ACV Auctions Inc.

Ladies and gentlemen, greetings and welcome to the ACV Q2 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 zero on your telephone keypad. As a reminder, this conference has been recorded. It is now my pleasure to introduce your host, Tim Fox. Please go ahead.

Good afternoon, and thank you for joining ACB's conference call to discuss our second 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 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 pleased with our second quarter performance. We delivered another quarter of record revenue that was above the high end of guidance, despite market headwinds related to the CDK software outage in June. We also hit a new milestone in the quarter with half of our regional markets achieving 30% franchise dealer penetration. Adjusted EBITDA increased 65% sequentially, resulting in a 700 basis point year-over-year improvement in adjusted EBITDA margin. Along with our momentum in dealer wholesale, we are very pleased with the market adoption of ACV's consumer sourcing solution, ClearCar, and with our ongoing technology initiatives to address the commercial wholesale market. As we pivot to the back half of 2024, we are encouraged by our strong performance in July and remain focused on driving top-line growth, expanding margins, and delivering our first year of adjusted EBITDA profitability. 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 recap of second quarter results on slide four. Second quarter revenue grew 29% year-over-year to $161 million. We sold 187,000 vehicles, a year-over-year increase of 22%, reflecting strong listings growth strong conversion rates, and execution across my ACV teammates. GMV declined modestly year-over-year, driven by a 19% decrease in GMV per unit, as wholesale prices and vehicle mix compressed relative to Q2 2023. However, ARPU increased 9% year-over-year, highlighting the value ACV is delivering to the market. Next on slide five. Today's discussion will focus on 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 the automotive market as context for dealer wholesale volumes. New retail sales got off to a positive start in Q2. However, the CDK outage resulted in a flat year-over-year retail sales for the quarter. Used retail sales declined approximately 5% year-over-year, reflecting both the CDK outage and the ongoing affordability challenges facing consumers. On a positive note, new vehicle inventories continue to normalize, and OEMs are increasing incentives, which should help support retail sales in the back half of 2024. In terms of used vehicles, overall inventory levels have recovered from the 2023 historical lows. However, they remain about 20% below normal. As we discussed before, the used vehicle inventory shortage has been a headwind for dealer wholesale supply, as dealers retained a higher percentage of trades for retail. We did see a modest uptick in the trade to wholesale mix in Q2. And we expect the mix to normalize as inventories recover. Lastly, wholesale price depreciation was above normal in early Q2, but has since stabilized. And we believe that prices will follow normal seasonal patterns for the balance of the year. Despite the Q2 pricing pressure, conversion rates were very solid. and increased year-over-year, which we attribute to our marketplace investments driving dealer engagement. On balance, we're seeing early signs of improvement in the broader automotive ecosystem and believe the dealer wholesale market will continue to modestly recover in the back half of 2024. Moving to slide eight, let's cover highlights on our value-added services, beginning with ACV transportation. The transportation team once again delivered strong results with over 100,000 transport delivered in the quarter. AI optimized pricing expanded significantly over the past year. And we achieved 95% lane coverage in Q2. By leveraging AI, our team delivered over 20% volume growth while driving operating efficiency. Revenue margin was again in the high teens. and expanded 280 basis points year-over-year. Lastly, our recently launched off-platform transportation service is gaining traction with our dealer partners. We're in the early stages, but excited to deliver new value-added services that create long-term growth while accelerating network densities and deepen carrier relationships.