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.

Turning to slide nine.

The ACB Capital team once again delivered growth while managing risk in an environment that continues to be challenging for independent dealers. Along with driving growth in the core floor plan business, the capital team is piloting a new offering that expands the addressable market. The new offering provides financing for consumer source vehicles and dealer trade-ins that are then sold retail or on ACV's wholesale marketplace. We are uniquely positioned to bundle ClearCar with ACV Capital to support our dealers' vehicle sourcing strategies. We look forward to updating you on these new offerings in the coming quarters. 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. Earlier on the call, I mentioned strong Q2 conversion rates. which is an important marketplace growth lever. It's clear that our investments are paying dividends. Features like advanced search, vehicle merchandising, AI-enabled pricing data, and flexible auction formats are delivering what we believe is the best dealer buying experience in the market. Our commercial technology investments are progressing, with our initial focus on integrating with Auto-IMS and delivering marketplace features to support commercial consigners. These key initiatives will help drive platform standardization across our growing footprint of remarketing centers. The new ACV MAX suite continues to gain traction in the market with key competitive displacements and very high retention rates in Q2, along with a growing pipeline of new prospects. Lastly, in the dealer self-inspection category, we are excited to see strong interest in ACV's vehicle appraisal solutions across a number of use cases. Whether dealers are appraising trades or consumer vehicles sourced through digital channels or making offers to consumers in their service drives, accurate pricing is the critical success factor. Legacy tools don't fully capture the dynamic nature of the automotive market, making the appraisal process more of an art than a science. With ACV Solutions, we are delivering science. Our appraisal solutions incorporate AI imaging for damage detection and real-time localized pricing that is condition-enhanced based on millions of inspections in our data mode. It's still early days in this category, but we believe self-inspection can unlock a number of exciting long-term growth opportunities, including TAM expansion. Let's turn to slide 12 to highlight one of our fastest-growing self-inspection solutions, ClearCar. Market traction for ClearCar remains strong, with nearly 900 dealers live today and a growing pipeline of prospects. Dealer feedback regarding lead generation and conversion remains very positive. And based on transaction data, we estimate that dealers using ClearCar are increasing retail profits by 10%, improving inventory turns, and increasing wholesale profits nearly 20% relative to legacy tools. And ACV is benefiting from increasing wholesale wallet share by becoming a deeper strategic partner in our dealers' retail and wholesale operations. Again this quarter, we're very excited to share feedback from one of our dealer partners, Classic Elite Auto Group. which 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 Classic Elite team describing the significant value they're deriving from ACV solutions. It's another great opportunity to hear directly from a dealer partner. On slide 13, We highlight examples of technology investments that deliver customer success while reducing costs. Last quarter, we launched new versions of Copilot and ArbGuard. Copilot 2.0 further leverages our vast data set by adding visual representations of high-risk vehicle part failures based on specific year, make, and mileage of the vehicle. Arbogar 2.0 leverages industry-leading AI for vehicle condition diagnostics, and along with Munk's X-tier cosmetic model, we are now producing an even higher level of accuracy. We are very excited to share that in Q2, our inspection technology contributed to a record-level VCI efficiency across our nationwide team of inspectors, a great milestone for the team. To wrap up on innovation, ACV is 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.

Thanks, George, and thank you, everyone, for joining us today. We are very pleased with our Q2 financial performance. Along with accelerated revenue growth, we delivered meaningful margin expansion and strong sequential adjusted EBITDA growth, demonstrating the strength of our business model. On slide 15, let's begin with a recap of our second quarter results. Revenue of $161 million was above the high end of our guidance range and grew 29% year over year. Adjusted EBITDA of 7 million was at the midpoint of our guidance range, and adjusted EBITDA margin improved approximately 700 basis points versus Q2 23. We were pleased to achieve record adjusted EBITDA in Q2. It's worth noting that results would have exceeded the high end of our guidance were it not for transient factors impacting revenue margin in the quarter. As George mentioned earlier, price depreciation was above normal during Q2, which pressured GMV per unit and ARPU relative to our forecasts. We also had an increase in arbitration cases early in the quarter as dealers were digesting market price declines. I refer to these factors as transient because GMV per unit and arbitration rates have stabilized, and we are expecting price depreciation to follow normal seasonal patterns for the balance of the year. Finally, non-GAAP net income was at the midpoint of our guidance range, with margin increasing approximately 300 basis points year over year. Next on slide 16, I would like to highlight additional revenue details. Auction and assurance revenue was 57% of total revenue and grew 33% year over year. This performance reflects 22% year over year unit growth, an auction and assurance ARPU of $493, which grew 9% year-over-year. Marketplace services revenue was 38% of total revenue and grew 30% year-over-year. Results were driven by strong ACV transport performance and another record revenue quarter for ACV capital. Our SaaS and data services products comprised 5% of total revenue with growth returning to positive territory. As George mentioned earlier, we are very pleased with the relaunch of ACV Max and remain confident that the new ACV Max suite will drive long-term growth. Next on slide 17, I'll review costs in the quarter. Q2 cost of revenue as a percentage of revenue decreased approximately 200 basis points year-over-year. The improvement was driven by auction and assurance results and by ACV transport. We continue to focus on expense discipline as we optimize and scale our business. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue, decreased 400 basis points year over year in Q2. Moving to slide 18, let me frame our investment strategy as we continue driving profitable growth. Our focus on spending discipline and operating efficiency resulted in a decrease in OPEX growth in 2023, yielding a significant improvement in adjusted EBITDA. For 2024, we continue to expect an increase in OPEX growth as we execute on our remarketing center strategy and commercial platform investments. Even with these investments, adjusted EBITDA margin is expected to increase by approximately 800 basis points year over year. Next, I will highlight our strong capital structure on slide 19. We ended Q2 with $273 million in cash and cash equivalents and marketable securities, and $110 million of debt on our revolver. Our Q2 cash balance includes $168 million of float in our auction business. The amount of float on our balance sheet fluctuates meaningfully based on business trends in the final two weeks of each quarter, which has a corresponding impact on operating cash flow. In the figure on the right, we highlight our strong operating cash flow for the first half of 2024. Note that when excluding change in marketplace flow, we generated 14 million of operating cash flow in the first half of 2024. This is a significant increase year over year, reflecting the transition to profitability and strong margin improvements. Now turning to guidance on slide 20. For the third quarter, we are expecting revenue in the range of 158 to 162 million, growth of 33 to 36% year-over-year. Adjusted EBITDA is expected in the range of 6 to 8 million, consistent with our commitment to achieving profitability each quarter going forward. For the full year, we are raising the big point of revenue and adjusted EBITDA guidance. Revenue is now expected to be in the range of 615 to 625 million, representing growth of 28% to 30% year-over-year. Adjusted EBITDA is now expected to be in the range of $21 to $25 million. As it relates to guidance, we are assuming that the dealer wholesale market continues to modestly recover in the back half of 2024, and conversion rates and wholesale price depreciation follow normal seasonal patterns. We also continue to expect revenue growth to exceed non-GAAP OPEX growth. excluding cost of revenue depreciation and amortization by approximately 10 percentage points. And finally, moving to slide 21, we remain committed to achieving our midterm target model, which is underpinned by sustaining market share gains, penetrating adjacent markets, and expanding margins through revenue mix and scale, all of which we've clearly demonstrated in our performance. Our midterm targets are primarily predicated on a dealer wholesale market recovering to historical volumes over time. But in addition, we are expanding our TAM and consistently taking share, which will drive long-term growth. And with that, let me turn it back to George.

Thanks, Bill. Before we take your questions, I will summarize. We are very pleased with our strong execution in Q2, and we are especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace, while expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product roadmap to further differentiate ACV and drive operating efficiencies. We are on track to achieve our 2024 adjusted EBITDA targets and deliver on our mid-term targets 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. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Michael Graham with Canaccord Genuity. Please go ahead.

Hi. Thanks very much. Congrats on the continued momentum. I had two questions. You know, you talked about the market still being a little bit muted, but seeing some signs of progress, you know, as we point towards the second half. Could you just maybe elaborate on what those signs of progress are? And could you just remind us, you know, what the market looks like when you are able to say that, you know, it has recovered? Like, what are the kind of key metrics that you're focused on there?

Yeah, thanks, Michael. I appreciate it. This is George. When we look at the positive signals out there, new vehicle inventory is continuing to normalize. We mentioned in the first part of the quarter here, the first few months of the quarter prior to the CDK outage, we saw that really go in the right direction. We believe the only reason why new was flat was because of the CDK outage. So that was, you know, new going in the right direction, very positive. We're all seeing more and more incentives out there. We're seeing OEMs already, even with a high cost of capital, putting the incentives out there for new cars. That's fantastic. Back half of the year with lower interest rate, we may even see even more incentives going on when you think about what they could do with leases and other sort of products. So that's positive. One of the things we point to As far as trends that help us see the dealer wholesale market returning back to 2019 is the trade to wholesale mix. This is okay when a consumer comes in, trades in a vehicle, does the dealer keep it and retail it or wholesale it? And they've been keeping more vehicles from 2019 to now really just because there was a lack of inventory. And there was obviously first lack of new, then there was lack of use. And use is still 20% below the 2019 level. So we're working our way back towards normalcy here. But we did start to see a slight uptick in that sort of dealers willing to wholesale a vehicle versus retail, which says, okay, cars are starting to add up on their lots. Still not back to where it was, but they're starting to add up on their lots. As we start to see that, we will start to see dealers wholesale more vehicles. So, Michael, hopefully that's helpful.

Yep. Thanks a lot, George. I appreciate it. Yep. Thank you. Thank you.

The next question is from Bob Labick with CJS Securities. Please go ahead.

Yes. Hi. Good afternoon. It's Pete Lucas for Bob. Can you talk about the commercial opportunity ahead, and what is the landscape for acquisitions in the physical reconditioning auction space?

Yeah, thank you. We feel really good about where we're at with commercial. We've got really two parts of the strategy here. One is getting our product offerings back in support. to be able to really support commercial through leveraging AutoIMS in the use cases where the commercial partners don't need reconditioning. And as I mentioned in the past, AutoIMS is the middle where commercial partners use. And now that we're included as a methodology for commercial consignors, we're doing well. We're progressing on that integration and looking to have that ready to go live before the end of the year. So very happy about the progress there on that integration. So that use case specifically would be a vehicle that doesn't need to get moved or doesn't need to be reconned, examples like that. And we need that integration in place to really support wherever the vehicle is. Then second market, which you mentioned, is a large part of the commercial category. Vehicles need minor recon. We say minor recon, a lot of times it's just they need it need to put on a tire or change, you know, it needs a key within the repo category. That's in a category where there's some reconditioning. You know, we now have 10 locations and we're very excited that we're on our way. You know, I think 25% of the way of what we said, at least 40 locations to get to over 80% of the population. So very happy with our progress. on that journey of having locations across the country to help us go after the commercial space.

And as you mentioned across the country in terms of those locations, how do you look at the expansion? Is it prioritizing one area over the other or wherever the opportunity presents itself or kind of across there and then the timetable to get to that full footprint that you're looking for?

Yeah. And locations it's, uh, there's, there's really two parts of locations. One would be if we're going to go in via an acquisition, uh, which you've seen us thus far, the majority of these have been small acquisitions. Um, um, so really if it's an acquisition, there's an, uh, there's a viable, uh, business in that location we're going after. then the acquisition path would be a path we can go down. There are some markets in the country where there won't be a target for us to acquire. In those markets, we'll just rent some land, decide whether or not we're going to outsource the reconditioning and or do it in-house based on the market. In many of these markets, you could just outsource the reconditioning. And so either way, we're going to bring the offering really to all the markets we want across the country, whether or not there was a small acquisition or we go ahead and just rent the land we need to go to market.

Very helpful.

Thanks. I'll jump back in the queue.

Yep. Thank you. Thank you. The next question is from Rajat Gupta with JP Morgan. Please go ahead.

Great. Thanks for taking my questions. I missed, like, the initial part of the call. I was curious, like, did you quantify any impact from CDK to the business, either on revenue or EBITDA? I just had that one clarification, and I have a quick follow-up. Thanks.

Yes, certainly, Rashad. I'll start, then, and, Phil, if you want to chime in. So we didn't really – say, Rajat, what was the impact earlier in the call? All we did is mention that we did see, as you know, you covered the space pretty broadly, that new was going off at a really good start, and CDK really slowed down the new car sales and used car sales towards the end of the quarter. Our impact, it's really tough to put an exact number on it. It was definitely over $600,000 of EBITDA, and definitely over a million dollars of revenue. The exact number, we don't really know. But it was, you know, it was an impact. Obviously, we still had a fantastic quarter. But that would be, you know, an approximate range of what the impact was for us.

Got it. Got it. That's helpful. And then just on a related topic, I mean, Given the experience a lot of the dealers went through with CDK, and we have heard from other dealers trying to explore redundancies and other options, you obviously are getting closer and closer to the dealer, getting more integrated with their systems, with ACV Max, and just all the other products. I'm curious, how do you see this event as an opportunity? uh, for ACV to, to maybe work more closely with the dealer, you know, I don't know, maybe at some stage, you know, get into the management system side of things. I was curious, like, uh, you know, you know, how, how you think about that opportunity? Thanks.

Yeah. Um, I think it's a great question. I, I was on the phone with a top, a top let's call it top five or maybe top 10 dealer group. Um, a senior person recently on this topic. And it was fun because it was somebody that doesn't work with us a lot today. And it was really interesting listening to how he thought about the category and how he wanted to make sure he had more options. So I think you said it well. You kind of answered the question while you stated the question. It's a category where dealers are going to I'd be more careful about these all-in-one systems is what I'm hearing. There's a couple of different software vendors are trying to put everything into one stack. And I think they're going to be a little bit more careful about that. They're going to be, you know, I think they're going to be careful to make sure they got best of breed. So I think those signals could be good signals for us. I don't know if it'll change our trajectory for ACMX or any of these products like in the next quarter or two, like they took off, you know, I don't want to signal like, okay, it'll go down. we're going to start selling this so much faster than we are today, but to your point, it definitely can't hurt. It can only help the fact that we're here. We've got great products. We've got a real tech team. You know, we've got nearly 400 people between product and technology and IT and incredible teammates in this area. And we can help dealers, uh, sort of diversify and, and sort of, um, create strength to their, their, sort of their backend systems. So, um, I think that's all probably today on that, but I think it's also a great question.

No, honestly, no, I do think it's a great opportunity. But thanks for the questions and good luck.

Thank you, Rashad.

Thank you. The next question comes from Navid Khan with B Riley Securities. Please go ahead.

Yeah, thank you very much. I think in your prepared remarks, you talked about 50% of the markets achieving 30% penetration of franchise dealers. Is that just the count of the dealers, or is that wallet share? How should I think about that metric that you just shared? And then I have a follow-up.

Yeah, that's just a count of those working with us. Good point of clarification. Thank you so much. I mean, it's not full wallet share yet. So we would have, we'd be selling a lot more cars, um, to your point, if we had 50 also, you know, 50% of their wallet share. So that that's right. It means we're, um, think about it as the first flag of, uh, you're sort of, when you think about your, in your path to success, you're just celebrating each part of that victory. The first part of the victory is they're working with us and this, you know, and the second part of that victory is we start to gain more wallets. Yeah.

Okay. Um, great. Um, and then just on the, on ACV capital, um, what's the attachment there? Has there been any movement on that front? And you also spoke of a potential sort of new opportunities beyond, beyond the core, uh, maybe off platform financing. Maybe talk about that a little bit. How big can that be over time?

Yeah, certainly. So yeah, we're very pleased with our team's, uh, execution, ACV capital. We did mention on the last few calls that we will continue to grow, but we obviously signaled to you all we weren't intending to grow this year as fast. Much of that is purposeful. We all saw the risk as it related to independent dealers with the higher interest rates and both for the consumer and their ability to compete. So our team has done a fantastic job of both growing the growing but also managing bad debt and actually improving year over year on our bad debt expense, pretty meaningful improvement while growing in a tougher environment. So I'm just really thrilled with the team's execution of growing in a market there that's, I think independent dealers will get healthy. There's a little bit of technical piece of this for independent dealers. interest rates come down. We can see the independent dealer being a lot healthier kind of going into next year. And you also see franchise dealers stop selling some of the junkier cars. So I think that will be another talent for the independent dealer next year. So fantastic job on the team's execution for ACB Capital. The new product that we are just very early stage. I'm really excited about it. One of the reasons I'm mentioning it is I'm just You've got some of these products that I'm just super psyched about. But whenever you could bundle two of your products together to add tremendous value, and that's bundling ClearCar with ACV Capital to help dealers buy cars from consumers. And this will be both franchise, it'll be independent, it'll be others in the marketplace that just buy cars. And we're really excited about this. It's an area where We believe we have a competitive advantage because if you think about each time when you're extending credit in a way, you're doing it based on our wholesale value, based on our ability to price that vehicle. So we're in a very unique position to basically fund this consumer acquisition. Having said that, we're very early. I think the first few dealers have gone live. It will, you know, it won't really wrap until next year. This was just, I was just excited that we got live with it and we launched our first. We're technically not actually live. We're technically a pilot. But I'm happy to announce that at least it started.

Great. Thank you.

Thank you.

Thank you. The next question is from Chris Pierce with Needham & Company. Please go ahead.

Hey, good afternoon, everyone. Has anyone asked on competitive intensity yet?

Hey, Chris, do we have competitors? I'm just joking.

From talking to customers and investors, I appreciate that, by the way. CarMax is ramping up max offer. Copart is making noise in wholesale. And then on the physical side, America's Auto Auctions has bought a couple of local physical auction houses. So I just want to get the sense of how you think about the competitors broadly. Are they coming to this market because it's a growth market or are they trying to defend share? How do you think about competitive intensity from some of these newer players?

Yeah, I mean, Chris, if you look back, there's been physical auctions, whether it be owned by the group you mentioned or somebody else. um there's been hundreds of physical options across the country from day one when we started this journey so whether company a or company b owns that auction really doesn't change the competitive nature um even some of the other folks who are in the salvage category you mentioned they've been you know on and off in this category for a long time you can go back and look at the press releases how long um so there's really been no change in my mind on the competitive nature, I think even when you look at our other direct competitors, I think you're going to see we've done better quarter over quarter. So I would say the simple quickest answer would be you respect your competitors. We've got very strong competitors. One really big one, um, you know, who we, I think we, we, we are doing a great job as well, but you know, you know, we've got some, uh, we've got some competitors in every market we're in that it's been that way since I started this journey in 2016. So a short answer would be nothing has changed. We've always been competitive.

Perfect. And then what would you say if, you know, I kind of posited a theory of second half strength in used car macro given the CDK disruption and the easy comps we have on 22 and 23 in the second half of the year. And these are durable goods and interest rate cuts are coming. I know you guys don't like to make macro predictions, but does it line up for a stronger second half than we normally see in the used car industry?

I think that's the question, if you would. We believe things will, you know, let me say it this way. We are planning for it to moderately improve. Bill might need to chime in here in a second. But we're not banking on a huge improvement. And actually, Bill, I'll be safe for here. You go. Sure, sure.

Hey, Chris. So I think if you take a step back and let's start with our guidance, right? We raised the lower end of our revenue guidance. So we moved the midpoint up, right, to a full-year revenue growth of 28% to 30%. which is a pretty good growth rate considering the current macro environment. That said, we mentioned in our prepared remarks that we've seen a strong start to Q3, and that's certainly with the case in July. It's carrying over so far into August. However, we're really not extrapolating that growth rate yet, even though our Q3 guide is basically 33 to 36% revenue growth. So the caveat here is, you know, the dealer wholesale market improved modestly in Q2, but it still declined based on auction net data, roughly 3% year on year. Okay. So, you know, we still believe dealer wholesale is going to recover, but it's unclear, you know, how much of a tell when that's going to provide in the second half. And you've got all these macro cross currents at play, right? So, you know, the net for us is we feel like we're, you know, we're getting to really strong revenue growth in the second half. We certainly see a nice start to Q3, but we're just a little cautious here because we're, you know, a week away from only halfway through the quarter, right? But certainly these are positive trends that we're seeing so far. So that hopefully gives you a little more context.

Yeah, I appreciate the time. Thanks and good luck.

Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question is from Curtis Nagel with Bank of America. Please go ahead. Hi, guys.

This is Stephen McDermott on for Curtis Nagel. You talked more about kind of your profitable investment philosophy and the prepared remarks. Do you mind just expanding kind of what investments are still needed to reach your targets, and as well, kind of what would margin expansion look like if you were to exclude those investments? Yes, thank you, and then I have another one after.

Bill, why don't you go ahead?

Yeah, so the way we think about this is, you know, how much incremental EBITDA will regenerate for every given incremental dollar of revenue, right? Which is net of any investments that we're making. So let's start there. You know, and last year, you know, we had significant incremental EBITDA margin because we were really tightly managing OpEx. You know, this year as we pursue the commercial strategy, you know, through M&A, that obviously has an impact in terms of how much incremental margin we deliver, even a margin we deliver for every incremental dollar since we're bringing on additional op-ex as part of that strategy. So all the modeling that we're doing going forward basically gets us to a place where when we take into account that commercial strategy and those investments, we expect to deliver about 40 percent of every incremental dollar of revenue down to EBITDA, which we feel is a pretty good track to execute on going forward. Assuming we can drive good growth on the top line, we can really build a really nice improvement in EBITDA margin over the course of the next few years as we head towards our midterm targets. So that's the kind of way we think about it in terms of the model. If we weren't making these investments, I mean, frankly, that would be kind of hard to discern because if we weren't making those investments, that would impact our revenue growth. So it's not easy to parse that out because if we don't make those investments, we've got less revenue generation and margin generation as well. So that's not the way we think about it.

Got it. Yeah, makes sense. And then I think typically or at least historically, you've raised prices in 3Q. I was just wondering this time around if you're thinking kind of along the same lines and is that across the board or is that more targeted towards a certain product, a certain service, et cetera? Thank you.

Yeah, certainly. We did have a small raise in price for some of our So that was part of our plan for this year. We were always looking at the timing based on market conditions and other factors. We did see, obviously, used car values start to decline quicker in Q2. So we decided to make a small change there. And when you look at our target, that we've told you all we're targeting $500. If you take the buy fees, the sell fees, the assurance product we call Go Green, you put all those fees together, we are $493 in Q2. And our midterm model is $500. So look at, you know, there'll be puts and takes any one quarter based on what's going on. But, you know, between now and over the next few years, we've got a target with the last quarter being $493, everything else going on and going forward. I feel very confident about our goal, $500. And then the second part of your question, beyond doing these small fee increases, we do have the opportunity to expand other value-added services. So think about a value-added service is, products that could either offer either more assurance to the buyer as one example. So we're always trialing these additional value-added services. So I think your second question was also a great question in that, in time, it doesn't have to be just these small fee increases. It could be we start to see some opportunity in any one of the products we're trialing that relates to these value-added services.

awesome thank you appreciate the time yes sir and thank you thank you ladies and gentlemen as there are no further questions i would now like to end the conference over to tim fox for closing remarks thank you um and i'd like to thank everybody for joining us on the call today we look forward to seeing you on the conference circuit this quarter

You can check out our website with all the different conferences we'll be attending over the next month or so. And again, thank you for your interest in ACV and have a great evening.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.