ACV Auctions Inc.

Greetings and welcome to the ACV Fourth Quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon and thank you for joining ACV's conference call to discuss our Fourth Quarter and full year 2024 financial results. With me on the call today are George Shimon, Chief Executive Officer, and Bill Zarella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. 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 Fourth Quarter performance, which capped off another strong year of execution by the ACV team. Q4 revenue and adjusted EBITDA exceeded the high end of guidance, resulting in 32% full year revenue growth, and we delivered our first full year of adjusted EBITDA profitability. Our 2024 results were driven by three key factors. First, strong execution in our dealer wholesale business. We continued to gain market share and expand our dealer partner network, with over half of dealers in the U.S. transacting on our marketplace. Second, we had record performance in ACV transport and ACV capital, along with market traction of our growing suite of dealer solutions. And third, we executed on an exciting product roadmap to grow our competitive moat and expand our TAM, while delivering significant margin expansion. As we turn to 2025, ACV is focused on delivering strong top line growth, despite a muted outlook for the dealer wholesale market. We are also focused on driving meaningful adjusted EBITDA expansion, while continuing to invest in exciting long term growth objectives. We are confident that executing on this profitable growth strategy will create significant long term shareholder value. With that, let's turn to a recap of our results on slide 4. Q4 revenue of $160 million was above our guidance range, resulting in full year revenue growth of 32%. GMV increased year over year in Q4, and for the full year, with nearly $10 billion of GMV transacted in 2024. We sold 183,000 vehicles in Q4 and 743,000 in 2024, growth of 24%. Unit growth was driven by continued market share gains and solid execution across our marketing centers. Next, on slide 5, 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 7, I'll start with observations about the automotive market as context for dealer wholesale volumes. On the retail front, new vehicle sales increased 2% year over year in 2024, benefiting from solid 7% growth in Q4. With new vehicle inventory back to historical levels, along with more attractive OEM incentives, retail sales should continue to recover to normalized levels. However, the used vehicle market continues to tread water. According to NADA, sales declined modestly year over year in Q4, and for the full year. Consumer affordability has remained the primary headwind to a retail volume recovery. With used vehicle inventory about 25% below normal, and off-lease returns still bottoming, we have yet to see a sustained improvement in the trade to wholesale mechs. This resulted in flat dealer wholesale volumes in 2024. In terms of our outlook for 2025, we're encouraged by pockets of improvement in the broader automotive market, but we believe it's prudent to assume dealer wholesale volumes will be approximately flat year over year. Moving to slide 8, let's cover highlights on our value added services, beginning with ACV transportation. The transportation team delivered another strong quarter, resulting in over 30% revenue growth and 410,000 deliveries in 2024. By leveraging AI, the team has optimized pricing across nearly the entire ACV transportation network, resulting in both strong growth and operating efficiency. Revenue margin expanded 300 basis points in 2024, exceeding our midterm target margin, target of high teams. Lastly, our off-platform transportation service continued to gain traction with our dealer partners in Q4. We're excited to deliver these new value added services that accelerate network densities and create additional long-term growth vectors. Turning to slide 9, the ACV capital team delivered strong results, with accelerated year over year revenue growth in Q4 and full year revenue growth of 26%. As we discussed in recent quarters, our ACV capital team has been balancing growth and risk in an environment that has been challenging for independent dealers. Going forward, we are confident that we can accelerate ACV capital growth while continuing to manage risk. In addition to our core floor plan offerings, we are excited with the early adoption of new value added offerings we began piloting in 2024. Recall that these include dealer financing for consumer source vehicles and dealer trade-ins that are sold retail or wholesale on ACV's marketplace. This bundled clear car ACV capital offering supports dealer sourcing strategies and creates another long-term growth lever for our capital business. Next, I will address the second element of our strategy to drive long-term shareholder value, innovation. Turning to slide 11, I'll frame our tech investment around a core differentiator that underpins our products, services, and operations, ACV AI. It's not lost on us that investors are hearing a lot about AI these days. Technologies like machine learning and large language models are advancing at a rapid pace and ACV is uniquely positioned to transform how decisions are made in automotive. Within our digital marketplace, we leverage AI together with our proprietary data to deliver condition-enhanced pricing intelligence and to generate tailored buying experiences based on historical buying patterns and available inventory. We just released new features in ACV Max powered by ACV AI that predicts prices with incredible accuracy. We can now predict what a retail vehicle will sell for within a few hundred dollars and within a hundred dollars of its wholesale value. This pricing capability, informed by specific vehicle and local market dynamics, is used to guide sellers on vehicle listing price. We are seeing sellers and buyers adopt our prices increasingly, driving higher conversion on our marketplace. ACV AI is foundational within our inspection platform, delivering the most transparent and accurate condition reports in the industry. Before our VCIs or dealers touch a vehicle, we flag known condition risks and guide them through the inspection process. These disclosures are added to condition reports based on insights from our vehicle data model. This model contains structured data from millions of inspections, augmented with third-party data and we believe represents one of the most comprehensive vehicle condition databases in the industry. We are incorporating advanced technology into our emerging commercial platforms as we expand into this adjacent market. ACV AI powers our consumer-facing solutions like ClearCar and our trade-in solution for auto e-commerce partners. Dealer partners are piloting our new AI-enhanced applications to reform their own inspections for a number of use cases and we have received incredible feedback which has informed our product roadmap. To wrap up, as you know, innovation has been one of ACV's guiding principles since inception and a key driver of our marketplace success. We are only getting started and we look forward to sharing some more exciting new AI-enabled products and services at our upcoming Analyst Day in March. With that, let me hand it over to Bill to take you through our financial results and how we are driving growth at scale.

Thanks, George, and thank you for joining us today. We are very pleased with our Q4 financial performance. Along with strong revenue growth, we delivered meaningful margin expansion and adjusted EBITDA growth, demonstrating the strength of our business model. On slide 13, let's begin with a recap of fourth quarter results. Revenue of $160 million was above the high end of our guidance range, representing 35 percent -over-year growth. Q4 revenue from our 2024 acquisitions was in line with expectations, so the open performance was again driven by strong organic growth of approximately 20 percent -over-year. Adjusted EBITDA of $6 million exceeded the high end of guidance, with adjusted EBITDA margin improving 900 basis points -over-year. The upside was driven by strong high-margin auction and assurance revenues and by operating leverage. Finally, non-GAAP net income was also above the high end of guidance, with margin increasing approximately 400 basis points -over-year. Next, on slide 14, let's review additional revenue details. Auction and assurance revenue was 58 percent of total revenue and grew 40 percent -over-year. This performance reflects 27 percent -over-year unit growth and auction and assurance ARPU of $500, which grew 10 percent -over-year. Marketplace services revenue was 37 percent of total revenue and grew 31 percent -over-year, reflecting strong revenue for ACV transport and record revenue for ACV capital. Our SAS and data services products comprised 5 percent of total revenue, with growth accelerating to 10 percent -over-year. Next, I'll review Q4 costs on slide 15. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 400 basis points -over-year. The improvement was driven by auction and assurance results and by ACV transport. Non-GAAP operating expense excluding cost of revenue as a percentage of revenue decreased 400 basis points -over-year. These results reflect our focus on expense discipline as we optimize and scale our business. Moving to slide 16, 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, as expected, OPEX growth increased to support our marketing center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin increased by approximately 800 basis points -over-year. Next, I will highlight our strong capital structure on slide 17. We ended Q4 with $270 million in cash and cash equivalents and marketable securities and $123 million of debt. Note that our Q4 cash balance includes $167 million of float in our auction business. In the figure on the right, we highlight our strong full-year operating cash flow of $65 million. The significant improvement reflects our transition to positive adjusted EBITDA and strong margin expansion. Now, turning to 2025 guidance on slide 18. For the first quarter, we are expecting revenue in the range of $180 to $185 million, growth of 24 to 27% -over-year. Adjusted EBITDA is expected to be in the range of $9 to $11 million, reflecting growth of approximately 135% -over-year at the midpoint of guidance. For the full year, we are expecting revenue in the range of $765 to $785 million, growth of 20 to 23% -over-year. Adjusted EBITDA is expected to be in the range of $65 to $75 million, reflecting growth of approximately 150% -over-year at the midpoint of guidance. As it relates to guidance, we are assuming that dealer wholesale volumes will be approximately flat -over-year for 2025. 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 500 basis points. And finally, moving to slide 19, we are updating key assumptions in our midterm target model. The model continues to assume 1.5 million total units, and we now expect approximately 15% of the mix to come from commercial wholesale. Our targets also continue to be underpinned by sustaining market share gains and expanding margins through revenue mix and scale, which we've clearly demonstrated in our performance. We're also factoring in higher auction and assurance ARPU based on the pricing power we've demonstrated in recent years by delivering value to our dealer partners. As such, our new targets are revenue of $1.4 billion and adjusted EBIT of $350 million. We look forward to taking you through a deep dive on our updated targets at our March Analyst Day. And with that, let me turn it back to George.

George Thank you, Bill. Before we take your questions, I will summarize. We are very pleased with our strong execution in 2024. 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 powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving substantial adjusted EBITDA growth in 2025 and delivering on our updated 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.

Coordinator Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the start keys. One moment, please, while we poll

for questions. Our first question comes from the

line of Eric Sheridan with Goldman Sachs. Please proceed with your question.

Eric Sheridan Thanks so much for taking the questions and great to talk to you. In terms of the market share gains that are embedded in your forward forecast, maybe talk a little bit, George, about some of the underlying assumptions you're making with respect to sort of same store dynamics, new initiative dynamics, elements of yield or return on some of the investments you've made in the platform over the last couple of years is sort of driving those market share gains just so we can understand a little bit better some of the underlying assumptions. And with the one year out EBITDA forecast, I just want to refresh on how you're thinking about either hitting that kind of forecast versus outperforming it and the balance between achieving EBITDA number versus finding ways to invest in the business even if you do produce some extra incremental profit as we go through year just to understand the philosophy behind it. Thank you.

George Yeah, certainly, Eric. So first on what were our thoughts on the market this year? The direct question was we're assuming our share gains continue at really the same pace. Our thought for the market this year is assume a flattish wholesale market. When you look at all the considerations going on between interest rates, other market conditions, some of the other concerns out there in automotive, our thought is assume a flattish overall wholesale market and we continue to take share at the same consistent rate. So really no change in how we've been taking share thus far. Just keep going. And to your point, with some of our new value added services, we could grow faster and that is a possibility. But the thought right now is just the same message we've been giving you all is same consistent execution, same market share gains, but assume an overall market conditions that dealer wholesale would be

flat year over year. Is that helpful, Eric, on your first question? That is helpful.

Thanks. Yep. And the second question, we're, I'll start and Bill can lean in. You know, we're, we're obviously we continue to invest. We've, we've got an exciting lineup of product and technology. We're seeing a world where AI is changing everything quickly, very, very quickly. And we are investing as well. We believe we've got a unique advantage to continue to demonstrate very strong sort of overall health benefits. I believe our rich 130 plus percent year over year, right? When you look at our year over year, EBITDA improvements. It's actually 150%. Thank you. 150% year over year improvement. So while doing that, an incredible improvement overall, Eric, to your point, you'll see some of the things I highlighted today. We'll be showing quite a bit of this on analyst day as well. We've got a really incredible product roadmap. So we look at the strength in our current products, our product roadmap, show that we continue to improve our overall, you know, path of EBITDA expansion, but also invest in the core. Bill, if you want to add any more to that.

Yeah, I would say, Eric, I mean, it's always a question how you balance investment versus, you know, driving, you know, earnings growth. So when you take a step back, you know, we're driving 150% improvement and adjusted EBITDA on 22% revenue growth, right? And the past in terms of over performance, you know, we've, we've tended to, pass some portion of that through in terms of, you know, over performing, which is what happened last year. But we're always kind of thinking, you know, at the same time, how do we continue to drive future growth? So that's, that's always the balance. And those are the calls that we make so far. We've been able to overperform and still invest at a rate we think is important to drive future growth. So we feel pretty good about the balance, at least for the initial guidance for year. And, you know, like every year, we'll see how things kind of play out over time, especially with respect to market conditions.

Really appreciate it. Thank you. Thank you.

Thank you. Our next question comes from the line of Chris Pierce with Needham and Company. Please proceed with your question.

Hey, everybody. I just wanted to hit on flat market volumes. You know, there's articles out there from the National Auto, I'm going to get the acronym wrong, but the Auto Auction Association, showing low double digit growth in dealer volumes in January, and similar in commercials. So is it that you think maybe tax refund season was pulled forward? So I just want to get a sense of, you know, the market's been strong, but you guys are saying flat in 25. I just want to kind of understand where you're coming from.

Yeah, I think this is a great question. I think it's really why we also have a range. Let's start with, you know, I think the whole process here to have a range is to incorporate into that thought process, you know, what happens if it's flatish, like we're saying, what happens if it's a little bit better or a little bit worse, hence why we have a range. But if you look at the specifics, there's mixed data on what economists are saying is going to happen with retail this year. There's really a lot of mixed data out there, and obviously we don't want to be wrong. So to your point, January was very strong for ACV. We had a really strong month, and if the whole year ends up being like that, that would be fantastic, Chris, but we're not going to bank on that, okay? February, as you're probably also reading, it's not like anything changed at ACV, right? But February, I think we're going to see retail sales could end up being lower year over year. Now, whether or not retail sales end up being lower year over year, I'm not talking about wholesale yet, I've even looked at retail, it would mean that whether it was weather, whether it was interest rates, whether it was other concerns, we could see that February's challenges are either temporary or not. And so when you take all this in, there's a lot of crosswinds out there. There's the macro stuff, there's all this concern about tariffs and everything else. We think it's prudent for us to zoom right down the middle, zoom flattish. There's no reason for any of us to take all these different messages going on out there and predict it will be better. I don't think that's prudent for us and for our shareholders. But to your point, there could be a situation this year with the other wholesales up, and January showed us all. But keep in mind January wholesale was a result of December's activities. Wholesale is always a few weeks after retail. And so we'll see how much January retail was actually up or not year over year as the data starts to come out. And so let's start to follow that trend of how much really was January up, how much was February up or down. So I think we're doing the right thing for us and our shareholders. Basically predict down the middle. Hopefully it's better than that, and hence why we give you all a wrench.

Okay. And then I appreciate that. And then just lastly for me, can you talk about some of the changes, boots on the ground, that you're seeing from some of the power hole fillers out there, like CarMax and Carvana updating their buyer-facing tech? Is that something that would affect your volumes in any way, or what do you see as there's these changes in the marketplace as things become more tech-forward?

Yeah, I mean, at the end of the day, I think we've been very consistent on competition, right? Because the questions we've gotten from our IPO to now, we've always had a lot of competition out there. There's hundreds of regional auctions. We've always had competition. We respect our competition. But I think there was other marketplace things that have come up over the last couple of years that draw some question out there, that some of the things you all saw from other marketplace companies. You're hearing a very consistent message. We've got an incredible value proposition for dealers. We have marketplace offerings. We've got transportation. We've got capital. We've got pricing tools. We've got a broader value-added offering than we believe anyone else in the world. And we feel really good about that. So there will always be competition. We respect that competition. But we really love the position we're in.

Okay, got it. Thank you. Thank

you. Our next question comes from the line of Bob LeBig with CJS Securities. Please proceed with your question.

Yeah, good afternoon. It's Pete Lucas for Bob. Just on your recon network, as you build out to 40-plus locations, what are the key advantages that this gives you other than more storage space for repos? And what are you doing differently than the incumbent players with your space and commercial offerings?

Yeah, two great questions. So one, to your point, your first part, just to sort of help everyone else understand, you need that land, to your point, for a repo and some of the other categories. So starting to have some of that land allow us to broaden our TAM we're really excited about. And so having the right locations is important. But then to your point, the unique offering ACV brings is twofold. One is the way our data service offerings works, we're going to be able to auction vehicles every day, not just once a week. And we're going to help commercial partners make the right decisions based on the condition of that vehicle. That condition data will also go all the way upstream. We have one remarketer today in the rental car category who's starting to use our data to help them understand the value of their wholesale cars. And that goes upstream before they even start to make decisions on who to remarket with. Once you get to the actual location, we believe there's some healthy disruption going on there. I'm just going to tease it with that today. Those of you that go to analyst day will get to see what that is. But we've built some really incredible technology once the vehicle gets there that makes us more efficient, allows us to get the right condition of the car, expedite. And then last but not least, the size and scope of our marketplace, obviously one of the fastest growing marketplace companies means that you're going to have broader reach than the traditional local auction. So we've got buyers all over the country who love the ACV condition report. They would love to buy every car using the ACV condition report. And we're going to be able to leverage the dealer wholesale side and dealer scale to now take that buyer base and

bring them commercial vehicles.

Very helpful. Thanks. And then I guess just staying on that topic, just how many acquisitions are you looking at this year in terms of how many would be green fields? And what are you seeing in the market overall? Is it getting easier or harder to acquire locations?

Yeah, this is going to be a really exciting year for ACV because we will end the year with our first green field location. Our software and technology services will be ready for the back half of the year. And we'll be ready to break ground. Very exciting for ACV. There could still be M&A this year or next year. We're not banking on it. Of course, we're talking to folks whether something happens or not. But we're going to assume moving forward that if we want to be in a market and there isn't someone to acquire, we're going to open up a green field. When we look at the cost for rent, the rent costs are really manageable for what we need. So all we need to do is basically rent the location, put up the right reconditioning facilities, bring the tech that we have and we're up and running. And we're really excited to have at least one up and running by the end of this year.

Yeah, hey Bob. And I would add, obviously, for successful with green field rollouts, that could and should dramatically reduce our capital requirements from an M&A perspective. So we're kind of anxious to move forward. And as George said, by the end of the year, have our first green field up and running. And then we'll also better be able to gauge what our capital requirements really will be since a lot of investors have asked us that question. It really depends upon the mix between M&A and green field. But having our first green field up and running will give us a little more clarity in that regard.

Very helpful. Thanks. I'll jump back in the queue.

Thank you. Our next question comes from the line of Nick Jones with JMP Securities. Please proceed with your question.

Thanks for taking the questions. Can you just remind us how you are thinking about pricing in the business? Is that still a lever you could pull on? How are you thinking about it kind of strategically and how are kind of competitors behaving today?

Yeah, thanks Nick. Yeah, great question.

We're still, our price, our fees are still a little lower than the competitors. So we do have a little room for this year. That's how we're thinking about it at this point. But obviously for competitive reasons, I don't want to chat too much more about it on a call like this, but we do have a little room for the year.

I would just add, Nick, I mean, if you look at the numbers for last year, our marketplace ARPU was up 9%, right? As a result of, you know, some of the price increases that we were able to pass through. So we're certainly assuming a lower percentage of increase in our model for this year.

Got it. And then if I could, I think you said on the call about half of dealers are transacting on the platform. I think you normally update those numbers on the K. I guess we could wait for that to get those unless you can disclose them now. But can you speak to the stickiness of the businesses using the marketplace? I mean, how should we think about churn and just the overall behavior of the users? It sounds like the churn is extremely low. It's negligible. And it's really about kind of shifting wall to chair. Can you just help us understand as you plan to gain share, how are folks responding to the platform as the years go by?

Yeah, Nick, I mean, the way to think about our retention is, you know, in the markets we've been the longest in the Northeast, and you'll start to see some of this soon, we've built very substantial market share. You know, the market share we have in our early markets is very significant. And so it gives us great confidence that even in markets where we've been at for eight, nine years, we've continued to grow share. You only can keep growing share if you're retaining your early customer. So I'll point to that. And I'll point to not only what you see in the AK, but also on Analyst Day, I believe we're going to show a couple slides that shows how we've grown in some of these markets. And that will kind of bring out what you're looking for, which is we're not only bringing in new participants, we've grown our share and our share with early participants.

Great. Thanks, George. Thanks, Bill. Yeah, thank you,

Nick. Thank

you. Our

next question comes from the line of John Colantoni with Jefferies. Please proceed with your question.

Great. Thanks for taking my questions. I'm just doing some back of the envelope math suggests for your outlook embed something like mid-teens organic unit growth. Given you're expecting the wholesale market to be about flat next year, I'm wondering if that mid-teens growth is the right way to think about ACV's normalized level of growth. And as part of that, I'm wondering if you could talk to the key growth vectors that could unlock incremental growth over time. Thanks. I have a follow-up.

Hey, John, I'll start and then I'll let George add in. So you're correct. We are assuming mid-teens unit growth, which is basically essentially market share gains. That's very consistent with what we've seen last year and frankly on average the last few years. So that is an embedded assumption. You know, so that's correct. And that's pretty consistent with what we've been saying, I think, quite some time now. I don't know, George, if you want to add to that.

Yeah, I think if you look at a way to think about how the year started, January versus February, it's sort of funny how you can start the year in two different climates. January was very strong for us. And it was strong because we kept taking share, but also dealer wholesale was up a little bit. And that was nice. So if we do see a good tailwind and we see less concern on affordability and we see consumers going back and buying cars like we saw in parts of the fourth quarter, then that could be great for us, right? Because we're just going to assume our execution, assume the market's flat. But yeah, if we can see some of these market conditions change, which that would be helpful. Number two, that would be out of our control. Within our control is some of our new value-added services on pricing and helping dealers with trades and appraisals. For example, and you'll see some of this on Analyst Day, but we've got new tools that help dealers buy cars in their service drive. We're starting to win customers for wholesale because of these new products. So this bundle you've all been hearing us talk about for a long time is getting very exciting. Our other part of our bundle with ACVMax, we could now predict the price of a car within a few hundred dollars of what it's going to sell for in retail and within a hundred dollars of what it's going to sell for in wholesale. That guidance, when we say that to a dealer, first they think we're crazy. Because if you took all their general managers and used car managers and put them in a room and said you could predict the price within a few hundred dollars, that's impossible. And with these legacy tools our competitors have, you can't do any of this. So we feel great having said that these tools are new, our bundles are still an early adoption. We don't want to, as bullish I am about where we're going and how I think AI will change automotive forever, and it could be quickly, but there's still humans out there who have to make decisions and who have to change. So we'll see how fast we'll see dealers go from the old tools and the old ways to these modern ways. But to give you two vast ways we could do better would be the market getting better or we get even a higher faster take rate for our broader value-added services. Either one of those could help us have an even more exciting year.

Right. And I was curious to just get your perspective on what you're seeing on the competitive front. And as part of that, maybe just give us your perspective on Carvana's plans to expand Adesa Clear.

Thanks. I mean, listen, I think you should all do your own homework. I don't think most dealers are going to embrace some of these products like others are saying. You've heard a lot of things kind of be talked about in this industry. So I'm not going to really speak to them. But we feel great about what we're doing. We're a neutral party. We're independent. We get a tremendous amount of data from our dealer partners. We're launching a broader value-added service offering. And we're actually starting to get wholesale commitments from dealers. That's a new thing because of our broad suite of offerings. So whether it's the company you mentioned or other competitors, you're always going to have competitors. So the question is, who should the dealers partner with? Right. That's what the investors should be asking. That's what dealers should be asking is, who should dealers partner with? And we feel like we're in a great spot to be the right partner for dealers and commercial partners with the suite of offerings we're bringing to the market.

Thanks so much. Thank you.

Thank you. Our next question comes from the line of Rajat Gupta with JP Morgan. Please proceed with your question.

Great. Thanks for taking the question. Just wondering if there is an update you could provide us on ACV Max and the Care Car combo. Just in terms of adoption and just go-forward plans to scale. Clearly, when we were at the NADA show, it looked like ACV Max in particular was definitely a significant improvement in mindshare. So just curious if you're starting to see any inflection there in adoption, just contribution. And then how integral are these products to your midterm targets? Have a quick follow-up.

Thanks. Yeah. Thanks, Rajat. Great question. So you've obviously been doing some of your homework. I would say we're finally arriving as a brand for dealers and a consideration on these data services. Obviously, there was incumbents. We are in a way the new player for these data services, ACV Max and Clear Car. The reception we're getting is incredible. We recently won a dealer group, a regional dealer group with over 30 rooftops, which we're really excited about. Now, when you look at those 30 rooftops, it doesn't materially change our revenue for the year. When you look at what we get per month in subscription, but what it does do is we're now helping them price their wholesale and their retail cars. We're advancing them. They're now in the sort of AI era powered by ACV AI. In a way to think about this is that dealership to us is worth a lot more than $1,000 to $2,000 a month in subscription. When you look at if we were able to get 20 wholesale cars a month or more, it's a really important partnership. They know that. They know we're really leaning in and we're giving them an incredible product offering for a very low subscription. A way to think about our data services is they're quite inexpensive. We're not charging a lot. We're not banking on a huge SaaS business here right now. It's not at least in the midterm plans. What it's enabling is an incredible partnership where they also make a commitment on wholesale. When you have that, that's treated like a partnership. When you're treated like a partner, you get invited to their annual meetings or quarterly meetings. I've recently been invited to where the owner has brought me in to speak to all the GMs, all the used car managers. We're becoming a real intimate partner. Other vendors can't say that. Some of the other auction companies, marketplace companies that were discussed earlier, they really can't say that. A long-winded way to say we like our position. We don't have a huge expectation in revenue on SaaS line. As Bill and I have discussed, we look at this as a way to build partnerships, but we feel great on where we're at.

Got it. That's helpful. Then just a couple levers in the form of off-platform financing and transportation services. Any appetite to increment your lean into these verticals in 2025 or is it going to be more gradual in terms of contribution there?

Bill It's actually another great question. Listen, we probably have it in us to grow ACV transportation faster. The cost, we have one person selling ACV transport at the stand alone. Just full disclosure, we have one person selling ACV transport off network right now. That's not a huge -to-market spend. We first and foremost wanted to get the product ready. You know our style. We tend to stay in these beta periods for a while. We just want it to be right. We don't have on your first one with transport, we don't really have an off, outside of our closed market. We've grown that primarily within the ACV auctions in word of mouth. Word of mouth has been great. I'm not sure if this year or next year we'll start to lean in a little bit more. Maybe we'll great offering that we've got in us to do it. Because our margin profiles healthy there, it's a great, our product is more differentiated than probably I even realized. I actually, I'm going to get off the topic here for a second. I'm walking down, I'm going down, I'm getting off the elevator at NADA and a dealer came up to me and said, you have no idea how great ACV transport is. He pitched me on transport and why he's now using AC transport to do his retail cars, to do his store to store from Ohio to Pennsylvania. It was so cool hearing a dealer pitch me on my own product probably better than I could. On capital, we just started ACV capital, we did just start to lean in. I think we added a firm, we've done that. We feel really, really good. We're ready to now start to do more. We feel really good about our new platform on capital and how we're managing risk versus growth. We're still, I would say, a bit cautious. We still deny more dealers than we accept. But we feel really good about this year that we can start to grow capital a little bit faster. Bill?

Yeah, I would just add on ACV capital, Shat, that we've talked about the investments we've made over the last couple of years in terms of our platform and our loan management system and infrastructure. We're now in a position where we also have a really good team in terms of managing risk. The team's done an excellent job. So, you know, we feel really good about being able to ramp ACV capital faster this year. And we're certainly baking into our optics growth, making sure we have the right go-to market team in place to support that.

Got it. Great. Thanks for all the call and good luck.

Thank you, Shat.

Thank you. Our next question comes from the line of Nived Khan with B. Riley. Please proceed with your question.

Great. Thank you very much. George, maybe you can maybe talk about conversion rate in the fourth quarter, how that trended year on year and sequentially and the drivers for that. And the other question I have is on transportation margin. Looks like it was a pretty strong in fourth quarter because, you know, you had a pretty nice year on year uptake for the full year. I think you said you're about the target of high teams. So 30 is close to 20 percent. And you can maybe sustain those levels as thoughts there. Thanks.

Yeah. And your first question, that's right. Q4 conversion rates were slightly up, which was nice. So that did end up being a nice little tailwind for us. We obviously in our business, conversion rate, it is helpful when you have conversion rates up a little bit higher than you're forecasting. So you're right on. And your second question, the, I'm sorry, Vikas.

Drivers.

Oh, yeah. When you look at why on transport, one reason why transport margins are better and faster is what we're starting to do on bundling. And the, we're still early on this, you know, bundling vehicles. But if you look at it, if you've got a move, a car is going from place A to place B and it's going to cost you, you know, $250, $300 to move that car. And we already have a truck going in that direction. One of the hardest thing about these one-off moves for transport and probably for somebody that's done your research about the old ways to buy cars versus the new ways is the thought process of if I can put more than one car in a truck, it does start to get your transport costs down. Well, we've been able to pass savings to our dealers on ACV transport while improving our margins. And we're early in this bundling. But we are growing. You can see it in our numbers. ACV transport getting popular not only on ACV auctions, but off our little closed network here. The more, the bigger we get in transport, the more bundling we'll be able to do. And this won't be overnight, right? Like bundling will take us, you know, probably, you know, like the next two years to get bundling to be a real significant percentage, but it could get there. And so it's just, it's great because again, it's two benefits, both the dealers seeing a lower cost and also our margins increasing.

Yeah, and we will speak a bit about kind of an updated view in terms of margin expectations for the transport business at our analyst day in March. So stay tuned for that.

Great. I look forward to it. Thank you, guys. Thank you. Yes.

Thank you. Our next question comes from the line of Curtis Nagle with Bank of America. Please proceed with your question.

Great. Thanks very much for taking the question. Just one on, I guess, the shape of margins for the year. So I guess, why would one-queue margins be lower than the full year rate by I think almost half, maybe not quite, when the revenue growth is, you know, a decent bit higher than one-queue than full year? Is this just maybe reflecting, kind of basic seasonality? I think mid-year is typically stronger or perhaps the arc of investments. Just any help on that would be great.

Yeah, sure. This is Bill. So a couple of things. So first, Q1 is when we have the largest trade show of the year for the company, NADA, which, you know, the industry is kind of the biggest event. So, you know, that does kind of bake into every Q1. So you sort of, you know, have that drag, if you will, on OPEX. There is also, you know, it's also a function of timing of investments. So, you know, we made some increased investments in Q4 that kind of support growth for next year or for this year, rather, that starts flowing through in Q1. So, you know, you sort of have some distortion there. But I wouldn't really, frankly, read that much into, you know, the differential by quarter. It's just not that significant. You know, based on our guidance, we're growing just at even 130% -on-year in Q1 versus 150% for the year. So that 20% differential is, frankly, not a large dollar amount. So there's a little bit of distortion there in that regard. So I wouldn't read too much into it.

Okay, fair enough. And then just maybe going back to the point on wholesale volumes flat, sounds like, you know, a bunch of scenarios are being contemplated. But I guess anything in terms of kind of how you're thinking about, again, kind of the shape of the year, right? Start negative, turn positive, or just sort of, like, generally assuming the industry is kind of flat, you know, within some range for the year as a whole.

Yeah, I mean, we're, I mentioned some of this earlier, but I'll try to give a little more color. Yeah, so when you think about the year, you know, January was very strong. It showed us a picture of what, if we did get to see a little optimism this year, if we kind of think about, like, the higher side of our range, right, would be like the whole year is more like January. That'd be great. But, you know, February, whether it was weather, whether it was other factors, I think weather was quite a big part of it, but there's other factors you're seeing out there. And we talked to dealers, they don't think it's just weather. I think there's some, you know, they're just wondering how much of this is consumers also. So we just thought with everything going on in the world, that it just, it doesn't make sense for us to predict anything outside of our own control. So really the thought is, go right down the middle. And it's really ironic that the year has started out this way, with such an incredible January and such a mixed February, that it almost gave us the confidence of saying, you know what, let's just give all our investors what we know right now, focus on what we can control and try to take the market out of it as best as we can.

Okay, fair enough. Thank you.

Thank you. Our next question comes from the line of Josh Beck with Raymond James. Please proceed with your question.

Yeah, thanks for taking the question. Maybe a two-parter. So on the inventory, I think you said it was kind of 25% below pre-COVID levels. Is it likely to kind of remain in that zone for the year? And then, you know, maybe in 26 and beyond, you know, we start to see that improve. But just curious there. And then I know this is probably a little unfair just because there's so many scenarios going around. But if we were to get some heavy new auto tariffs, you know, would it widen that affordability gap versus used cars and be helpful? I mean, you could obviously argue that a lot of ways, but any scenario analysis, you can just help us think through tariff scenarios would be helpful as well. Thank you.

Yes, certainly. On your first question, we—if—let's first assume—let's pretend tariff conversations weren't here on your first question. And then we'll try to entertain both your questions with and without tariffs. Without tariffs, I would have thought there would be a steady improvement throughout the year, like ending the year, like, you know, with only 10 to 15%. And eventually going the next year, again, we're all guessing. But I would have thought we would have had a steady improvement. Dealers starting to gain more used cars. I also think we'll see some of them buy more cars from consumers. I think we're behind the scenes. We're doing more. Folks like ACVLs are doing more for them to buy. So I would have thought there would have been a slight improvement throughout the year, but not a big bang. It would be like improvement, you know, a little bit each type of thing. Your second question, obviously, I think everybody in a lot of different industries is trying to figure out is tariffs. Like, what could this mean? I think the first question is, you know, how do OEMs, you know, respond? Are they going to pass, you know, the full cost both to their dealers and consumers, knowing there's already some affordability challenges? Some of these OEMs still have healthy margins, right, that they could consider not passing all it. So I think that they'll balance with new car inventory on dealers lots are back to historical levels. And with some of the OEMs, new car inventory is actually higher than historical levels. So, you know, OEMs are going to have to, if the tariffs truly come in, they're going to have to get creative. I think we're going to see lease payments and other things, and they're going to be thinking, okay, I'll assume a higher residual value or whatever they're going to assume. They can't just force the dealers to have more cars in their lots and pay these high floor plan fees. It's going to be tricky to figure out. And so I'm first starting with the OEM before the dealer, before the consumer. And then you kind of flow that through. If the tariffs were passed either in any meaningful way to the consumer, then obviously new retail could be impacted, at least for the brands that are priced higher. Maybe the brands that are priced lower would be less impacted. I hate to have all these iss, right? It's such a tough topic to go through. And then when you think on the flip side of all that, you know, yes, to your point, dealers might have to keep a few more trades. So that would be the negative. But on our platform, marketplace conversion, if dealers kept more trades, marketplace conversion would likely go up. So we would probably get more efficient. So if it hits supply in a meaningful way, all of a sudden we get more efficient. You guys saw a couple of quarters where we had really crazy conversion rates in COVID. So those are a lot of ifs. Hence why with all this stuff going on in the world, some of the analysts had the market recovering quite a bit this year, right? And their assumptions for the AC model for this year. We're telling you all is whatever your assumptions were last year, that was before all this tariff craziness was going out there, all this other craziness out there. Assume a flat market. Assume we're going to focus on weak control. And

I think we're going to be in good shape. Super helpful. Thank you for framing that. Yes, Jeff. Thank you.

Thank you. And we have reached the end of the question and answer session. I'll turn the call back over to Tim Fox for closing remarks.

Great. Thank you. And thanks, everybody, for joining us on the call today. We look forward to seeing those of you can join us live in New York on March 11th. And if not, obviously, we'll have a webcast available. And once again, thank you for your interest in ACV and have a great evening.

And ladies and gentlemen, this does conclude today's conference. You may disconnect your