ACV Auctions Inc.

Good day, and thank you for standing by. Welcome to the ACV fourth quarter and full year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 111 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star 111 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker for today, Tim Fox. Please go ahead.

Tim Fox Good afternoon, and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2023 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 on 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 pleased with our fourth quarter performance, which capped off another strong year of execution by the ACV team. We delivered 21% revenue growth in Q4 and adjusted EBITDA that once again exceeded our guidance. For the full year, revenue grew 14%. We gained market share and exited the year with over 28,000 dealer partners buying and selling on our marketplace. We launched new innovations that expanded our competitive moat and drove operating efficiency, resulting in approximately 70% year-over-year improvement in adjusted EBITDA. Along with our continued momentum in dealer wholesale, we expanded our TAM with the launch of ACV's consumer sourcing solution, ClearCar, and by building the foundation for our commercial wholesale strategy. We are pleased to announce that our expansion into commercial wholesale will benefit from securing access to the AutoIMS software platform and also by growing our remarketing center footprint. More on our commercial offers later in the call. As we turn to 2024, ACV is focused on accelerating top-line growth, continued margin expansion, and achieving an important milestone with adjusted EBITDA profitability in 2024. We're confident that executing on this profitable growth strategy will result in creating long-term shareholder value. With that, let's turn to a brief recap of fourth quarter and full year 2023 results on slide four. Fourth quarter revenue of $118 million was in line with guidance and grew 21% year over year. GMV increased 6% year-over-year, despite a 9% decrease in GMV per unit as wholesale prices continued to normalize. We sold 144,000 vehicles on our marketplace, growth of 15% year-over-year, reflecting solid listings growth and improved conversion rate. For the full year, revenue of $481 million increased 14% as unit growth rebounded year over year, along with strong attach rates for ACV transport and ACV capital. GMV for the year declined modestly to $8.8 billion due to a 10% decrease in GMV per unit, largely offset by a 10% increase and unit growth to just under 600,000 units. On slide five, I will again frame the rest of today's discussion around the three pillars of our strategy to maximize long-term shareholder value, growth, innovation, and scale. I will begin with growth. Turning to slide seven, I'll share our observations about automotive market trends as context for dealer wholesale volumes in 2023. New retail sales increased 8% year-over-year, recovering from a 10-year low in 2022. While volumes continue to lag 2019 levels, inventories improved and OEM incentives increased. These are key factors in supporting a recovery in retail sales, trade, and therefore dealer wholesale supply. The used retail environment was a different story. Units declined 1% year over year in 2023, down from what was also a 10-year low in 2022, as affordability issues continued to pressure consumer demand. In terms of vehicle sourcing, dealers continued to retain a higher than normal percentage of trade for retail inventory, creating a headwind for dealer wholesale supply. The trade to wholesale mix is expected to normalize over time as new and used inventory recovers from depressed levels, which are currently about 30% below normal. While the supply picture remains muted, on a positive note, price depreciation and conversion rates across the industry recovered in 2023, following very challenging operating conditions in 2022. On balance, we believe that end markets are showing early signs of improvement. And while the shape of the dealer wholesale recovery is difficult to predict at this stage in the cycle, we do believe the market will post modest growth in 2024. Moving to slide eight. After declining 20% in 2022, we estimate that the dealer wholesale market declined 7% in 2023. As new retail sales recovered from depressed levels year over year, given our 10% unit growth, this implies 17% market share growth for ACV, which is in line with our midterm target model. As I mentioned earlier, while there are cross-currents still impacting the broader automotive market, we continue to believe that 2023 will be the trough for the dealer wholesale market. Next, I would like to provide highlights on our value-added services. First, on slide nine, the ACV transportation team delivered very strong results in 2023. Attach rates for the year were in the mid-50% range, in line with our mid-term target model, and our carrier network delivered over 325,000 vehicles. Our tech investments yielded a greater than 20% improvement in cycle times, which is a key element of ACV's value proposition for our dealer partners. AI-optimized pricing, which we introduced in early 2023, expanded significantly during the year, and we achieved 90% lane coverage in Q4. By leveraging AI, our transport team drove growth and operating efficiency, resulting in a 900 basis point year-over-year increase in revenue margins, reaching the high team. As a reminder, our midterm target model assumes transport revenue margins in the high team, While margins may fluctuate modestly over time, the fact that we already achieved our target speaks to the value we're delivering to our dealer partners and our strong execution. Turning to slide 10. Our ACB capital team also delivered very strong results in 2023. Attached rates in the low double digits resulted in 50% loan volume growth year over year. And combined with strong ARPU expansion, resulted in over 80% revenue growth year-over-year. We are continuing to invest in new ACV capital capabilities, including bundled offerings with ClearCar, and we remain confident that ACV capital will be an important long-term growth and profit driver. Next, I would like to wrap up the growth section by updating our progress on penetrating adjacent markets to provide ACV with additional growth leverage. On slide 11, I'll begin with Clearcar, ACV's consumer sourcing solution that leverages AI and real-time market data to deliver highly accurate condition-based pricing. As a reminder, the consumer peer-to-peer market is large, with about 10 million vehicles transacting each year outside the dealership ecosystem. Given ongoing inventory challenges facing our dealer partners, the peer-to-peer market is an attractive vehicle sourcing opportunity. ACV is addressing this challenge with ClearCar. Adoption has been impressive, with about 600 dealer rooftops live today, and we have a robust pipeline of new prospects. Based on dealer feedback, lead generation and conversion rates are significantly higher than competitive sourcing tools. This speaks to the power of ClearCar in driving qualified leads and ultimately increasing overall dealer supply. We are excited about the momentum for this value-added solution, which adds another growth lever to our business. Next on slide 12, I am pleased to highlight some exciting news related to our commercial wholesale strategy. At our analyst day last June, we shared our rationale for expanding into commercial wholesale. why we believe ACV is well-positioned to capture commercial market share and the investments required to service commercial consignors. And it turns out our timing could not have been better. Commercial volumes in the rental, repo, and fleet categories are recovering at a strong pace. All off-lease will take a few years to normalize. The overall commercial opportunity is very attractive. We believe that ACV is uniquely positioned to address this market with our deep data moat and vibrant marketplaces, along with a growing nationwide buyer base looking to secure commercial inventory. And we've expanded our remarketing center footprint with a recent acquisition of a Texas-based auction group that provides additional locations for vehicle storage and light reconditioning to service commercial vehicles. Lastly, we are thrilled to announce that ACV has secured licensing to AutoIMS. This technology platform connects wholesale auctions to nearly all 1,300 commercial consignors in the U.S. Our agreement enables ACV to deploy AutoIMS in a way that supports our remarketing centers and our digital-focused business model. which will be an industry's first capability. To wrap up on growth, we continue to execute on our playbook to capture dealer wholesale market share. Our transport and capital offerings are gaining significant traction, and we are well positioned to expand our TAM by executing on our consumer sourcing and commercial market expansion. Turning to the second element of our strategy to drive long-term shareholder value On slide 14, I will first recap some of our growth-oriented product innovations. Let me begin with the dealer buying experience. We leaned in with tech to increase conversion rates by launching new auction formats, an improved user interface, better inventory notifications, and enhanced pricing data. Our private marketplace solutions experienced strong traction with some of the largest dealer groups in the country, enabling dealers to both easily auction inventory within their network and leverage ACV's open marketplace. We launched new capabilities in our advanced buyer solution, SAM, which enhances the buying experience through intelligent notifications and auto bidding capabilities. And as I discussed earlier, our clear car solution is gaining significant market traction and our transport team is leveraging AI to drive growth and operating efficiency. On slide 15, we highlight examples of tech investments that extend into our operations, delivering customer success while reducing costs. One of the key drivers is inspection accuracy. Just as a reminder, each vehicle is unique with its own imperfections. We believe AI and our structured data is a massive competitive advantage. Our field team is equipped with technology such as Copilot, ArbGuard, Apex, and our AI-powered imaging apps to deliver high-quality inspections. 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. This is an industry first. APEX delivers significant transparency into vehicle operating conditions while also increasing the inspection productivity of our VCI team. Dealers often observe that you can't smell a car over the internet. This is no longer true thanks to APEX, with smell being one of the many sensors it enables. And we continue to expand our AI imaging capabilities to identify specific important conditions like the presence of damage and rust. Together, these innovations contributed to a 10% reduction in customer assurance costs in 2023. Incredible performance. in the current market. Next, I'd like to share some of the key focus areas of our tech roadmap for 2024 on slide 16. First, we plan to continue driving increased conversion rates by further tailoring the dealer experience on our marketplace. What was Max Digital is now ACB Max. This is more than a name change. We integrated ACV's proprietary data mode from our million annual inspections to enable dealers to make smarter sourcing decisions. We introduced cutting-edge recon alerts by leveraging ArbGuard and built a seamless integration with ClearCar to help dealers source more vehicles from consumers. Dealers now have a way to elevate their brand by becoming more consistent at all their stores. ultimately enabling them to source more inventory and drive gross profits. Given the strong adoption of ACV transport in our marketplace, we are extending these services to vehicles transacted off-platform, enabling our dealer partners to further leverage our best-in-class transport services. We recently implemented a loan management system to support our growing ACV capital business. which enables us to offer a broader set of finance offerings and drive scale across the platform. For example, expanding our finance to dealers looking to source consumer vehicles. To accelerate our commercial strategy, we'll be focused on integrating our remarketing centers with ACV's digital marketplace to create a range of cross-sell and up-sell opportunities. We are well underway selling vehicles from our remarketing centers on ACV's marketplace. Lastly, we are planning to leverage our industry-leading inspection technology to create dealer self-inspection solutions for two use cases, private marketplaces and live appraisal. These are examples of dealers directly using ACV's inspection and auction capabilities. To wrap up on innovation, ACV remains committed to delivering industry-leading technology to our dealer partners and to our own operations, driving both growth and scale. And we look forward to sharing more details with you next quarter. With that, let me hand over to Bill and take you through our financial results and how we're driving growth at scale.