ACV Auctions Inc.

Greetings and welcome to the ACV Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Fox. Thank you. You may begin.

Good afternoon, and thank you for joining ATV's conference call to discuss our first quarter 2024 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 of all 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 filing 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. 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.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are pleased with our first quarter performance, which demonstrated continued strong execution by the ACB team. We delivered another quarter of record revenue, which was at the high end of guidance, and grew 22% year over year. We delivered our first quarter of positive adjusted EBITDA since going public, which was also at the high end of guidance. Our innovation engine continues to hum along, further extending our competitive moat and driving operating efficiencies, resulting in an 800 basis point year-over-year improvement in adjusted EBITDA margins. Along with our continued momentum in dealer wholesale, we are very pleased with the early market adoption of ACV's consumer sourcing solution, Clearcut. We kicked off a number of tech investments to support our commercial wholesale strategy. ACV remains focused on driving strong top line growth, continued margin expansion, and delivering 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 first quarter results on slide four. First quarter revenue of $146 million was at the high end of guidance and grew 22% year over year. GMV decreased 4% year over year. driven by a 16% decrease in GMV per unit as wholesale prices continued to normalize. We sold 175,000 vehicles in our marketplace, growth of 15% year-over-year, reflecting strong listings growth and a modest year-over-year decline in conversion rates. 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'll begin with growth. Turning to slide seven, I'll share our observations about automotive market trends as context for dealer wholesale volume. New retail sales were flat year over year, to continue to lag 2019 level. However, the inventory picture continues to gradually recover. And along with increasing OEM incentives, we believe new retail sales will improve in the back half of 2024. The used retail environment remains soft, with units also flat year over year in Q1, as affordability issues and a lack of late model inventory continue to pressure consumer demand. In terms of vehicle sourcing, dealers are retaining a higher than normal percentage of trades for retail inventory. continuing 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 25% below normal. Along with the supply picture continuing to normalize, we saw price depreciation and conversion rates in line with normal seasonal expectations. On balance, we believe that end markets are showing early signs of improvement. While the pace for dealer wholesale recovery remains difficult to predict, we do believe the market will post modest growth in the back half of 2024. Moving to slide eight, I would like to provide highlights on our value-added services, beginning with ACV transportation. The transportation team delivered another strong quarter with attach rates in the mid-50% range which is in line with our mid-term target model, resulting in 95,000 transport requests sourced from our marketplace. The use of AI-optimized pricing, which we introduced in early 2023, expanded significantly, and we achieved 94% lane coverage in Q1. By leveraging AI, our transport team drove growth and operating efficiency, resulting in a 300-basis-point year-over-year increase in revenue margin. reaching the high scene and in line with our mid-term target model. We also launched off-platform transportation services for our dealer partners. While still early, we're excited to be delivering additional value for our dealers and another long-term growth lever. Turning to slide nine, our ACV Capital team also delivered strong results in Q1. Attached rates in the low double digits combined with strong ARPU expansion resulted in 40% revenue growth year-over-year. Given the current challenging used vehicle market, we are focused on balancing the growth and risk of AC capital, resulting in a 1% credit loss provision in Q1. Moving to the second element of our strategy to drive long-term shareholder value, innovation. On slide 11, I'll first recap some of our growth-oriented product innovations. Let me begin with the dealer buying experience. We continue to add new marketplace features to increase conversion rates, including advanced saved search capabilities and additional transparency of vehicle package information to help inform accurate pricing. The relaunch of ACV Max has been promising, with Q1 bookings at the highest level since 2021. We are in the early phases of ramping our go-to-market and expect ACB Max to be an additional long-term growth lever. We kicked off tech investments to support our commercial strategy, including integration with Auto-IMS, new features required to service consigners, and integration efforts across our remarketing centers. Lastly, we're in the pilot phase with our dealer self-inspection solution, initially targeted at two use cases, private marketplaces and live appraisals. Feedback from our dealers has been very positive, and we look forward to sharing more details throughout the year as we expand capabilities and scale the pilot. Turning to slide 12, we are very pleased with the market traction of Clearcar, ACV's consumer sourcing solution that leverages AI and real-time market data to deliver highly accurate condition-based pricing. Based on dealer feedback, lead generation, conversion rates, and margins are significantly higher than competitive consumer sourcing tools. This speaks to the power of ClearCar in driving qualified leads and ultimately increasing overall supply for our dealers. We are excited to share feedback directly from one of our dealer partners, Lester Glenn Automotive Group, who is using a broad set of ACV solutions, including ClearCar, ACV Max, and our marketplace. We posted a video on our IR website featuring the Lester Glenn team describing the significant value they're deriving from the ACV solution. It's a great opportunity here directly from my dealer partner. On slide 13, we highlight examples of tech investments that extend into our operation, delivering customer success while reducing costs. One of the key drivers is inspection accuracy. Leveraging AI and our structured data is a massive competitive advantage because each vehicle is unique and with its own imperfections. We recently launched version 2.0 of CoPilot and ArcGuard. For CoPilot 2.0, we further leveraged our vast data set by adding a visual representation of common high-risk vehicle part failures based on specific year, make, and mileage of the vehicle. ArbGuard 2.0 continues to leverage some of the industry's best artificial intelligence for vehicle condition diagnostics. With the addition of Munk's exterior cosmetic model, we deepen our inspection capabilities, enabling our VCI to produce an even higher level of accuracy. We expect these innovations will drive both VCI efficiency and lower customer assurance costs over the long term. To wrap up on innovations, ACB 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 it over to Bill to take you through our financial results and how we're driving growth and scale.