ACV Auctions Inc.

Good day and thank you for standing by. Welcome to the ACV first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Fox, Vice President of Investor Relations.

Thank you, Operator.

Good afternoon, and thank you for joining ACB's conference call to discuss our first quarter 2023 financial results. With me on the call today are George Chamone, 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, both of which can be found on our investor relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. And with that, let me turn the call over to George.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are very pleased with our strong start to the year, highlighted by a number of record achievements in the quarter. This includes record revenue, which was well above the high end of our guidance range. record ACV capital attach rates, and record margins in ACV transport. While we benefited from positive market tailwinds in the quarter, it was continued execution by the ACV team that drove market share gains while also delivering to the bottom line. Looking at the balance of 2023, we expect the industry headwinds experienced over the past two years to continue to moderate. while remaining focused on growing market share, expanding our technology mode, and driving scale to deliver on our adjusted EBITDA targets. With that, let's turn to a brief recap of first quarter 2023 results on slide four. First quarter revenue of $120 million was $10 million above the high end of guidance. resulting in 16% growth year-over-year. GMV of $2.4 billion was flat year-over-year, with solid unit growth in the quarter offsetting an 8% decrease in GMV per unit, as wholesale vehicle prices decreased from historical highs in the first half of 2022. We sold 152,000 vehicles on our marketplace, which was 21% sequential growth from last quarter and 8% growth year-over-year, which exceeded our expectations due to continued market share gains and conversion rates improving from low levels we experienced in the back half of last year. On slide five, I'll frame the rest of today's discussion around the three pillars of our strategy to drive long-term shareholder value.

innovation, and scale. I'll begin with growth.

On slide seven, we're again providing context on the dealer wholesale market in relation to the broader automotive market. In Q1, new light vehicle SAR increased 8% year over year, which is the third quarter in a row of growth. Of course, SAR is still running about 12% below pre-pandemic levels. But inventories are slowly building, which is key to a more robust recovery in retail sales. Used vehicle retail sales increased quarter-over-quarter in Q1, but were down in the mid-single digits year-over-year, as affordability issues impacted demand in segments of the used vehicle market. New plus used retail sales increased modestly year over year, which is a positive sign for supply in the wholesale market. As I mentioned earlier, conversion rates bounced back in Q1 as wholesale price depreciation normalized, and we assume conversion rates will normalize throughout the year. On balance, I think it's fair to say that end market conditions are showing some early signs of improvement. giving us confidence to raise guidance for the year, which Bill will take you through later. Turning now to slide eight, we estimate that the U.S. dealer wholesale market continues to remain below normalized volume, but showed a nice sequential improvement in the seasonally strong first quarter. We remain focused on executing against our key growth initiatives and gaining market share. Given our 8% year-over-year unit growth, and an estimated market contraction of 11%. This implies that ACB grew market share by approximately 19% in Q1. Next, I would like to wrap up the growth section with highlights on our value-added services. On slide nine, I'm pleased to share that ACB Transportation delivered another impressive quarter and continues to scale ahead of schedule. Our strong carrier network and fast cycle times resulted in the tax rates once again exceeding 50%. In fact, we achieved record cycle times again this quarter, benefiting both sellers and buyers on our marketplace. Over 80% of our transports were automatically dispatched in Q1, which is a great example of how our technology investments are driving growth and operating efficiency. These efficiencies resulted in revenue margins in the mid-teens, which is impressive given that ACV transport was break-even a year ago. As a reminder, our current 2026 financial targets assumes transport revenue margins of 15%. So we managed to achieve this target three years ahead of plan. Turning to slide 10. Our AC capital team also delivered great Q1 results. Capital attached rates exceeded 10% for the first time, driving over 85% loan volume growth. And combined with our expansion, resulted in over 100% revenue growth. We have continued to ramp our investments to drive dealer engagement and scale to ensure that AC capital is an important growth and profit driver going forward. turning to the second element of our strategy to drive long-term shareholder value, innovation. On slide 12, I'd like to highlight a few of our growth-oriented product innovations that help contribute to our strong Q1 results. Two areas of focus were dealer acquisition and conversion rates. On the dealer acquisition front, solutions like private marketplaces and consumer sourcing tools like Drivenly Among were key to attracting new dealers to ACV's marketplace. This is especially true with large dealer groups, which continue to be an attractive source of new dealer partners. Next, we expanded several capabilities to enhance conversion rates, including new auction formats and pricing intelligence. As you know, ACV's traditional format is a 20-minute live auction, which has experienced broad market adoption. Based on dealer feedback, we began testing new formats, and the results were very encouraging, especially on higher-end vehicles. In just a few short quarters, we now have about half of our auctions running for two hours, and our strong Q1 conversion rates demonstrate this is working. We will continue to invest in testing, enabling us to continuously optimize auction formats for different types of vehicles. Additional innovation enabling our growth is our pricing engine, powered by machine learning, leveraging both our industry-leading vehicle condition data and a growing curated automotive data set. This innovation is leading to better guidance for our dealer partners. Over the past year, we've expanded the price point coverage and its use cases, creating a broader range of guidance for our dealer partners. The ACV pricing engine now powers several ACV products, including ACV options market report, consumer tools such as Driveably, and elements of Max Digital. On slide 13 are examples of tech investments that extend into our operations, delivering customer success while reducing costs. In Q1, our costs of revenue declined year over year, despite delivering 16% revenue growth. As I mentioned earlier, ACV Transport was a key contributor to these results. We also benefited from lower arbitration frequency, which reflects ACV's investment in technology and inspector training. Several innovations that are improving inspection accuracy and efficiency are APEX, Copilot, and ArbGuard. Our next-gen collection device, APEX, delivers significantly higher transparency into vehicle operating conditions while also increasing the inspection productivity of our VCI teammates. More recent innovations like Copilot and ArbGuard leverage machine learning, predictive analytics, and sensor data to inform our VCIs on vehicle-specific issues before and after conducting an inspection. Again, driving inspector accuracy and efficiency. To wrap up on innovation, I think you'll agree that our team is delivering industry-leading technology to the market and our own operations. We have an exciting roadmap of innovation to drive both growth and scale. And we look forward to providing more detail at our analyst day in June. With that, let me hand over to Bill to take you through our financial results and how we're driving growth at scale.

Thanks, George, and thank you, everyone, for joining us today. We are very pleased with our Q1 financial performance. We delivered record revenue above our guidance range with upside to adjusted EBITDA. We also demonstrated the strength of our business model with meaningful revenue margin and adjusted EBITDA margin expansion versus Q1 22. Turning to slide 15, I'll begin with a review of our first quarter results. Revenue of $120 million was above the high end of our guidance range and grew 16% year-over-year, compared to the strong results in Q1-22. Adjusted EBITDA loss of $6 million also beat our guidance range, and EBITDA margin improved approximately 1,200 basis points versus Q1-22, demonstrating the attractive operating leverage in our model.

Next, on slide 16, I will cover additional revenue details.

Total revenue of $120 million represented a 32% tagger since Q1 2021. Auction and assurance revenue, which was 57% of total revenue, increased 17% year-over-year versus strong results in Q1 2022. This revenue performance reflects 8% year-over-year unit growth, and record auction and assurance ARPU of $454, benefiting from our fee increase last October. Marketplace services revenue, which was 36% of total revenue, also increased 17% year-over-year. Results were driven by strong performance in both ACV transport and ACV capital. Our SAS and data services products comprised 7% of total revenue and grew 2% year-over-year. As I mentioned last quarter, we are taking a more measured approach to customer acquisition while we make significant improvements to the MAX digital platform, positioning ourselves for reacceleration of growth entering 2024. Turning now to slide 17, I will review cost in the quarter. June cost of revenue as a percentage of revenue decreased approximately 900 basis points year over year. The improvement was driven by both strong auction and assurance results and by ACV transport. As George mentioned, we achieved our 2026 transport revenue margin target in Q1, three years ahead of schedule. Non-GAAP operating expense, including cost of revenue, increased 9% year-over-year in Q1 versus 42% year-over-year growth in Q1 22. This reflects the significant investments we made in prior years to support market expansion and technology initiatives and reflects our continued focus on expense discipline as we optimize and scale our business. Moving to slide 18, let me frame our investment strategy and path to profitability. Our focus on spending discipline and operating efficiency is expected to result in a material decrease in OPEX growth in 2023. And as you've seen reflected in our Q1 results, we have accomplished this while preserving our go-to-market and technology investments to ensure ACV is in a strong position as market conditions improve. Next, I will highlight our strong capital structure on slide 19. We ended Q1 with $526 million in cash and equivalents and marketable securities and $96 million of long-term debt to finance the growth of ACV capital. Note that our Q1 cash balance includes $188 million of float in our auction business. As we discussed previously, the amount of float on our balance sheet can fluctuate meaningfully based on business trends in the final two weeks of each quarter and has a corresponding impact on operating cash flow. In Q1, cash flow from operations was $43 million, driven by the sequential increase in float and with a significant improvement from the $31 million loss in Q1 22. Now, we'll turn to guidance on slide 20. For the second quarter of 2023, we are expecting revenue in the range of 117 to 120 million. An adjusted EBIT is expected to be a loss in the range of 8 to 10 million. For the full year 2023, we are raising our expected revenue to a range of 468 to 478 million, representing growth of 11 to 13% year-over-year. Adjusted EBITDA is expected to be a loss in the range of $27 to $32 million, an improvement of nearly 50% versus 2022. And we remain committed to achieving adjusted EBITDA break-even exiting this year. As it relates to our guidance, we are assuming that new vehicle supply remains constrained in the near term. That improves as production and inventory continue to recover throughout the year. We're also assuming that conversion rates normalize throughout the year as wholesale price appreciation moderates. Let me wrap up on slide 21 by reviewing our 2026 financial target. We are very pleased with our execution in a challenging macro environment, and we remain confident in our ability to achieve $1.3 billion of revenue and $325 million of adjusted EBITDA in 2026 with 25% adjusted EBITDA margin. Our confidence is reinforced by a number of factors, including strong dealer penetration, and increased wallet share, resulting in sustained market share gains. Opportunities to expand our TAM into adjacent markets, including commercial wholesale. Our broad technology platform, enabling durable long-term growth and operating efficiency. Consistent improvement in revenue margins. And a commitment to balancing growth and investment as our business scales. We look forward to providing you with the details on our long-term targets at our upcoming analyst day on June 1st. And with that, let me turn it back to George.

Thanks, Bill. Before we take your questions, let me summarize. We are very pleased with our strong execution in the first quarter. We are especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealers to our marketplace and by gaining wallet share, which positions ACV for attractive growth as market conditions improve. We are executing on our territory penetration plan and gaining traction with an expanding suite of offerings. We are delivering an exciting product roadmap to further differentiate ACV and expand our addressable market. We are on track to achieve our near-term adjusted EBITDA target and over the medium term generate over $1 billion in revenue with attractive margins that we believe will drive significant shareholder value. 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. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Daniel Embro with Stevens. You may proceed.

Hey, good evening, guys, and congrats on the course.

Hello, Daniel.

George, my first question, I want to start on the volume growth. You know, up eight, market was down double digits. When we look at that outperformance, is that growth coming more from new dealerships added, or are you making progress on that vehicles per rooftop metric you've talked about? And then what are you learning about the cost of growth in terms of incremental investment needed relative to your expectations as you scale?

Yeah, it sounds good, Daniel. I'll answer the first two, and I'll kind of answer the third. When you look at our growth, obviously to the overall market that contracted once again, you know, the market contracted 11% in the wholesale side of things. We grew, you know, 8%. It was both a combination of new customer acquisition. So we saw new listers have another impressive quarter for us of new listers, but we're also doing a great job. within the wallet share itself, meaning more listings from existing dealers. So I would say, instead of thinking one or the other, it was really both. So we had great success in the quarter. And I think moving forward, you know, between now and 2026, I think it'll be that same drumbeat. It'll be just additional listers and additional wallet share. And obviously, between now and then, the market itself is starting to come back, meaning the size of the wholesale market. But I would say at a really high level, it was both customer acquisition and expanding wallet share.

Bill, if you want to jump on the second part of the question. Hey, Daniel. So I would say the way to think about this is kind of there's two pieces on the go-to-market side. So in terms of our field sales organization, we're essentially fully staffed across the country. So we can continue to generate more volume there with the existing staff. Really, the only incremental cost is us adding inspectors as we continue to kind of add the number of listings on the marketplace. So that's the only variable cost. Otherwise, essentially, we're already kind of incurring the cost structure to support our future growth for the rest of the year.

Yep, that's great. It's a good update. Thank you. And then I wanted to actually ask a follow-up on the cost takeout, Doug. I think about transportation, initiatives and profitability is a good example of some of those tech savings you guys have generated. But can you maybe quantify where some of those efficiencies or cost savings have been so far and talk about maybe where the cost savings are relative to the 2026 timeline you guys laid out last year? Thanks.

I'll start building. You can go ahead and chime in. I just started to enumerate just the big ones. Our investment that in our transportation technology and platform, if we look at areas like pricing and intelligence, it allowed us to price our lanes more effectively. So instead of just having to take historical data for pricing, we now have more and more real-time intelligence. And that's really important because while a dealer is bidding, they want to know the cost of transportation while they're bidding. Two is scale as relates to transport as an example. As you have more scale, you're able to get better pricing from your carrier. So those two things are examples within the area of transport. When you look at areas like utilization of inspectors and our team becoming more efficient, investments in areas like auction format, getting a higher conversion rate, it allowed for us to have better utilization of our resources because, you know, increased conversion rate. And then I would also say generally one way to better have conversion is having better price guidance. So when you think about, for example, where technology helps you convert better is you're walking in and if a car, if you know the car's at its best day worth $20,000, And that's the best thing. The dealer is asking for $24,000. We know we're going to be wasting our time. So we now have a pricing engine that can help inform our dealers what these assets are worth. So there's many more. Those are like the ones on top of my tongue here that are areas where we're becoming more efficient. It's also in areas of better title management. We haven't had to really scale up in areas of titles and other parts of our org because that team has become much more efficient, having new tools. leveraging AI where we can now scan these titles, make a bunch of decisions just by scanning them. So it's many areas of business, Daniel, but those would be the ones sort of top of mind.

Yeah, I would just add a couple of other points, Daniel. So first on transport, 80% of our dispatches this past quarter were automated. So no human intervention. That's just another example. We've talked about that in the past in terms of how we're using technology to basically become more efficient. The other big driver during the quarter actually were, um, we were much more effective during the quarter in terms of our arbitration costs. Um, the frequency, you know, was, was better managed by our team. Um, and it was material benefit to our overall margins for the quarter. So, um, as, as we talked about in the past, there was an ebb and flow to arbitration. But directionally, you know, we're going to be talking about this more on June 1st at our analyst day in terms of driving towards our target model. But directionally over time, we believe we'll be able to more effectively manage our costs, and that'll be agreed to tomorrow.

Great. Appreciate all the color this evening, and best of luck going forward. Thank you. Thanks.

Thank you. Our next question comes from John Colantoni with Jefferies. You may proceed.

Hey, John. Great. Hey, thanks for taking my questions. I wanted to start with conversion rate. You know, in your prepared remarks, you talked about your expectation is for conversion rate to moderate throughout the year as wholesale depreciation begins to moderate. But, you know, when I look at overall conversion rates, it looks like they were elevated. in January and February and sort of trended back towards 2019 levels in March and April. And I'm curious, are you saying your expectation is for conversion rates to remain consistent with 2019 levels for the remainder of the year? Just some clarity on that. And then second question is, based on your revenue guidance, looks like growth is expected to moderate to low single digits in the second quarter before accelerating to around 10% in the second half. Can you give us – can you sort of help us with the growth cadence of prices and units in the auction segment, along with other revenue sources like capital and transportation? Thanks.

Yeah, certainly, John. I'll start, and Bill will go ahead and fill in. So we're – conversion rates were strong, and obviously there's also a seasonality part of the auction industry, meaning Q1 is typically your strongest quarter when you look at conversion rates. So when you think about our return to normalization over the next few years, at least from a forecasting perspective, we'd like to forecast that conversion rates start out higher in Q1 and moderate down. And then we'll see all these world events to see if that actually is true or not. But I think that's a prudent thing to assume as we start to return to normal. Obviously, there's a lot of factors. Whether or not we'll see it go all the way back down to a historical average or not, we shall see. But that's at least to be prudent what we're expecting. And that's at least what we would expect in the non-COVID years. The second question. was about Q2. You know, we're, the quarter, you know, it started off in a positive way. I really wouldn't read into this too much. Either way, it's more of, there's so many moving parts right now in the industry, right, across the, you know, volume, new car, new car volume being higher Used car volume, you know, looking at Q1, used car sales, retail sales were about 3% lower sort of year over year, obviously up quarter over quarter. You look at all the moving parts, we're just trying to be prudent, not knowing how all the moving parts are all going to come together.

Yeah, I would just add to that, John, that, again, as George said, so Q1 is, you know, typically the strongest quarter of the year. You know, and Q2 is also a pretty strong quarter backdrop here, though, is that what we've talked about is we're assuming in the second half of the year, you know, supply continues to improve and our market and our TAM, you know, continues to recover. And that's kind of the backdrop for our guidance at this point, that we're, you know, basically assuming Q2 is a good quarter, but it's going to be subject to, you know, supply chain issues and how quickly those resolve over time, because that will affect the supply into the wholesale marketplace. So, you know, on balance for the year, you know, again, we're raising our overall guidance and growth targets. And at this point, we're still early, of course, in the year. So right now, that's kind of the way we think about it. And hopefully that helps you understand the backdrop that we're using in terms of our assumptions for growth.

Thanks, appreciate the details. Okay. Thanks, Sean.

Thank you. Our next question comes from Rajat Gupta with JP Morgan. You may proceed.

Hey, Rajat. Thanks for taking the, hey, good evening, good afternoon. Thanks for taking the questions. Yeah, just to follow up on like the previous question, but maybe more from an EBITDA perspective, know if i compare the prior implied guidance for the second to the fourth quarter you know it would have equated to somewhere close to like a 20 million dollar at the midpoint um and and the guidance today uh you know if i include two q guidance and the rest of the year implies like a 24 million even the loss of the midpoint uh obviously like smaller numbers and context is a bigger picture but but curious what's the driver there you know anything in the end market that has changed versus what you were thinking prior for the remainder of the year? I know you gave some color earlier. Or maybe like there's just more cushion you're adding in terms of more spending on some initiatives in the back half and how to follow up. Thanks.

Yeah, there it does, Bill. So, you know, basically what we're passing through the full year is we're increasing our full year revenue guidance by $8 million, and we're increasing our EBITDA guidance by $3 million. Right. So, you know, we are being a little cautious since it's so early in the year. You know, obviously, we're still going to be pretty focused in terms of managing our expenses and operating efficiencies. We feel comfortable with this guidance at this point, and we'll see how the year kind of continues to unfold.

Got it. Got it. But there's nothing that's changed in terms of like how you thought about the industry in general for the full year versus like three months ago?

No, not at all. I mean, we're giving ourselves a little bit of room to potentially make some other investments if we think there's a good ROI. And again, as you would expect, there's still a lot of puts and takes this early in the year. So we're giving ourselves a little bit of room at this point, but directionally we're passing the majority of the beat for Q1 through to the full year.

Got it. Got it. And then just on the non-GAAP OPEX guidance, you know, previously your guidance was for it to grow at half the rate of revenue for the four-year. Is that still the case, you know, with the new revenue guidance as well?

Yes. Yes, it is.

Got it. All right.

I'll jump back into it. Hey, Rajat, just a clarification. Don't forget that excludes DNA.

Yep, yep, yeah, excluding cost of revenue and DMA, right?

Correct.

Thank you.

Thank you.

Thank you. Our next question comes from Chris Pierce with Needham & Company. You may proceed.

Hey, Chris. Hey, Chris, too. How are you doing? I'm the first one. I just want to make sure I heard you right. Longer auction times are helping with higher-priced vehicles. I'd like to get a sense of what the opportunity is in the higher-priced vehicles. How do you guys see that opportunity and why that would be the case, just out of curiosity?

Hey, Chris. We're winning market share for higher-priced vehicles in several ways. One category would be Dealers that use us for private marketplace, they first try to sell their vehicle to stores within their own group. And then if it's not successful, then they launch in our open marketplace. That'd be an example of why we're winning more share in that category. And then also our consumer sourcing tools. When a dealer is sourcing a car from a consumer and it's not the right fit for them, those are examples of areas where we're starting to win. And it helps in just basically our mix of units and ACVs. So over the last two-ish years, we've continued to increase the mix of higher-priced vehicles. And really the core of your question, There's different types of buyers for that segment. You've got some independent dealers who buy those vehicles, and you also have franchise dealers buying those vehicles. And we now have a significant percentage of our vehicles being purchased by franchise dealers in addition to independents. So that two-hour format versus the 20-minute format allowed for more participants in the higher AST sectors. Where the lower-priced cars, let's say a car that was between $3,000 and $15,000, the larger time really didn't make a material difference. It might have helped on the fringes, but not material. The higher-priced vehicles, that additional time has made a difference. And look at it as we're still testing. I mean, we tried a 24-hour auction model. We tried a four-hour auction. So for right now, there's a sweet spot around the two hours. Maybe the two hours goes down to one hour as an example. So don't look at these as like yet a perfect science. We are testing a lot. You'll see us keep tweaking. And I can imagine, you know, a future where there'll be a one minute auction. There'll be a 20 minute auction. There'll be a one hour auction and a two hour type auction. I don't know if you'll ever need more time than that or not. But you'll basically have – go ahead.

I was going to say, is there really a frame where you think your market share is, say, at an industry average price vehicle versus where it is at these higher price vehicle levels?

Not today. I don't think we have – if I had it, I would share it. I don't think we have enough data to suggest what our market share is at one ASP versus another just yet.

And then just lastly, I've been hearing about banks pulling back on floor plans. I'm just curious what that does for the ACB capital opportunity, if this is the right time to go harder in floor plan given macroeconomic conditions, and what makes a dealer that's not taking the floor plan product right now a good candidate for the floor plan product?

Hey, it's Bill. So what you've seen is some of these regional banks have pulled back on the floor plan market. They're mostly smaller players. And they primarily service franchise dealerships. Frankly, for our business, our prime competition is AFC and NextGear. Those are the two biggest players in our space. Look, this past quarter, we grew our revenue again north of 100%. So we're continuing to invest and grow that business as aggressively as we can. That said, we are being much more sensitive to risk, obviously, with the macroeconomic conditions. But even with that, for example, this past quarter, we cut our bad debt expense in half quarter on quarter. So I think our team is doing a great job in terms of continuing to manage strong growth while also managing our risk. So we're pretty happy, and we're going to continue with that path through the rest of the year.

Okay. Thank you. Thanks, Chris.

Thank you. Our next question comes from Bob Levick with CJS Securities. You may proceed.

Hey, Bob. Thanks. Hi. Congratulations on a great quarter. Really good stuff. I wanted to talk a little bit about the auction formats, as we've been discussing a little here. You had a really nice sequential pickup in GMV per unit. It was roughly like double the Mannheim sequential pickups. change in in pricing i think if i did the math right quickly um so is that a result of better mix uh um changes in auction formats what would you attribute the sequential you know pickup and gmv per unit to beyond just uh used car values as a you know kind of a starting point then i have a follow-up also on auction uh formats yeah sure uh thanks bob so

not to repeat myself, but one is our ability to secure these units. Like in any segment, the more you can secure from a sourcing, in a way, more supply, the more attention you get from demand. So one is we're starting to secure some of the sourcing. I mentioned some of the tools like Private Marketplace and other products helping us secure, actually get these assets. Number two is related to demand side. Now that several of the large dealer groups use ACV internally for private marketplace to bid on vehicles, it actually brings demand. So those tools not only help on supply, but when you're going to a product like ACV private marketplace to buy cars within a group, they're now there to buy cars in the open market. So that's an example where that one product helps us get supply, helps them. And if you look at areas of just generally what I would say themes in the industry is dealers are going to pay more attention to aged vehicles. So whether they're using private marketplace or not, you're going to see dealers pay attention to, do I have the right inventory on my lot? Generally, there's still not enough supply, I would say. We're still down about, Last quarter, overall supply in dealers' lots was still 20% to 25% lower than 2019 levels. So we're still missing supply in dealers' lots. Having said that, you may have many dealers will start to age out in any one given vehicle, whether it's a certain ASB class or certain types of vehicles. So several reasons, Bob, not one, that dealers need help in this category. Our product mix has helped us get buyers and sellers, and we're starting to really become more well-known in the category. And I could double down a little bit on inspections as well. When you think about the value of an inspection like ours, you know, when you're buying an expensive car, you know, I would say that our inspection, you know, being known as the best condition reported industry is very helpful. So probably more to come between now and analyst day. We'll probably go a little bit deeper in some of the things we're doing, but hopefully those are some good things to say. You said you had a follow-up question.

Oh yeah, no, that was great. And yes, for my follow-up, it's really, you talked about, you know, new auction formats from 20 to two, and you said you can envision one or 10 or whatever. What about bid-ask marketplaces and how do you think about that? Because, you know, a couple of your competitors, you know, have, you know, multi-day or, you know, just bid-ask period out there. How do you think about that relative to the timed auctions? And does one play better to higher level units, higher cost units, GMV, and lower? Or just give us a sense there. Might you ever experiment or dabble in just a bid ask for three days or something?

Yeah. So I don't know the exact number of private marketplaces we have today. So we have, let's say, at least 15 private marketplaces today. Each one of those are configured differently. So one of them might be three days, one might be two days. And it's really fascinating. So we're probably supporting 15 different formats in the private marketplace. And you get to learn from that. And you get to learn, okay, what's working well. We also have other elements like... We've got a run list capability that helps a dealer promote their vehicles before they go live. So look at it more like wherever the industry wants to go, we're going to be able to support it. The idea of having the most flexible and robust technology platform is really the key. you know, not to get too techie here, we can actually change our formats without even doing a code change in our private marketplace. Meaning we can change it from one day, two days, three days. Like we're that crazy about building the right tech. So look at wherever the market's going, we're ready. Now, what we did find was we saw no benefit over two hours, which was interesting. You know, if you were to make a bet on two hours versus 12 versus 24, you mentioned three days. We saw no benefit. We saw some benefit going from an hour to two hours, but I would say less material. So, yeah, going from 20 minutes to more was helpful, but I think if I was a gambler right now, I wouldn't bet on two or three days. I don't think you need that much time, so I think it's probably somewhere between 20 minutes and an hour is all you really need. And for some vehicles, two minutes is fine.

Okay. That's super. I appreciate all the detail. Thanks. Thank you.

Thank you. Our next question comes from Eric Sheridan with Goldman Sachs. You may proceed.

Thanks so much for taking the question. Hey, everyone. Thanks for taking the question. Maybe two on the cost and margin side of the equation. You know, in terms of your broader goal of getting to where you want to get on EBITDA break-even towards the end of this year, can you help us better understand what flex there is or how to think about torque in the business model for different outcomes on the top line versus base case versus how that might shift in a broader economic environment and how to continue to maybe achieve that goal within different bands of outcomes on the top line. And then the second part of the question, and not to front run analyst day, but obviously you've got this longer term profitability target out there. And when we think about the incremental margin, you'll be exiting the year about Can you help maybe investors get a better sense of how to think about the exit rate of incremental margin this year against your broader long-term goals on EBITDA? Thanks so much.

Hey, Eric. That's Bill. Yeah, first I would start by saying I think our Q1 performance kind of reflects our ability to manage our cost structure and really improve our revenue margins over time. In fact, this is only the second time that we've reached 50% revenue margins, with the previous time being before the company was public and when COVID hit and a significant amount of costs were taken out of the business. So that was kind of a normal run rate environment, if you will. But frankly, I think the team here has just done a phenomenal job, both in driving our revenue margin profile and managing OpEx. not really just managing OPEX in terms of reducing costs, but really optimizing the way we run the business, right? You know, and we've talked in the past about, you know, a lot of the initiatives that we've undertaken, you know, for example, you know, opening up shop in a low-cost geography in India, and sorry, to ramp those resources much more, you know, allows us that capacity much more cost-effectively. We've talked about kind of optimizing and lowering our arbitration costs. We talked about how our go-to-market engine right now is basically fully staffed. So we'll be able to generate incremental revenue and margin without any change in that cost structure whatsoever. A lot of the rest of our costs are kind of more fixed in nature, if you will. But even those costs are subject to really discretion in terms of whether or not we meter them up meter them down or maintain kind of neutrality. So I would say we still feel really good about kind of pushing more levers as we go through the year. And we'll talk a little more, obviously, about how we hit our long-term targets on June 1st in terms of how we see kind of more leverage just continuing to accrue over time as we scale and grow the top line. I think other examples, obviously, what you've seen, we've hit our transport you know, margin target, you know, literally three years ahead of schedule in Q1. So, you know, what I guess we're trying to show investors is that we have strong command over our business in terms of our model, how we think about optimizing operations over time. And, you know, literally every quarter, it seems that we're kind of layering, you know, another area of improvement that, you that we're achieving our targets well in advance of what we committed to investors. So we feel really good. And, again, I expect to go through this in a lot more detail at the analyst day. So hopefully that gives you a little bit of color and helps you kind of think about, you know, how we will kind of hit those targets exiting this year especially.

Great. I really appreciate it, Bill, and look forward to June 1st. Thanks. Thank you.

Thank you. Our next question goes from Ron Josie with Citi. You may proceed.

Great. Thanks for taking the question, guys. Hey, guys. I wanted to ask a little bit more. George, you mentioned earlier on the call just new listers, new dealers, new listers joining the platform, an impressive quarter, I think, for you all. And you talked about sort of what's driving overall volume outperformance. But for these new listers, can you just help us understand – these new listers joining the platform, is that just broader market improving, just driving a tailwind to dealers coming onto the site, or is this the team is now fully staffed, the sales approach has improved? I know the answer is probably a little bit of both, but I'm trying to understand specifically what's driving new listers on their marketplace. Is it just broader, greater adoption of these share gains that we talked about? That's point number one. You know, Bill, I know you just commented to Eric's question on where gross profits could go from here, particularly in the marketplace and services business. But when we look at that 55% or so gross profit margin within the core marketplace services business, we talked about transport, achieving mid-teens, ACV capital. getting to a 10% attach rate. Where do you think these margins can go? Or is this a wait for the analyst day because we're already achieving what we talked about? Thanks, guys.

Sounds good. Always good questions, Ron. So on the dealer acquisition, what you've seen us do to help you all think about dealer acquisition and wallet share, in the past, we used a cohort method. In June, not to like spoil from my content, Tim's going to kick me in a second, but in June, we're going to talk about market share, Ron, and that'll be helpful for you all. It'll be another way for us to think about our dealer acquisition and at a high level, think about it, how there's some regions where we have, you know, lower single digit market share of number of dealers using the platform. And then some dealers, we have significant double-digit dealers. And this is simply a matter of how long we're in these regions. You know, the ACV story here, I would say, has been consistent. Those of you who have been following us, whether for months or for years, this isn't like we woke up this quarter and we're winning Waller's share or new listers. It's been a very – it's just a machine here. Every quarter, we're bringing on new listers. Every quarter, we're out there winning more wallet share. That's really what we're representing today. It was another great quarter of bringing on new dealers. We do have a broader array of tools and value-added services that went over a dealer today than maybe a handful of years ago, but I would say it's been consistent. We consistently are driving dealers to both sell and buy in the platform. I think that's for today. I think we'll leave it there. Maybe, Bill, we can go to the second question.

Yeah. Yeah. So, Ron, I will tell you that, you know, what we will discuss June 1st is actually hitting the same target revenue margins of 60% by 2026 that we discussed last year, except the path to get there is going to be a bit different. You know, a few things have changed since last year. And we've talked about some of those things, but I think you'll find, you know, pretty intriguing in terms of some of the new dynamics that, you know, we see that allow us to hit that same target just in a little bit of a different way.

Okay. We'll see you all in June. Thank you. Okay. Thanks, man.

Thank you. Our next question comes from Michael Graham with Canaccord. You may proceed.

Yeah, I will not ask a question about June 1st, but I wanted to ask about two things. One is just on the territory expansion cadence that you expect here. You know, what should we be looking at in terms of, you know, territory expansion? And then you mentioned in the prepared remarks, I think Bill did about adjacent businesses being a potential contributor to those 2026 growth targets. And you mentioned specifically commercial wholesale. So I just wondered if you might expand on that a little bit here as a preview.

You said you weren't going to ask any questions that were going to come over in June. That's the fun. That's the fun of all of it. Yeah, we're really in a great spot as it relates to The sales team we have out there, when you look at it from an expense profile, we're already spending the money on all the territory managers we need out there in the field to hit the majority of our 2026 objectives. So look at this. These are my teammates who are out there going out and building the relationships with dealers on the field. In addition to those territory managers, we also have 21 regional sales directors that manage that team. So we're set there. We have several vice presidents that then are managing that team. We have a major accounts team that already, you know, all these teammates are already on staff here, ready to keep growing our relationships. We have another team of inside sales. That's a pretty good size team already today that could, we could be doing a lot more units than we have today with the current inside sales team. So, we've invested. We were in shock about building a world-class team to go after, you know, this really large TAM. So, yes, there'll be a few more folks, but I would say not material. I'm adding a handful of folks as it relates to I would generally call field. I would say we will talk a little bit more about us going after the commercial segment in the June meeting. You might hear about a little bit more hiring in that specific area. You might hear about some new leaders in that area. Yes, that's an area we're focused a little bit more on. I don't want to spoil our great content. But we do have intentions of, between now and 26, throwing them out of business. We're getting in the commercial category. All right. Thanks so much, guys. Yeah, thank you.

Thank you. Our next question comes from Nick Jones with J&B Securities. He may proceed.

Great. Thanks for taking the questions. Hey, how's it going? George Bell. If I kind of back into, I don't know if it was in the release, if I kind of back into auction marketplace revenue per unit, it looks like it's stepped up mid-single digits sequentially. So I guess kind of question one, anything to call out there? And then question two, just any update on how you're thinking about pricing on the platform?

Thanks. Yeah. Hey, Nick. Yeah, so our auction and assurance ARPU basically went up about a little more than $10 quarter on quarter and was up you know, about $35 or so year-on-year. So, you know, a lot of that benefit is associated with the fee increase that we did in Q4. You know, plus we had pretty good mix on the marketplace. Well, you know, and GMV per unit went up quarter-on-quarter, slightly down year-on-year. But, you know, again, that was offset by the fee increase. So, you know, we're in a pretty good place in terms of our fee structure, and it's – you know, help us drive, you know, really strong margins as well. That combined with, you know, with the arbitration frequency that I've mentioned and how well the team's been managing that.

Yeah, I think one of the themes Bill said earlier said more to come in how we get to the 2026 numbers. Again, not to spoil our content, but I would say you're seeing us confident in the higher ARPU range, right? That would be one of the areas as an example of how we get there being different. You know, not to mention specific, you know, like other people in the marketplace, we look at some of like whole parts revenue per unit. We're still a lot lower than them. Having said that, I feel comfortable about our revenue per unit, like this area we've been in, I think between now and 26, ARPU is an area that could grow. And that's just one theme. It might be, you know, we'll see in any one back-to-back quarters, we'll see as sometimes GMB is going down and we'll increase price again each year. when you look at it broadly year over year, we're pretty confident in our pool.

Great. Thanks, George. Thanks, Bill. Thank you.

Thank you. Our next question comes from Nat Schindler with Bank of America. You may proceed.

Hey, Nat. Hey, guys. Hey, thanks. I'm partially related to the last question. If I look, GMV was flat year over year. And if you look at the Mannheim Index, it's averaging about down 7.5%. So on pricing from an average of the previous year. So that would be 8% rise in units. Makes perfect sense, right? Dead flat. But revenue was up like 17% in the marketplace side. Obviously, there were price increases. You talked about that in dollar terms, $35 on a year-over-year basis. Could you help me do that in percentages and kind of bridge that number so that I can understand how much of you are you getting more because of just price increasing and how much are you getting because the 8% unit volume increase?

Hey, Nat, it's actually 8% unit growth and roughly 8% ARPA growth. So it's split, literally 50-50 between the two.

So, I mean, the pricing is pretty – your price on a unit basis is about half you're getting from the cost of the vehicle and half you're getting from the fact that you're just moving the vehicle, this unit?

No, no, no. You're asking a question, I think, about revenue.

Yeah, I know, but if the 8% unit growth is contributing 8% to the revenue growth, even though the GMV is flat, the GMV is flat.

Our GMV year-on-year is actually down. GMV per unit. GMV per unit. Okay, it's flat in terms of dollars.

GMV per unit, yes.

Yes, so GMV per unit's down. It's flat in terms of dollars because, you know, basically our ARPU increase, right? I'm sorry, our unit increase offset the reduction in GMV dollars in total.

So the two offset each other. In other words, in other words, we... Total 17%.

Yeah, so now let me restate it so it's clear, okay? So we grew our units 8%. Okay. GMV was flat. Okay. You know, because we basically offset what was an 8% decline roughly in GMV per unit with more units. So we sold more units, right? And offset the dollar decline. That's why the dollars were flat year on year. Does that make sense?

Yeah, no, this is not what I was trying to get at is the 17% increase in marketplace revenue with GMV being flat, but units up 8%. What I'm trying to get at is how much of revenue growth is GMV related and how much of revenue growth is unit related. And very specifically, because obviously you raise price, so price would be part of the 17% growth. And the other part would be some fixed component of the unit growth. Yeah, again, it would be just half and half?

Yeah, in talking about revenue, okay, first it was driven by the unit growth, right, of 8%. But those units actually carried a higher ARPU. which was also roughly up about 8% year-on-year, right?

So we sold 8% more units at roughly an 8% higher price per unit.

Revenue per unit, even though... Revenue per unit, yes. With that average vehicle being at a lower... Yeah, so what I'm trying to get at is, has the year-over-year... If you look last quarter, it was about an 8% hit on the Mannheim Price Index for pricing versus this Q1 23 versus 22. This quarter, things stay like April. It looks like 5%. So as GMV grows because of sale price of the car, how much does that translate to ARPU?

Yeah, I think your question, I think here's two things, and I think we'll prepare for you an answer. I think at a high level, the idea that, you know, per unit, it was about $35 is what we said in the past. And I think from a percentage, the buy fee has about, Mike, a 4% difference is what we're saying, 4% differential on half of that. Yeah.

Yeah, I think maybe where you're struggling, Nat, is understanding that our ARPU is only impacted partially in terms of GMV, in that GMV only affects our buy fees, right, because our sell fees are fixed. So, our buy fees are the only variable portion of ARPU, right? Okay. That's one part of it. The other part of it is mix on the marketplace, right? So our mix is going to impact what our ARPU is in terms of higher-priced vehicles versus lower-priced vehicles. But the other variable, again, is regardless what the GMV is, the only variable part of our equation are biases. So you get a muted impact either up or down in terms of the ARPU impact in any given court. And we can spend more time offline with you, Matt, on this, you know, and walk you through some actual numbers.

Maybe that'll help. Like everybody else? I didn't mean to.

All good. All good. All good. Thank you. All right. Thanks, Matt. Thanks.

Okay. Thank you. And this concludes the Q&A session. I'd now like to turn the call back over to Tim Fox for any closing remarks.

Great. Thank you. I guess I don't need to remind everybody that we have an analyst day on June 1st. But you can find registration details in today's press release and on our website. And we look forward to seeing those of you who are joining us then. And thanks again for your interest in ACV and have a great evening.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.