're still in the early days, right? We're still in the early days. I think it's like a few hundred dollars a month or what, approximately? Yeah. Yeah, a couple hundred dealers a month are sort of coming onto the platform. So thanks to early days, very happy. But I haven't even done an internal campaign to my own dealers yet. We don't even have a brand name yet. You know, the name programmatic is fun to talk about with investors, but not the right word to even say to a dealer. So we had a little work to do. I've mentioned on each of these calls, we're still in the early days. In the next sort of month or two months, we'll launch our brand, which I always give you guys a little heads up of what we're up to. And then we'll launch SAM and how SAM's going to help you. And then I'm hoping to sort of, you know, leverage that tool even more so towards the end of this year going into next year. So that's pretty much all the transparency I can give you on SAM at this point.
spk12: No, that's helpful. Thank you very much. Okay, John.
spk07: Thank you. Our next question is from the line of Daniel Imbrow with Stevens. Your line is open.
spk09: Yeah, thanks. Good evening, guys. Thanks for taking our questions. Bill, I want to start on the balance sheet. You know, cash reserves still strong, a lot of cash to support growth. I think the last few years you've done some deals in M&A kind of on that inspection space. To George's point earlier, it's an important growth avenue, but Curious, are there any specific capabilities you guys would want to deploy capital towards on the M&A side? Is there anything out there right now? And then as investors are risk assessing everything in this backdrop, just curious if the volume backdrop remains more challenged for longer than you think now. I mean, how do you feel about when we reach cash flow breakeven and then those long-term targets you've given, Bill?
spk11: So maybe I'll take the second question first, and then, George, you could – respond to the first question in terms of M&A targets. So, yeah, so I think the way investors should be thinking about this is we are very committed to managing, you know, towards exiting next year at even a break-even. It's not slightly profitable. That goalpost is not changing as far as we are concerned, and we will manage our P&L to hit that. Again, keep in mind, if the supply environment continues to be very challenging and that implies that used car prices probably remain somewhat elevated. I would say the wild card, obviously, is the macroeconomic conditions and consumer demand. But, you know, all of that being said, you know, we still feel very confident we can get to our targets in terms of even a break-even by the end of next year. And, you know, there are other levers, obviously, in terms of OpEx growth and the like, you know, that we could potentially modify, you know, as we go along, depending upon how things play out. So, I wouldn't think of us necessarily backing off of that commitment.
spk13: And hey, Daniel, George, on your first question, so obviously our balance sheet is strong. Our balance sheet is strong. We've got a great business here. We've got great unit economics. And to your question on M&A, you know, we're always reviewing the market. And you're seeing us be a great steward of this capital. We've brought in some great products. We're extending the value-added capabilities and how we go to market. where we have a dedicated team who's always looking at, you know, assets. But you also see us being smart and not rushing anything, right? So obviously I don't really know what else I can say from an M&A perspective, but we're always on this. We're always, you know, doing our diligence. We're always looking at various ways we can expand, you know, our product suite and or go to market. But I think that's all I can say at this time. Got it.
spk09: And then just one, George, on the growth strategy. I think at this point, we're in all the markets, so it's more of a wallet share game. Curious if you're just seeing any competitive changes. Some of your peers, obviously, are investing a lot in the digital space, both public and private. So curious if you're seeing any change in how they're going to market versus you guys, how the rooftop maturity or penetration is going. And then really, from a sales level or kind of operational standpoint, when your salesperson is pitching themselves against your digital dealer-to-dealer peers? I mean, what are the points of differentiation you highlight to dealers on the ground?
spk13: Yeah, sure, Dennis. So we start our journey with different dealers in sort of different ways, okay? So we might start with a dealer, for example, where they start their journey using live appraisal. We don't yet replace let's say a physical auction or whoever their current or the incumbent auction company is, we may start with that product. And then when we start with that product, we might only be getting, let's say, you know, three or four or five cars a month being sold on ACV, and they might keep three or four. But we started our journey. We've begun our partnership. We may start our journey with Max Digital. We may start our journey with Driveably. We may start our journey with selling, you know, higher-end cars and not lower-end cars. We may start our journey selling lower-end cars. but not higher-end cars. And so each one of these dealer relationships, whether they start out in a relationship with a used car manager or the dealer principal or with a dealer group, for example, a large group, a relationship might start with a rooftop by the group going with ACV for private marketplace, and they're exchanging cars as a group. And then we're starting our journey by saying, hey, you're using us right now for a private marketplace. Let's look at how we can help you to buy more cars or sell more cars. So we have different ways we start. Our differentiation is we believe we have the number one condition report and inspection process with world-class technology, the best team in the industry, with data to help support how these dealers can make the right decision. So that's an area of differentiation that backs all of this. And then we've got, at the end of the day, these different products that are customized on whether it's a dealer group, whether it's a single store, that helps them achieve their goals. Got it. That's helpful. Best of luck.
spk12: Thank you. Thank you.
spk07: Thank you. Ladies and gentlemen, due to the interest of time, our final question comes from the line of Michael Graham with Canaccord. Your line is open.
spk14: Hey, Michael.
spk04: Hey, thanks. Yeah, hey, thanks for squeezing me in here. Just two quick ones. One is on the, you know, could you just comment on how promotional you were with some of the selling dealers in your area? in your newer territories versus your older territories and just how you're thinking about that. And then I just wanted to ask, you know, it seems like the new car market coming back is definitely sort of like a precursor to some of these, you know, model normalization trends that you're, you know, anticipating. And I'm just wondering, you know, if that's true and what do you see as sort of the lag, you know, not necessarily when the used car market's going to come back or the new car market's going to come back because that's hard to predict, but What's sort of the time lag between when that happens and when you start to see some of these other model dynamics unfolding?
spk13: So, hey, Michael. It's George. So we, on the incentive side, we try, you know, many things. It's not like there's one thing going on here. So, for example, we'll take a seller through sort of volume commitments as an example of a type of incentive we may do. where let's say, for example, we're only getting 10 cars a month and there might be 10 or 20 cars going to a competitor, our incentive might be, hey, do more cars with us and we'll give you an incentive. That's the example of one type of incentive program. whether it be, by the way, in a mature market or less mature. Those types of things have always kind of been at a high level part of the model. Another type of incentive would be, you know, on a specific transaction basis, saying, okay, let's move this car. And if we move this car right now, we'll make a, you know, $5 or $10 or whatever it is reduction and do something like that to help, you know, move a specific vehicle. So I think some of these are more, I would say, run as a program based on, again, our strong unit economics and position. And some of these are more of, okay, we're trying to nudge a specific dealer along to help them with their decision-making. Like, hey, come on, we got your seven buyers. We did all this. Let's move this along and maybe give them a little other incentive. So, Michael, I'm trying to frame. It's a little less about just like the new markets with some mature markets. I would say it's a little bit more programmatic than that in our approach where we have a bunch of intelligence in the things we're doing and just part of the overall plan and all part of our EBITDA guidance. So as you can see, no matter what's going on, costs over here, costs over here, Bill runs a pretty tight ship around here. He basically gives the team, all right, here's what you can do. And we've got that discipline. We've got that discipline to go out and grow, hit the numbers we're basically telling you all, but do it within an EBITDA range. And I'm really proud of that. And so, yes, there's some of that going on behind the scenes, but Those types of things aren't new. We've been doing that for years. It's sort of just part of our operating plan. Michael, the second question was, remind me. Sorry, it's getting late.
spk04: I know. I was just wondering, like, when the new car market comes back, how long, how much time elapses do you think until, you know, the wholesale used market comes back and starts to have your model, you know, unfolding again? the way that you're talking about with, you know, units going up and pricing coming down and things like that? Like, what's the time lag there?
spk13: So, you know, we're – but I believe this is going to be a sort of iterative. I believe one of the things we shared, Tim, was – I'm not sure if we shared it. We had a 4% gain quarter over quarter in listings. Did we share that in the slides?
spk14: We didn't share it in the slides, but – I just shared it.
spk13: Okay. So we had a 4%. quarter over quarter, look at this as like a gain in sort of listings sort of on a per-dealer basis. Okay. And, Michael, that to me is an example. That's not a huge number, right, you know, 4%, but it all adds up. I just like the fact that it's more, not less, meaning we're starting to see a trend. And we're starting to see a trend of a dealer willing to wholesale a little bit more before all that supply has even come back. So, Michael, how I'm picturing it is that it's not like this, you know, uphill climb trend. all at once at like this one quarter. How I'm starting to look at this is dealers are going to take in trades. They're going to get smarter. They're going to know inventory is coming. They're going to keep the ones they should retail. And they're going to wholesale the ones they should be wholesaling. And no different than what the largest used car marketplaces do. If you look at some of the largest used car marketplaces, they retail some, they wholesale some, right? So once they get enough supply, they make the right wholesale decisions. So, Michael, hopefully that helps, but I look at this more iterative throughout the year, that as supply starts to change, as consumer demand, you know, changes, franchise dealers will make the right decisions on what to retail, what to wholesale.
spk04: Okay, thanks a lot, George. That's helpful. Thank you. Thank you, Michael. Thanks, Michael.
spk07: Thank you. At this time, I would like to turn the call back over to Tim for closing remarks.
spk14: Great. Thank you, and thanks, everybody, for joining the call today. We will be on the road at a number of conferences over this next quarter. You can find all those details on our IR website. So we do look forward to seeing you if we do on the road, and thank you again for your interest in ACV. Have a great evening.
spk13: Thanks so much. Thanks, everybody.
spk07: Ladies and gentlemen, this concludes today's conference call.
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