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 one on your telephone key. You may withdraw yourself from the queue by pressing star and two. Please note, this call is being recorded. Lastly, if you should require operator assistance during your conference today, please press star zero. 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 Shimon, Chief Executive Officer, and Bill Zarella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found on our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our investor relations website. And with that, let me turn the call over to George.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We're 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 eight, 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 mid-term 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 nine, 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 source vehicles and dealer trade-ins that are sold retail or wholesale on ACV's marketplace. We are uniquely positioned to bundle ClearCar with ACV 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 and 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 best-in-class buying experience on our marketplace. Our commercial tech investments are progressing well. Recall that our initial focus is integrating with AutoIMS and delivering marketplace enhancements to support commercial consigners. Furthermore, these key initiatives will support platform standardization across our remarketing 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 ACV's core wholesale offerings. 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 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 and vehicles 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 ACB 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, ACB 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 delivered meaningful margin expansion and strong adjusted 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 percent 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 insurance 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 percent of total revenue and grew 52 percent year-over-year. This performance reflects 32 percent year-over-year unit growth. and auction insurance 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 comprise 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 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 year-to-date operating cash flow of 69 million. Note that even when excluding the change in marketplace flow, year-to-date operating cash flow increased 34 million year-over-year. The 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're 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 percent 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 OPEX growth, excluding cost of revenue and depreciation and amortization 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 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. 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.

Hey, 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 assurance 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 read into. I just want to kind of better understand that.

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 GAAP accounting can distort some of the trends.

Okay, perfect. And then on the – if we think about some of the larger players like a Carvana or, you know, other, what is your business look like as someone that has their own wholesale side of the world, you know, wholesale runs their own wholesale auctions, grows retail share, just thinking longer term here.

So, uh, 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, you know, 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 Carbondas 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 Citizens J&P. 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, you know, depreciation picks up, you have some room to take price out. 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. Philosophically, how do you think about tracking that? Are you at a level that kind of makes sense for a year on $500, give or take? Or how should we think about how you may kind of track competitors from a pricing perspective? And then I have a 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 a little of time each year we were very careful on doing the right things for our dealer partners but but really getting our pricing to more of a competitive level so Really ecstatic with the way our team prepared to make those changes. We probably have a little bit more room on that sort of headroom, but we'd rather keep you all thinking around that $500. I'm sorry, $500. $500, we're going the wrong way. But $500 as we set out for the midterm target. And just to remind you, 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.

Got it. $5 would be a pretty good deal. Yeah. 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 and 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 incentives. 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 some of the industry folks like NAAA and AuctionNet think that dealer wholesale could be sort of, I would read into what they're saying is sort of flattish. And why do I say that is you're still gonna have a lack of used cars. So, you know, if I had to, You know, at least from now, it's okay, when will we have a true, you know, 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 sort of flattish 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 when we talk more about next year. Thanks, George.

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

Good afternoon. Thanks 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, it's Bill.

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 those combined really drove the highest organic growth that we've seen, frankly, in several years. So we're really, really pleased. you know, 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, 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 2025 and beyond?

Yeah, thanks, Bob.

So to your point first, we're learning a lot. We've got some great locations for our commercial consignors. 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. You'll hear us talk about that more. You'll hear us talk about how we're combining 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 will still be us 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 Rahat Gupta with JP Morgan. Please go ahead.

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

Yeah, here we go. It's Phil. Yeah, so what we've talked about in the past is kind of a normalized organic target in terms of incremental 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, you know, 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, Roger, the only thing I'll add to that is, you know, it's really this sort of ramp of making sure we're showing gains and progress in our EBITDA. Obviously, we're going to stay committed to that, but we'll also be committed, as Bill said, to execute on, you know, 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, you know, 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, 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 market share. 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 mention it 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. There's 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 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 Q3, although I will say we don't have the 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, Q4 at this point, meaning the data in front of us. We're purely looking at this as seasonality. You know, 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. 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, you know, prudent in terms of our guidance and taking into account, again, the seasonality factors that George mentioned. So, you know, we'll see how things go, obviously, but that was the basis for us to guide what we did.

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

Thank you. Thank you.

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 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 we mentioned, and 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 that I'm really pleased with the team is innovating around how we're going to really try to enhance the way we inspect these cars at the auctions. how we're leveraging AutoIMS, which is how we get the consignments, how we're then integrating with sort of the back office systems, not to get into weeds here, but all going well so far. I mean, 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, you know, 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're basically getting to 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 B Reilly Securities.

Hey, Naved.

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're making to 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 enhancements 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 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. You know, we keep investing in the area of conversion, and it's definitely helped. And so the simple answer is both. Both some market benefit and also the enhancement 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 on a 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 giving the right price for our dealers because, you know, 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 wanted to talk about kind of market share gains versus wallet share. How are you thinking 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 it's a regional story. It's a local story. And then there's like a national kind of overlaid the whole thing. But 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 still grow in multiple ways. There's national dealer groups that we study their wallet share consistently, and when I see 20% or 30% 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 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 wallets here yet. So we've got a long ways to go. And, you know, I think that's the great thing about the ACB model is we're still in the early days here. We're very happy with the overall market share. We're ecstatic with all the hard work the team has done. But there's a lot of headroom here for us to keep growing.

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

On EVs?

AVs, autonomous vehicles.

Autonomous vehicles. You know, I think one, the good thing about autonomous vehicles is they will become used too. They'll go from new to used. 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 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 okay, those vehicles, once that consignor believes they don't want to keep it on their balance sheet, great car to go through an auction and go to some, whether it be a franchise or independent dealer that will go in, recondition it to what it needs. So quick answer would 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.

John. I 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, and I think about off-lease. I was just wondering if you could give us some thoughts on, like, which of those buckets do you think the solution makes or out of the gates? And, you know, 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, you know, first to really embrace you guys? And we'd just love to hear your thoughts on that. Thanks.

Yeah, certainly. Great question, Joe. We're We're definitely making, from a volume perspective, most of the volume I mentioned on commercial today is from repos and rental. So those two have been 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 growing our relationships with each one of them, so wherever ACV is, we can become one of their sort of auction partners of choice. So definitely those are the first two. Off-lease, 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 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. You talked about cars being used here or, you know, overseas. Just let me get 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, you know, sizable.

Where are you at in the solution globally? Thanks.

Yeah, 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, and I'll 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 is sold. And so the model we go globally will not necessarily be the same model we do here in the U.S. And it'll be, you know, a very much asset-led model. It'll be our technology helping OEMs who, let's say OEMs are trying to sell a car, a new car to a consumer, will be that trade and 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 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. Thanks, John.

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

Thanks. First on the, hey, first on the Mannheim 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 you need.

I think, one, Bill mentioned October got off to a good start, right? So, you know, I'm sure one of the reasons why October got off to a good start was, to your point, market was healthy. You know, conversion rates were healthy. That probably, you know, that wholesale to 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 stay as high. We don't assume some of this will stay as high over the next couple months because it typically does, right? 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. Um, and we mentioned that earlier, uh, so I'm not sure if there's any other way to kind of back into your, your question just yet more than we've shared, but if you want to try to ask the question another way, I'll try to answer it.

Yeah. Well, that's, that's super helpful. Um, but then just on even just 3Q, uh, do you have a more specific trade to wholesale mix, uh, number and where is that versus normalized levels?

Yeah, I think our trade to wholesale mix improved 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% less used cars on their lot today than they did in 2019 and I was recently out with a dealer group in Texas and a dealer principal looked at me and all his leadership team in the room and said, we have less, we have 30% less cars on our lots right now that we need and looked 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 ACV results, but it's going to take, you know, several more months here for, you know, the market to, you know, to kind of come back from these dealers having 25% less inventory. And so it will take some time. But having said that, your specific answer, we did see a marginal improvement. And it was nice to at least see a marginal improvement.

Perfect. Thank you. Yeah, certainly.

Thank you. And we will take our next question from John Kalantewani. With Jefferies, please go ahead.

Hi, everyone. Thanks for taking my questions. Hi. 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, uh, second part of that, um, you know, right around the IPO, Canada, I think was an aspiration for you. Where did those plans stand today? If you could just update us there. Thanks.

Yeah, certainly, John.

So yeah, we've, uh, you know, to your point, we're very strong in the East Coast. We've actually continued to gain more share on the East Coast, which has been great. You know, I'd say pointing, like, towards Texas for a second, you know, we're doing extremely well in Texas, as an example of a market that's pretty far from Buffalo. And, you know, 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 preparation example on the moment and maybe more to come on this topic. But I'm very pleased. The ACV brand 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 ClearCar, helping dealers buy more cars from consumers. So, so far, so good. That was your first question. I'm 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 would be the one right next to you, like Canada. And that would have been my assumption during the IPO. The irony is, you sometimes go where you're getting pulled. 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 OEMs and others are pulling us in. So yes, you will start to hear the ACV story beyond the US. It'll be very small numbers for next year. It won't be zero, but it will... And we start to think about 2026 and beyond. Hopefully, it'll 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. I'm very pleased with the team's progress.

More to come when we can report a little bit more about this topic. Thanks so much.

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.