ACV Auctions Inc.

everyone and welcome to today's ACV Third Quarter 2024 earnings conference call. At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note this call is being recorded. Lastly, if you should require operator assistance during your conference today, please press star 0. It is now my pleasure to turn the conference over to Vice President of Investor Relations, Tim Fox. Please go ahead.

Good afternoon and thank you for joining ACV's conference call to discuss our Third Quarter 2024 financial results. With me on the call today are George Chimone, 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. The 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 very pleased with our Third Quarter performance. We delivered another quarter of record revenue and adjusted EBITDA, both exceeding the high end of guidance. The ACV team drove strong market share gains in our core dealer wholesale business, along with record performance for ACV transport and capital. Our growing suite of dealer solutions continue to gain market traction, and we progress on our tech roadmap to address the commercial wholesale market. Based on our strong Q3 performance, we are raising full year guidance, reflecting our commitment to drive top line growth, expand margins, and deliver our first year of adjusted EBITDA profitability. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of Third Quarter results on slide four. Revenue of $171 million grew 44% year over year. We sold 198,000 vehicles, a year over year increase of 32%, reflecting strong listings growth and conversion rates, as well as solid execution across our remarketing centers. GMV increased 17% year over year, driven by strong unit growth, which more than offset a 12% decline in GMV per unit. 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 will begin with growth. Turning to slide seven, I'll start with observations about the automotive market as context for dealer wholesale volumes. On the retail front, sales were fairly muted in Q3. New retail sales increased 1% year over year, while used retail sales were flat. Importantly, new vehicle inventories have recovered to historical levels, and OEMs are increasing incentives, which should support retail sales returning to more normalized levels in the near future. In terms of used vehicles, inventories have started to recover from the 2023 historical lows. However, they remain 25% below normal exiting the quarter. Used vehicle shortages continue to be a material headwind for the dealer wholesale market, as dealers retain a higher percentage of trades for retail. However, we did see another modest uptick in the trade to wholesale mix in Q3, and we expect the mix to normalize over the next few years as used vehicle inventory recovers. As expected, wholesale price depreciation returned to more normalized patterns in Q3. Conversion rates were strong and above historical Q3 averages, driven in part by favorable market conditions, and from our innovative marketplace investments driving dealer engagement. On balance, we're encouraged to see pockets of improvements within the broader automotive market. Moving to slide 8, let's cover highlights on our value-added services, beginning with AC transportation. The transportation team delivered record revenue in Q3, with 108,000 deliveries in the quarter. AI-optimized pricing achieved 95% lane coverage again last quarter. By leveraging AI, our team delivered 27% volume growth while driving operating efficiency. Revenue margin of 20% was also a record, expanding 170 basis points year over year, and exceeding our midterm target of high team margins. Lastly, our off-platform transportation service is gaining traction with our dealer partners. We're in early stages, but excited to deliver new value-added services that create long-term growth, accelerate network density, and deepen carrier relationships. Turning to slide 9, the ACB capital team again delivered solid growth while managing risk in an environment that continues to be challenging for independent dealers. As we highlighted last quarter, the capital team is piloting a new offering that provides financing for consumer-sourced vehicles and dealer trade-ins that are sold retail or wholesale on ACB's marketplace. We are uniquely positioned to bundle ClearCar with ACB Capital to support dealer sourcing strategies. We look forward to updating you on this new offering in the coming quarters. Next, I'll address the second element of our strategy to drive long-term shareholder value, innovation. Turning to slide 11, our investments in marketplace engagement continue to pay dividends. As I mentioned earlier, Q3 conversion rates were strong. Along with favorable market conditions, conversion rates benefited from features like advanced search, vehicle merchandising, AI-enabled pricing, and flexible auction formats, which deliver a -in-class buying experience on our marketplace. Our commercial tech investments are progressing well. Recall that our initial focus is integrating with AutoIMF and delivering marketplace enhancements to support commercial consignors. Furthermore, these key initiatives will support platform standardization across our retail and marketing centers. The new ACV Max suite continues to gain traction in the market, including a recent win of a regional Texas dealer group and a growing pipeline of new prospects. Max is proving to be a valuable solution to create cross-sell opportunities for ACB's core hotel offering. We're excited to roll out new bundled offerings that focus on both expanding the ACV Max footprint while driving additional wholesale market share. Our objective is to align the interests of our dealer partners and ACV. Finally, in the dealer self-infection category, demand for ACV's vehicle appraisal technology is growing across a number of use cases. Dealers are appraising trades, a vehicle sourced through digital channels, and making offers to consumers in their service drives. Across these use cases, accurate pricing is a critical success factor. 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 long-term growth opportunities, including TAM expansion. Let's turn to slide 12 to highlight one of our fastest-growing consumer self-inspection solutions, ClearCar. Market traction of ClearCar remains strong, and our team is targeting to have over 1,000 dealers live by year end. ClearCar provides us with another avenue to grow wholesale wallet share and deepen our strategic partnership across their retail and wholesale operations. And like ACV Max, ClearCar is also driving new customer acquisition, including some of the largest dealer groups in the country. Our teams will be working to grow wholesale wallet share with these new dealer partners over time. Again, this quarter, we're excited to share feedback from one of our dealer partners, Ernie Mesa, the number one Volkswagen dealership in San Diego, which is using ClearCar and our marketplace. We posted a video on our IR website featuring their team describing the significant value they're deriving from ACV solutions. It's another great opportunity to hear directly from a dealer partner. 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. We look forward to sharing more progress 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 for joining us today. We are very pleased with our Q3 financial performance. Along with accelerated revenue growth, we've delivered meaningful margin expansion and strong asset EBITDA growth, demonstrating the strength of our business model. On slide 14, let's begin with a recap of our third quarter results. Revenue of $171 million was well above the height of our guidance range. Approximately 10% of revenue in the quarter came from acquisitions, which was in line with our expectations. So the overperformance was driven by strong organic growth. Adjusted EBITDA of $11 million was $3 million, or 38% above the high end of our guidance range. And adjusted EBITDA margin improved nearly 1,000 basis points versus Q3-23. The upside was driven by strong high margin auction and assurance revenues and by operating leverage. Finally, non-GAAP net income was also meaningfully above the high end of guidance, with margin increasing approximately 800 basis points year over year. Next on slide 15, let's review additional revenue details. Auction and assurance revenue was 59% of total revenue and grew 52% year over year. This performance reflects 32% year over year unit growth and auction and assurance ARPU of $506, which grew 15% year over year. Note that approximately 10% of third quarter units came from acquisitions. So we delivered strong organic unit growth, underscoring our share gains in a market that grew in the low single digits. Marketplace services revenue was 37% of total revenue and grew 39% year over year, reflecting record revenue for both ACV transport and capital. Our SAS and data services products comprised 5% of total revenue with growth once again in positive territory. Next on slide 16, I'll review costs in the quarter. Q3 cost of revenue as a percentage of revenue decreased approximately 400 basis points year over year. The improvement was driven by auction and assurance results and by ACV transport. Non-GAAP operating expenses excluding cost of revenue as a percentage of revenue decreased 700 basis points year over year. These results reflect our focus on expense discipline as we optimize and scale our business. Moving to slide 17, I'll frame our investment strategy as we drive 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. In 2024, we continue to expect OPEX growth to increase year over year 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 18. We ended Q3 with $288 million in cash and cash equivalents and marketable securities and $115 million of debt. Our Q3 cash balance includes $177 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 -to-date operating cash flow of $69 million. Note that even when excluding the change in marketplace float, -to-date operating cash flow increased $34 million year over year. This significant improvement reflects our transition to positive adjusted EBITDA and strong margin expansion. Now turning to guidance on slide 19. For the fourth quarter, we are expecting revenue in the range of $152 to $156 million, growth of 28 to 32% year over year. Adjusted EBITDA is expected to be in the range of $2 to $4 million, consistent with our commitment to achieving positive adjusted EBITDA each quarter going forward. Note that our fourth quarter guidance reflects the impact of the recent hurricanes in our southeastern regions. We estimate a negative impact of approximately $2 million in revenue and $1 million in adjusted EBITDA. For the full year, we are raising our revenue and adjusted EBITDA guidance. Revenue is now expected to be in the range of $630 to $634 million, growth of 31 to 32% year over year. Note that we expect acquisitions to account for approximately a high single-digit percentage of full year revenue. Adjusted EBITDA is now expected to be in the range of $25 to $27 million. As it relates to guidance, we are assuming that dealer wholesale volumes will be approximately flat year over year for 2024. We expect conversion rates and wholesale price depreciation to follow normal seasonal patterns. We also continue to expect revenue growth to exceed non-GAAP OBEX growth, excluding cost of revenue and depreciation and numberization by approximately 10 percentage points. And finally, moving to slide 20, we remain committed to achieving our midterm target model. Our targets are 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 the 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 Q3. 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 midterm 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. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. And we will pause for a moment to allow questions to queue.

And we will take our first

question from Chris Pierce with Needham. Please go ahead.

Hey, good evening, guys. Chris.

I had a question on the, if I look at the metrics and Billy, you sort of reiterated on the call, the $506 in auction and insurance RPU. Over time, more of it seems to be coming from auction versus the assurance side on a per vehicle basis. I just want to know the right way to think about that. If that's something intentional or if that's not something we should be into. I just want to kind of better understand that. Thank you.

Hey, Chris. It's Bill. So I wouldn't really read anything into that. Again, think of auction and assurance revenue combined, not segregated, because again, the

gap accounting can distort some of the trends.

Okay,

perfect. And then on the, if we think about some of the larger players like the Carvana or other,

what

does your business look like as someone that has their own wholesale side of the world, runs their own wholesale auctions, grows retail share? Just thinking longer term here.

So, Chris, can you repeat that

question, George? I just want to understand what.

Yeah, yeah. Like what happens if, you know, we talked about independent dealers and consolidation within dealers. What happens if larger players like a Carvana as they grow share? What happens because at that point you have these larger players that run their own wholesale auctions. I just kind of want to think about, you know, what's the right way to think about your business if that kind of possibility plays out.

Yeah, no, certainly. So, yeah, I believe today Carvana has around 1% market share, if I remember correctly. And when you think about the 16,500 franchise dealer rooftops in incredible locations across the country, and then the 30,000 plus independent dealers across the country, all those dealers need to compete. And they need solutions. They need solutions to buy cars from consumers. They need appraisal solutions. They will all need machine learning and artificial intelligence to help them drive their businesses. So look at, we are building the technology that empowers all these dealers to really compete against the Carvanas and the other big box players. So I think that's the way to think about this. It's a really important category. And our dealers have some of the most incredible real estate and incredible brands across the U.S. And we think they could be buying a lot more cars from consumers and selling more used cars. And we're going to help them get that inventory.

Okay, thank you.

Thank you.

Thank you. And we will take our next question from Nick Jones of CitizenJMP. Please go ahead.

Hey, Nick. Great. Thanks for... Hey, George. Hey, Bill. Hey, guys. Could you kind of remind us how you're thinking about just pricing? Broadly, I know there's some levers. If depreciation picks up, you have some room to take price up. But as we kind of look at the industry and we can kind of see competitors seem to be taking price up each year, maybe a little bit ahead of inflation. And philosophically, how do you think about tracking that? Are you at a level that kind of makes sense for you around $500, give or take? Or how should we think about how you may kind of track competitors from a pricing perspective? And then I would follow up.

Yeah, certainly. So first, we've made great progress on closing the gap on our buy fees, as you know. We were significantly under market. And we did that from...without really any impact on our ability to continue to gain share. So very pleased with how we've done it. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that a little bit. We've been doing that As we've set out for the midterm target. And just to remind you, our sell side, our dealers on the sell side do get price discounts with volume. So as we continue to grow volume, some of our sellers, and that's already part of our mix. But we'd like for you all to be thinking still in that $500 for now until we guide you all otherwise.

$5 would be a pretty good deal. As we think about kind of the midterm targets, I guess, could you speak to, I guess, kind of maybe some debates as to what's going to happen with interest rates post the election? I mean, any challenges in kind of getting to a more normalized market if rates stay higher? Do you think we're kind of on a path to a normalized market kind of one way or the other over the next few years? Just any thoughts on kind of the industry post-election, maybe the debate around the rate environment? Thanks.

Yeah,

certainly. So we're, you know, obviously what we've seen is we've seen new cars. We're starting to see incentives. We're starting to see interest rates playing to the way new car dealers are pricing their vehicles. And the more incentives on the new will help. You know, I think we will consistently, between now and the end of next year, see new cars have more and more incentive. So if we kind of look at that as one area that I could, there's different folks who are thinking about next year from a new perspective, you're seeing a few different folks report that new could be off a little bit next year. When you think about how that relates to dealer wholesale, really one way to think about next year is that the, some of the industry folks like NAAA and auction that think that dealer wholesale could be sort of, I would read into what they're saying is sort of platish. And why do I say that is you're still going to have a lack of used cars. So, you know, if I had to, you know, at least from now, so, okay, when will we have a true, you know, a tailwind? I think a true tailwind may be going into 26, but I feel like next year, I'm at least thinking about next year is sort of platish from a market perspective. But hopefully with all the other things you just mentioned, lower interest rates, other things, we could all have a little bit more enthusiasm than that, more to come between now and we talk more

about next year. Thanks, George.

Thank you. And we will take our next question from Bob LeBec with CGS Securities. Please go ahead.

Good afternoon. Thank you for taking the questions. Hey, great job on the quarter. Nice upside on the volume in particular. So as I look at it, it seems like, and I know this is my rough math, but it seems like quarterly volume, the organic growth accelerated versus the first half. And, you know, if that is true, what are the key drivers? What's like kind of the incremental organic growth, you know, from the quarter versus an already strong first half?

Hey, Bob. So,

yeah, so the upside was certainly driven by the organic growth of our business. Our remarketing centers were pretty much on track based on what we forecasted. And that was really driven by several factors. So number one, just continued share gains. Number two, we had better than expected conversion rates for the quarter, and we had really great performance in terms of our marketplace services offering. So, you know, those combined really drove the highest organic growth that we've seen, frankly, in several years. So we're really, really pleased with that performance. And we've seen that continue so far, you know, early into Q4. However, we're obviously baking

in kind of seasonality for the rest of the quarter in our guidance.

Right. No, it makes sense, the seasonality in Q4 versus three, if you just look back for every year. Great. And then just one other for me. Obviously, we just talked about the accelerating organic, which is great, but you also have made these acquisitions to advance in commercial. What have you learned so far? I know you guys are kind of like, do, learn, observe, you know, tweak it and then move on. So what have you learned so far and how does it affect your future acquisitions into commercial or conditioning centers? How should we think about, you know, 2025 and beyond?

Yeah, thanks Bob. So we're so to your point first, we're learning a lot. We've got some great locations for our commercial consignors where it's really enabling us to both work with the consignors, learn the technology they'd like to see in place. You'll see us talk more about how we're going to implement our inspection technologies at these locations early next year. We're going to hear us talk about that more. You'll hear us talk about how we're combining our, some of our back end office systems and other capabilities. And so when you really think about the technology that we're building to help these commercial designers, it's going to help them make the right decisions. So when a car shows up, should they be reconditioning that vehicle or not? How much should they be spending on reconditioning? And I think we're really going to have some breakthroughs over the next year or two. Now, having said that, we're still early stages. A little over 5% of our current volume right now is commercial. So I don't want to get ahead of ourselves just yet. Next year we'll still be investing in that product in technology required. But when I think about this in out years, commercial could become a very meaningful

part of our overall volume.

Okay, super. Thanks so much.

Thank you.

Thank you. And we will take our next question from Rohat Gupta with JP Morgan. Please go ahead.

Thanks, George. Congrats on a good quarter here. I just wanted to ask around the framework around incremental margins. We know you're going through the commercial initiatives this year. You know, acquisitions are coming through. You have a lot of other product initiatives. How long would you expect to be in this kind of incremental range, 29, 30%? And once you're through with the integration phase, should we expect this to inflect next year? Are there more areas that are working on the pipeline that should depress that? I'm just curious if you could help us understand the near-term framework around that. I have a quick follow-up.

Yeah,

here we go. It's Bill. Yeah, so what we've talked about in the past is kind of a normalized organic target in terms of increment till EBITDA of 40%. So our guidance this year applies approximately 30%, taking into account the investments that we're making as part of building out our platform to support commercial business. So right now the thinking in terms of next year is we'll continue to make progress in terms of improving that incremental EBITDA margin. But we'll continue our planned platform expansion to support the commercial rollout similar to what we've done this year while expanding our EBITDA margin.

So

we'll continue to move the ball forward, but we wouldn't expect that next year we would get to fully hit the 40% incremental EBITDA on marginal revenue growth.

Yeah, and Roger, I'll add to that is it's really this sort of ramp of making sure we're showing gains and progress in our EBITDA. So obviously we're going to stay committed to that, but we'll also be committed, as Bill said, to execute on expanding our TAM both in the commercial and helping dealers source more cars from consumers, which is the self-inspection capability. So we're very excited the fact that next year we believe we can do both. Both improve year over year what we've done from an EBITDA perspective, but also invest not only in the core dealer wholesale, but also in expanding our TAM.

Got it. That makes sense. And this is a follow up. I mean, if I heard you correctly, Bill, you mentioned that you're not expecting the same kind of market share acceleration that you saw in 3Q in the fourth quarter. Is that correct? And why would that be the case if you could just give us more color there? Thanks.

Yeah, I don't think we said, Mark, I think what we said is there's typically in November and December conversion rates typically go down. That's at least what it's done almost every year. So when you look at the seasonality of this business, and you heard Bob mentioned earlier, every year conversion rates in November and December tend to come down.

Yeah, but also I didn't mention, by the way, Rajat, the other impact in the quarter that we discussed in our prepared remarks that we're estimating the impact from the hurricanes on our southeastern regions is about 2 million in revenue and about a million in EBITDA. So we baked that into our guide for Q4

as well.

I think maybe like I think I meant to ask it, you know, in a different way. The 22% organic growth in the third quarter, it seems like it's 20 points, 22 points above what the market did. That's an acceleration from what you saw in 1Q, 2Q. Are you assuming that similar kind of market share, you know, delta in the fourth quarter as well or is that not the case? I think that is what I was trying to get at, but it seems like it's similar.

It's actually a good question. I'm going to, I would say our thoughts on market share was pretty much continuation of Q3, although I will say we don't have that exact prepared answer that way. But I will say, you know, we didn't really back it in based on market share. I don't see any difference on market share between Q3 and Q4 at this point, meaning the data in front of us. We're purely looking at this seasonality. Seasonality plus a little bit of this hurricane stuff. But basically, when I look at listers, when I look at listings, I don't see any difference on market share gains right now from Q3 to Q4.

Yeah. And again, Rajat, I mean, we've seen a really strong start to the quarter, kind of a continuation of the same kind of growth rates we saw in Q3 through October. But, you know, we're always trying to be prudent in terms of our guidance and taking into account again the seasonality factors that George mentioned. So, we'll see how things go, obviously. But that's, that was the basis for us to guide what we did.

Understood. Great. Thanks for all the color and good luck.

Thank you.

And we will take our next question from Michael Graham with Canaccord. Please go ahead.

Hey, thanks a lot. Hey, how are you? I don't think you mentioned this yet on the Q&A. If you did, I apologize. But just on the commercial wholesale market, you talked a little bit about your efforts there and the prepared remarks, but just was hoping to get another layer of depth around, like, you know, how that's going and how quickly you think that can become a more significant part of your business.

Yeah, certainly, Michael. Yeah, one of the things I, we mentioned, and I'll go, I'll try to go a little bit deeper is our volume in commercial today is a little over 5% of our overall business. So, going well, investing in some key areas. So, the areas that will help us really differentiate in this commercial business will be, no surprise to you all, will be inspections. Right? That's an area where we've always innovated on the dealer side, bringing that to the commercial side. You'll hear us talk about that some more in Q1. So, that'll be one area of, that I'm really pleased with the team is innovating around how we're going to really sort of enhance the way we inspect these cars at the auctions, how we're leveraging auto IMS, which is how we get the consignment, how we're then integrating with sort of the back office systems, not to get in the weeds here, but all going well so far. And we'll be making this investment throughout next year. But at the end of the day, we feel good that the experience we're building will be differentiated, will be both great for our commercial consignors, the sellers and buyers. So, I think without the sake of repeating what I said earlier, there are more to come probably in Q1 on this topic, but happy with the build out we've done so far.

And then just last quick one related to that is maybe a comment on the profitability of those units relative to dealer wholesale.

Yeah, at the end of the day, if I looked at this as EBITDA dollars per unit, EBITDA dollars per unit are basically the same. Slightly higher revenue per unit, slightly higher cost per unit. But if you kind of look at what matters, you basically get into the same EBITDA dollar per unit.

Perfect. Okay. Thank you.

Thank you, George.

Thank you.

Thank you. And we will take our next question from Naved Ken with the Riley Securities.

Thank you.

Thank you very much. Hey guys. On the conversion rate, which you saw did pretty well in the third quarter. I'm curious if the improvement that you saw is a function of the macro and the market or are these a result of the changes that you are making the platform or just give us your thoughts there?

Yeah, great question. And it was definitely both. So, the market conditions helped Q3 helped us definitely. There was definitely a lot of demand for used cars. So that was definitely a factor. But also very proud of the technology and product enhancement we continue to add. We've gone through this. We showed you some of it in the slides here. Some of the enhancements we've made on conversion. It's constant here, as you know, our engineering team and product team are constantly making sure we're merchandising the cars the right way. So our sellers get, you know, really get the full amount of money for these cars. Buyers know what they're buying. We keep making a bunch of enhancements there. We're making enhancements on how and when to sell these cars. Enhancements. Even if the car doesn't sell the first time around, how it could be sold the second time around. So, you know, we keep investing in the area of conversion. And it's definitely helped. So the simple answer is both. Both some market benefit and also enhancements we've made from a technology perspective.

Got it. And then on transportation, you know, the margin improvement, the revenue margin improved year on year. Was there any change in this sequential basis?

Kevin, the transport team here is just, they're making incredible strides on leveraging artificial intelligence on pricing lanes. So when you choose lane by lane, how to price a vehicle coupled with we're just starting to do some bundling. Bundling would mean there's already a car, let's say, going from Long Island to Virginia. So let's get the same truck to take the same vehicle. So bundling will, it's only a small portion of our cars today that will also keep growing. So, yeah, we're very happy with how we're leveraging technology to make sure we're given the right price for our dealers. That price is important for our dealer partners, but also using the tech to help us make sure we're hitting our

margin objectives.

Thanks, guys.

Thank you. And we will take our next question from Stephen McDermott with Bank of America. Please go ahead.

Hi, this is Stephen McDermott on for Curtis Nagel. So just want to talk about kind of market share gains versus wallet share. How do you think about the mix in terms of growth there? And then I have a follow up as well. Thank you.

Yeah, no, it's a great question. And look at this as more of like a it's a regional story. It's a local story. And then there's like a national kind of overlay to the whole thing. But there there's only a few markets in the country where we have, you know, 70, 80 plus percent wallet share from a lot of dealers in one territory. Right. And we have a few of those and we're happy about that. But there's many markets where we can we can still grow in multiple ways. There's national dealer groups that we study their wallet share consistently. And when I see 20 or 30 percent wallet share, I see a lot of great opportunity to help those dealers show them why our pricing is right. Show them why our conversion, you know, on our marketplace keeps getting better. So it's both, you know, we will continue to grow the business. And there's some markets where we're still relatively new and we only have a few sellers and we don't have a lot of all the share yet. So we got a lot long ways to go. And, you know, I think that's the great thing about the ACV model is we're still in the early days here. We're very happy with the overall market share. We're ecstatic with it. All the hard work the team has done. But there's there's a lot of headroom here for us to keep growing.

Awesome. And then I know this is pretty early, but autonomous vehicle definitely dominated the discussion last quarter for some large share names and some OEM. So, you know, still many years away, but philosophically, what do you guys in the long term? And have you really put much thought behind the strategy there?

And AVs

AVs, autonomous vehicles,

autonomous vehicles. You know, I think one, the good thing about cars, vehicles, is they will become used to go from new to you. They will, you know, they will need to be purchased by someone else in the US or someone else overseas or somewhere else somewhere. So I really I think the simple way to look at it is whoever the initial user was, whether the user was Uber or the user was whoever that that asset will then, you know, get sold eventually. I would look at, you know, generation one of this is look at that as just a fleet category in our world, almost like commercial. And OK, those those vehicles, once that consigner believes they don't want to keep it on their balance sheet, great car to go through an auction and go to that some some whether it be a franchise or independent dealer that will go in, recondition it to what it needs. So quick answer to be, it's probably no different than the rest of the commercial world.

Awesome. Appreciate the answer and great job this quarter. Thank you. Thanks so much.

Thank you. And we will take our next question from John Healy with North Coast Research. Please go ahead.

I think she might want to ask, I guess, wanted to ask a little bit about the commercial side of the business. When I think about that business, I think about rental, I think about repo, I think about off lease. We just wonder if you could give us some thoughts on like, which of those buckets do you think the solution makes for out of the gates? And now that you have auto IMS and maybe we're six months into learning and practicing and system work. Is there one of those buckets that you think might be kind of first to move and first to really embrace you guys? And we just love to hear your thoughts on that. Thanks.

Yeah, certainly. Great question. We're definitely making some from a volume perspective. Most of the volume I mentioned on commercial today is from repos and rental. So those two are have been our the first areas we've been able to take some share, grow those relationships. A lot of them where we are doing business with one city and now we might be doing business in two or three cities. And we'll try to keep keep growing our relationships with each one of them. So wherever ACV is, we can take we can become one of their sort of auction partners of choice. So definitely those are the first two off lease. We're we're we're just getting started. Hopefully I'll be able to talk a little bit more about that next year. So we're in discussions. We're working on some things, but not not much to share just yet.

Gotcha.

And

then just kind of want to pick apart kind of a phrase you just mentioned on the last question regarding AV talks about cars being used here or overseas. Just let me hear your thoughts just about international expansion. You know, now that you're kind of making money here and, you know, growth is, you know, we're talking about incremental margins that are sizable. Where are you at?

Solution globally. Thanks.

Yeah, I'll I'll give you two perspectives on sort of the global front. So one, we're still early in our strategy creation, but we first and foremost think about separate demand from sort of supply and demand. So, as it relates to. Supply, we think about taking the ACV model in a very sort of technology first mentality. Think self inspection by the consumer. Self inspection by the dealer appraisal type solutions that then the vehicle then goes into a marketplace and it's sold. And so the model we go globally will not necessarily be the same model we do here in the US. And it'll be, you know, very much as a model. It'll be our technology helping OEM who let's say OEMs are trying to sell a car, a new car to consumer will be that trade model module. And then the car will go into our marketplace. Or if it's a dealer, they'll go around, they'll use our artificial intelligence on their on their lot and they'll upload the car to our marketplace. That's the direction you'll hear us start to talk about over the next year. We're still in the very, very early stages of that model. But great question.

Great. Thank you guys. And

again, congrats. Thank you.

Thank you. And we will take our next question from Glenn Shell with Raymond James. Please go ahead.

Thanks. First on the first on the Manhattan market report showing 11% year over year new and used car sales growth in October. Have you seen any of those trends within your own data? I know you said that wholesale should be flattish, but getting some volumes in for that trade to wholesale mix. So then off of that, where is the trade to wholesale mix now on like a more specific number and then versus normalized levels? I know it's a bit layered and I can break that down again if I should need.

I think one, Bill mentioned October got up to a good start. Right. So, you know, I'm sure one of the reasons why October after a good start was your point market was healthy. You know, conversion rates were healthy. That probably that, you know, that wholesale retail mix was likely healthy, although I haven't seen the recent on that specific month. But I would generally say the quarter, you know, for fourth quarter started out well. The only as we mentioned when we thought about fourth quarter, we don't assume conversion rates will start will stay as high. We don't see some of this will stay as high over the next couple of months because it typically does. Right. As you as you start to look at the price depreciation and the seller asking for one price, the buyer willing to pay another. You typically see conversion rates start to come down. We mentioned that earlier. So I'm not sure if there's any other way to kind of back into your question just yet. More than we shared. But you want to try to ask the question another way. I'll try to answer it.

Yeah. Well, that's that's super helpful. But then just on even just three to do you have a more specific trade to wholesale mix number? And where is that versus normalized levels?

Yeah,

I mean, we yeah, I think we'll our trade to wholesale mix improved, you know, marginally in the quarter. We won't see trade to wholesale mix move up materially until that used car supply comes back. Just to remind you, most dealers have 25 percent less used cars on their lot today than they did in 2019. And I was recently out with a dealer group in Texas and the dealer principal looked at me and all his leadership team in the room and said, we have less. We have 30 percent less cars on our lots right now that we need. And look at us like a call of action, like we need to go buy more cars from consumers. And so just to kind of get you in the mentality dealership. And I'm really pleased, obviously, with the results, but it's going to take several more months here for the market to kind of come back from the dealers having 25 percent less inventory. And so it will take some time. But having said that, your specific answer, we did see a marginal improvement and that it was nice to at least see a marginal improvement.

Thank you. Yeah, thank you.

Thank you. And we will take our next question from John with Jeffries. Please go ahead.

Hi, everyone. Thanks. Thanks for taking my questions. Hi. I wanted to ask a question on market expansion. You've historically been strongest in the Northeast. I'm curious if you could update us on your progress expanding into new markets, particularly those that you rolled out a few years ago. And as part of that, you know, talk a little bit about how long it'll take to start reaching a level of density in those newer markets where you'll start getting to the levels of scale where it'll start showing through into better profitability across the company. And second part of that, you know, right around the IPO, Canada, I think, was an aspiration for you. Where did those plans stand today? Just update us there.

Thanks.

Yes, certainly, John. So, yeah, we've, you know, to your point, we're very strong in the East Coast. We've actually continued to gain more share in the East Coast, which has been great. You know, I say the pointings like towards Texas for a second, you know, we're we're doing extremely well in Texas, where as an example of a market that's pretty far from Buffalo. And, you know, we've we've year over year gains, I think, with some of the highest in the country for us in Texas. So, I think that's all I have from a prepared preparation. It is an example on the moment and maybe more to come on this topic. But, but I'm very pleased where the ACV brand is is increasing. We're working with more and more dealer groups. You know, as you're working with more dealer groups. The dealer groups, as you know, are in many cities, so that kind of pulls us into some markets. Our new products are helping us break into new markets products like clear car, helping dealers buy more cars from consumers. So, so far, so good. That was your first question. Trying to remember your second. Oh, Canada. So, yeah, I think when you put together these plans, I think you always assume the first international market you'd go into be the one that's going to be the first international market. And then the one right next to you, like, like Canada. And that would have been my assumption or any idea. The irony is you sometimes go where you're going to pull. And we've been pulled into some markets in Europe. So, you'll probably hear us talk more about that next year, but think very small early stages. This is where and others are pulling us in. So, yes, you will start to hear the, you know, the story beyond the US. It'll be very small numbers for next year. It won't be zero. It will. And we start to think about 2026 and beyond. Hopefully it become more material, but we are starting to take the model and the way the model, as I mentioned earlier, the way we're doing the model. Is it's a self inspection based model. So, you're using artificial intelligence to have the consumer or the dealer walk around the car, do the condition report, and then it goes into our marketplace. So, we're in early stages of this very pleased with the team's progress. More to come when we can report a little bit more about

the topic. Thanks so much. Thank you.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.

Thanks, Madison. 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. And again, thank you for your interest in ACV. Have a great evening.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.