Good evening, everyone. Thanks for joining. My name is Rajat Gupta, member of the Automotive Equity Research team at JP Morgan Chase & Co. Very pleased to have with us the team from ACV Auctions, CEO George Chamoun, CFO Bill Zerella, and Head of Investor Relations Tim Fox in the audience as well. So with that, thanks, George and Bill, for joining us.
Yeah. Thanks, Rajat, for having us. Thank you. Appreciate it.
Great! So, well, maybe just to ease into the conversation, you know, could we get a high-level update on how you view the macro and the just the industry trends so far this year, perhaps into the second quarter so far as it relates to your business broadly, you know, the wholesale market broadly? You know, we're seeing some supply from rental companies come in, repossessions have been there. You know, some moderation in used car pricing is starting to happen. You know, new car inventory continues to pick up. So just characterize all of that for us, and, like, what's the impact to ACV and the wholesale market?
Yeah, certainly. So, for those of you that are less familiar with ACV, there's two aspects of the wholesale market. There's dealer wholesale, and there's commercial wholesale. So I'll bring that backdrop with a little bit of the two segments. Most of our business today comes from the dealer wholesale sector, and we're sort of emerging in the c ommercial wholesale sector. So for dealer wholesale, dealer wholesale is really the result of retail transactions, trade-ins, and other cars dealers are buying from consumers. So as we start to see the retail environment improve, wholesale will also improve. Wholesale also benefits as dealers' lots start to fill up.
If you kind of think about the core business for a retailer is to retail vehicles, if they have empty spots on their lot, they will tend to start to retail vehicles they probably should be wholesaling, meaning cars that don't match their brand, don't match their margin targets, cars that are probably taking them too long to recondition, et cetera. So as we start to see some of the industry dynamics enhance, new car production has obviously increased. Incentives are starting to come out right now. We're starting to see OEMs start to push incentives. We're starting to see affordability incrementally be addressed, with used car values starting to go down.
So as all these movements of affordability and helping the end consumer be able to buy a new car, we'll start to see more trades, and then we'll start to see the dealer wholesale market come back.
Got it. How dependent is... You know, you've obviously given 2024 targets out there. I mean, how dependent is the used car pricing backdrop, you know, as it relates to those targets? You know, obviously, the last couple of years, you know, you've been able to show your progress irrespective of, you know, how the market has played out. But, you know, as we're heading into a little more normal depreciation, like, how do you view how dependent, you know, are your near-term targets, you know, on just, like, the pricing backdrop-
Yeah.
Are there other levers you can pull?
Yeah, I think it's a really important question. I think investors, up until this past quarter, were a little bit worried that as used car values came down, what would happen to our revenue per unit? And what we've been evangelizing to investors is used car values going down is actually a good thing for us. We felt good that we will hit our midterm, revenue per unit, targets we've set out there, even with values going down. And the reason why we've evangelized that used car values going down is beneficial for the market is, at the end of the day, the, this will mean affordability for the independent dealer buying these cars, their ability to recon these vehicles, at the end of the day, the consumers be able to afford these vehicles. We already had room within our pricing to address, the lower-priced vehicles.
We knew we had some headroom, and so what we really tried to sort of emphasize is that we feel great about our medium-term sort of revenue per unit targets. And so in a way, look at used car values going down as a positive trend for us.
Got it. Got it. That's, that's clear. I, I do want to get into, like, the, the whole commercial initiative as well. But, but just, just before that, you know, you, last year at the Analyst Day, you, you gave us, you know, 2026 targets. You know, recently, you, you referred to them more as, you know, medium-term targets. Curious to understand, you know, what's changed, from your perspective in the backdrop, or the mix of your business, you know, since the last Analyst Day? And how should we think about, like, the timeline, you know, of hitting those targets today versus, versus, like, a year ago, and just the complexion, of how you get there?
Yeah, certainly. So, I think for one, I think you've seen very consistent, strong execution quarter after quarter. We continue to take market share. We continue to incrementally achieve the EBITDA targets we're looking to achieve. So I think, you know, from last year to now, I think most investors would say that we've delivered really exceptionally well quarter after quarter. Specifically, why we changed the reference from 2026 targets to midterm was when we put out there 2026, we were pretty clear to investors, saying, "Assume that the market would return back to normal." We heard back from some of our largest shareholders that they felt like that was not the best way for us to be laying out our goals and objectives. Instead, the market will return back to normal at whatever pace it does.
We're committed to hitting these numbers whenever that market does come back to normal. But we're also committed to hitting these numbers over the next sort of few years, without putting a year to it, whether or not the market actually returns normal. And that's a different positioning, I think, for our investors, that without putting a specific year on it, these midterm targets are going to happen. We feel great about our unit economics. We feel great about our ability to take share. We feel great about our value proposition and our continued investment in tech to really help add more value than anybody else in the marketplace in this category.
So, and I think it was smart that we took our largest shareholder's advice and just took the year off it and said: "We're committed to hitting these numbers with or without the market improving, and then we'll just find out in what calendar year we actually deliver on that.
Got it. Got it. That's very clear. You know, one of the recent steps you've taken, which is obviously got a lot of investors curious about the story and it's just the AutoIMS middleware access and just some of the acquisitions you've been making to ramp up your commercial business. Just talk us through how this commercial ramp is gonna look like. You know, it looks like you have 9 locations today. You know, you've talked about needing to get to 40 locations, you know, in order to access 80+% of the TAM.
Can you give us a sense of, you know, first of all, like, what kind of EBITDA multiples you're paying for some of these acquisitions? And then how much incremental investment should it look like to get to those 40 locations, and any sort of timeframe you wanna put on it?
I'll answer the first three questions, and then Bill, you can do the fourth one. Okay. So and the first one, for those that are new to the story, AutoIMS is the middleware that's used in this industry. It's middleware that, commercial consignors that are banks that have repos, rental car companies, fleet companies, and others use this middleware to provision a vehicle to a specific, auction. And many of these, commercial consignors use AutoIMS exclusively. Not all of them, but many of them use it exclusively. We didn't have access to this middleware. That's now behind us, and we now, we now have access, to this important middleware.
We are integrating directly with AutoIMS, and we have licensing with AutoIMS that covers not only physical locations, but also a business model that addresses our digital model, meaning wherever the vehicle is, not just to a set location. So very material milestone for ACV now having access, where these consignors can send us vehicles. So, the second part of that is there's this integration work. It's not just integrating to get the vehicle; there's actually knowing whether or not that car needs minor reconditioning. And what we've said is we'll have a version of this ready by Q1. So we could start to, for example, take business in a new geo, starting in Q1. So incrementally, we'll start to open up new geographies.
We haven't given investors at what pace just yet, but incrementally, we could start opening up new locations without doing one of the tuck-ins that you mentioned earlier. We could do it organically, starting in Q1. So those were your first two questions. The third one, related to the acquisitions, these are typically, you know, small to medium-sized businesses in any one area that are an independent auction that's, you know, typically fighting against, Manheim, ADESA, us, and others. They're, they're one of the players. The key thing is they have land, they have a gated-in area, and they already have a way, in some cases, to work with these commercial consignors.
So it's we are, you know, we are getting some commercial consignors via this path, which is a great way to start our journey, and if we have a certain commercial consignor in one geography, we can show them now via the ACV platform, we can help them across multiple geographies. And then, the latter part of your question there, we're buying these small businesses, typically, anywhere between 7 and 10 times EBITDA. So it's accretive. We're not buying the land; we're just renting the land. So it's working out really well for us thus far. Do you wanna take the fourth question?
Sure. So our midterm targets for EBITDA are 25% of revenue, which works out to about $200 per unit sold, and that's primarily driven by our dealer-to-dealer business. If we look at the commercial business that we're acquiring in that, that segment, typically, the ARPUs are slightly higher from commercial consignors, and that's offset by slightly higher costs because these are physical locations that we have to support. The net works out to roughly the same EBITDA margins per unit. So frankly, the commercial business, as far as we can see, will allow us to hit the same targets.
Got it. Got it. And, you know, the ramp-up of this business, you know, you know, if you could talk us through, like, how this, how this integration process is gonna look like. You know, obviously, these are, like, a few tuck-in acquisitions, very separate from how you've done your business, how you've grown your business. You've always been a little more asset-light, technology-focused company, and now you're buying these physical assets. You know, how do you make sure, you know, the culture is aligned, the incentives are aligned, you know, the platform is, you know, smooth? I mean, the way your customers see it, like, how, how is that gonna change?
Just talk us through, like, the undertaking here of integrating this, you know, because you're gonna be doing a few more before you, you know, just do the land, you know, the organic land development. But what all should we be watching to make sure, like, you know, this integration is going smoothly?
Yeah, we've got some work to do to take all the things that our teammates in Buffalo that are using from a technology, from processing titles to managing arbitration, to inspecting cars, and 'cause we've been essentially operating out of this one location, right? Across the whole country. These—the technology we've built for digital, much of it applies to commercial, to local, whatever it may be. It'll take us a little bit of work over the course of the next year to two years, but look at it, you know, in the next, let's say, two years from now, it won't matter whether a car was sold in location A, B, or C. It'll have a relatively similar condition report.
Titles will be the same sort of, you know, photo capture of the title and making sure, you know, the titles are all signed in the same spot, the process for arbitration, the process for really the, you know, ACV Transport being readily available for that vehicle. But this investment you heard Bill allude to on our last couple calls, that we've we've ramped up some of our, you know, tech teammates, between now and the end of the year, and that's part of this year's planning, is so that wherever the vehicle is, whether the consignor happens to be commercial or dealer or, or otherwise, it's still going through the same platform. It'll it'll take some work. We'll do it iteratively. We'll have a version one for Q1, you know, your typical, you know, continuous investment.
But I think the key is great experience. You know, whether the car's selling from a dealer's parking lot or selling from one of our remarketing centers, I don't think long term it'll matter. In the short to medium term, it's just making sure we can build an exceptional experience wherever the vehicle's at.
Got it. And how should we think about the lead time, you know, involved in bringing newer consignors on board? You know, we know you started out, you know, small, with, like, 700 vehicles. We're wondering how the conversations have evolved. You know, just trying to get our arms around, you know, when we can expect, like, an inflection on the commercial side of business, and is there a way to compare it with the inflection you've seen in your D2D business as well?
I think at this point, we've... I think we've created an expectation that, you know, between commercial and consumer, it's gonna be at least 10% of our business the next few years, right? That's, like, at least the expectations we've created thus far. I don't think we're ready to share it growing any faster just yet. I think at the end of the day, we're- we've got 9 locations thus far. We could take repos and other commercial business that does require land, where we'll have AutoIMS integrate with ACV going into Q1, where potentially it may or may not need land, that when any one vehicle. So we're still a little early.
I would say I feel really good about the number we've given investors thus far, but I'm not ready to raise the pacing just yet, meaning the majority of our cars will be dealer wholesale for the next few years, far majority. But having said that, I feel really, really good about the expectations we've set thus far.
Got it. Got it. That's, that's clear. Before I move into, you know, the next set of questions, just wanted to see if there's anything in the audience, anyone in the audience that has a question. No? So, you know, just moving to, you know, you know, the D2D business, you know, we've obviously been, like, in, in a bit of a sluggish backdrop for a while. You know, your long-term targets or the now mid-term targets, you know, had called for, like, 17%-18% market share growth. You know, it's been around, like, 15% or so, you know, over the last few quarters. You know, how should we think about how that market share progression should look like once we actually start to see an inflection in the industry broadly?
And I know this was a topic on the last earnings call as well, but hoping you can elaborate on how the backdrop itself is impacting your ability to gain share. You know, for example, we're also seeing some commercial supply come back into the market recently and, you know, OPENLANE and talked about, you know, how some of their dealer customers were preferring, like, the commercial supply versus, like, you know, dealer consignor supply. So I don't know if that was also having an impact on your business. So curious, how does market share look like, you know, depending on, like, how the broader industry is doing?
Yeah, I think the key thing for our, you know, really long-oriented investors, at least what I hear back, is we've had market share, gains, and, you know, we're really taking the market pretty consistently. I mean, we could argue one or two points, one quarter after another-
Yeah
... but I think what we would say is ACV is really executing very, very consistently. The, the, how the macro, to your point, could affect our, our, our share gains, are hard to tell. Having said that, I think cars filling up on dealers' lots will be very helpful, and that it's not about, if that's gonna happen. I think there's been a lot of, you know, if there was bears and bulls on any one of these topics, folks wondering if, if these lots are gonna fill up. I think we're watching with our own eyes. They're starting to fill up.
Right.
I think the simple thing here is wholesale probably has not been a key problem, and I think that's really getting to the crux of your question. It hasn't been broken these last couple of years. It's been relatively easy to sell a wholesale car. So as the market gets more challenging, as these lots get filled up, as the ratio of cars coming in start to go towards wholesale, not just towards retail, I think it's gonna put more pressure on wholesale, and it's gonna, you know, whoever the partner is of that dealer is gonna have to really have the demand to sell these cars. We've got incredible demand. You know, we've gotten only a local and regional and national demand.
So I think we are in a really incredible spot, that if macro does put a little, you know, stress on the ecosystem and dealers now have to really look at, you know, what's going on, we could be in a great spot. Having said that, I think what I've been trying to say in all our investor meetings and calls is just kind of expect just a consistent growth rate, right? I think that we're, we're trying to manage expectations just so in case we don't read any one press release and they go, "ACV share is gonna grow faster overnight." But I think there is some truth that there could be a moment in the next year or two that our growth rate could grow faster.
Because with more pressure, with more real estate challenges, you could see the digital model grow faster.
Got it, got it. That makes a lot of sense. You know, just on the D2D, GMV per unit, I know, like, commercial is higher, you know, so overall, as a company, you know, that should help your GMV per unit long term. But just focusing on the GMV per unit, you know, in the D2D business, your average, you know, it's around $13,000 today. It's higher than the average industry today. But, and as you, as you become a bigger company, you know, as you expand into more customers, you know, more types of cars, you know, maybe go into lower-value cars, higher-mileage cars even more, how does that change, you know, the operational aspect of the company? You know, like the inspection process, you know, the productivity of inspectors.
You know, how does ARPU and, like, other services change with that? I mean, does the unit economics equation change at all, as you move into, you know, those higher-mileage cars or lower-priced cars?
Yeah, so for those that are newer to the ACV model, our sell fees are relatively fixed. Our buy fees range based on the ASP and the price of the car. So, where Rajat's going, there was probably some concern that as used car values go down, if mix—if we started to grow a mix from independent dealers and others, we could have some pressure. I think what we've shown in our model with these, I would say, enhancements to our business model over the last year plus, is we are still delivering really strong ARPU. Our price per unit, you know, was over $100 less than the traditional physical auctions.
So we had this headroom, we had this ability to charge a fair value, 'cause we're providing an incredible inspection, unbelievable value for the buyer. So as used car values come down, if mix does mean we get more cars from, let's say, segments we're not getting... What I would say to investors, it's gonna be really hard for anybody to model. Commercial could elevate our price. Independent dealers could decline our average ASP. I would say spend less of your energy focused on all that.
Yeah.
Trust the process. We're gonna get to our $500 sort of combined buy, sell, Go Green fee model, 'cause it's gonna be really hard for anybody to figure out. You know, I think in some people's models, they've got our, our values going up, some folks it's going down. We're all over our pricing, and we feel really good about getting to our medium-term targets with all that noise going on in the background.
Got it. Got it. That's clear. Any questions in the audience? None. I'll go on here. Over the past few years, you know, one of the changes we've seen is, you know, the franchise dealers have started to focus a lot on their own used car business, and trying to grow their own used car to new car ratio. And curious, like, what does... how does that impact, you know, ACV's opportunity? You know, you now have ClearCar, you know, you have some other data products that you're offering. Curious, like, how can ACV play more into helping them grow that business, and what kind of implication that can have to your own traditional, like, or your core D2D business?
Yeah, I think franchise dealers buying more used cars is the most important thing, you know, for their long-term model. And I think franchise dealers overall have, you know, really a tremendous opportunity. If you look at the location of these dealerships, in most towns, they have great locations. In most DMAs, they're the largest ad spender in that local town, right? In almost every category across the country. So you've got unbelievable locations, you've got, you know, a huge ad marketing budget and then you've got this key real estate, you need to fill it up. But the key is they don't have enough, most of them don't have enough supply coming in. And what ClearCar was aimed to do is now franchise dealers have the technology and the data to buy a car from a consumer's driveway or anywhere using our technology.
A consumer could be coming into their service drive just to get their oil changed, we can put a value on that car, wherever that car is. And this is a category that franchise dealers didn't have the tech to compete against the big box players. They now do. The folks that are coming to ACV are truly leveraging our, you know, you know, big data model and, and, and leveraging our AI, and, you know, literally, a consumer could just walk around the car taking photos, and we can understand the condition. I mean, it's really incredible. And if they leverage their marketing spend, not just to sell vehicles, but to buy vehicles, I would look at some of the big box guys and go, "Franchise dealers should be wholesaling the same percentage as these big standalone used cars companies.
Right.
The only reason why they're not is they're not buying enough.
Right.
And so if you already have the ad budget, if you already have incredible locations, and this is what my team and I do on the road every week, we're evangelizing to the biggest dealer groups, "Let's buy more cars." They could always wholesale it. Buy every car! And with our pricing, we, we have the pricing down where they're gonna make the right margin if they retail it. We have the pricing down if they wholesale it. So with the dealers that are taking on ClearCar, you know, these franchise dealers should do really well, and they are, they are now armed from a tech perspective to compete. Now, there's more work. It's not just tech, right? You need to change your go-to-market. You need to really... You know, just having the tech is, is one part of the equation.
But I, I think, you know, I think franchise dealers and other independent dealers are in a great spot to buy more cars from consumers. The average age in the car right now is 12+ years old. These consumers can't afford to keep fixing these cars. So I, I think for those that adopt our services, they're gonna be in a great spot to really sort of change their supply, and the more they buy, the more they will wholesale.
Got it. No, that's, that's very clear. I have a question there in the audience.
Yeah, that's just a follow-up on the question there. So obviously, the largest big box, all the numbers are public, how much they buy and how much they're selling for. So your dealers that you're trying to advance have all the information to work from. What's the resistance that you're seeing in those early adopters? What are you seeing their numbers go from in terms of number of used cars that they're able to wholesale versus new cars? 'Cause obviously, CarMax has put it up to 75% or thereabouts.
Yeah, so this new product, ClearCar, is - we're still very early. I mean, it's probably one of the fastest auto tech from launch to 700 rooftops live. It's probably one of the fastest launch to scale we've seen in the category. Having said that, we're very early. We do have customer testimonials that we are starting to publish. We'll start to publish them more often. But, we're hearing things like dealers buying, you know, 5% higher cars than they were buying previously. Sounds like a small number, but that's a really big number if a dealer can buy 5% more inventory than they were buying.
We're hearing dealers saying their conversion of trades and others are going up, in some cases from low 40% to high 40% or over, even over 50% of the consumers coming in. So you're, you're, you're hitting the top of the funnel of getting to more consumers. You're hitting to those that actually show up, have a higher conversion. We have one dealer that gave us such a high conversion, I'm not gonna even say it publicly just yet. I just wanna make sure it's right. Meaning the number of people showing up and actually converting was just exceptionally high. Having said that, we're very early. You know, we, we have, you know, our first, you know, 700 rooftops have gone live. Look at it as like your, like, your version one of the product has gone live.
It's getting integrated into the CRMs. It's getting, you know... Only a handful of them are using it in their service drive thus far. Most just have it on their website. We're still early. So there's enough to get really excited about here, and it really could help these dealers that I know. But then getting it to be part of their overall process could take us a little while before it really materially changes the numbers.
Got it. Any other questions? Yeah, I wanted to quickly move to, like, the cost side and, you know, the OpEx, you know, management. You know, I think one of the nicest things, you know, we've noticed over the last three years in your numbers is how disciplined you've been on, you know, your OpEx per unit, you know, relative to some other high-growth companies. So, going forward, you know, how should we think about, you know, inspector productivity? You know, you've given us some numbers. You know, I think your best regions are doing, you know, 10+ inspections per inspector, and your average is around six. Can you give us a sense of, you know, where are the fixed versus variable inspection costs today?
With evolving inspection tools, are there any metrics we can look at, you know, to think about inspection time per car, for example, and how that might have changed over the last few years and how it can change going forward?
... So I'll handle the fixed versus variable, and you can talk about some of the tools. So our inspectors, you know, basically have a base salary, and then they get $10 of incentive comp for every car that they inspect that transacts on our marketplace. The way it works out in terms of the math, in terms of fixed versus variable, is roughly 80% fixed and 20% variable. So as we get more inspector productivity, it's highly accretive to the model. So those territories where we have inspectors inspecting 10+ cars a day, they're incredibly efficient. The average is six across all of our markets, so we do have a lot of inspectors in less mature markets that are below six.
It's a big opportunity for us over time as we scale and get more share and more density in these various markets, that we can increase that productivity, and it's the largest part of our employee base. We have about 800 inspectors today around the country. I'll let you talk about the rest.
Sure. So, our inspection innovation continues, and we have probably half a dozen pilots going on right now on inspection, whether it be our inspectors, whether it be dealer self-inspection and other categories. So it's an area where we're gonna just continuously improve, continuously add, you know, really make considerations. So, to answer your question specifically, that your second question, I would say on average, it takes a little over 25 minutes to inspect a car today for a trained inspector.
Over the next 1-2 years, we could take off, probably as much as 5-10 minutes, pretty conservatively, because of the fact that with this data model we have and what we know and how you'd walk around the car, that would mean the most mature territories, where you're already doing the 10+ that you're doing today, could even do more. Obviously, in the less mature areas, where you're not doing enough, you need that supply, right? We need to go win the share to then make them busy.
But that would mean that some of the territories where we've shown investors we're today at 25% EBITDA margin, fully loaded today, it could mean that in the next few years, that could get even better, because those are the territories where these inspectors are busy all day long, and they could even do more. It's also great for them 'cause they'll make more money, and, and our teammates could now, you know, make more money from more cars. So it would be good for our teammates out in the field. It would be great, for our dealer partners 'cause we might be able to get there more often, doing more vehicles. I don't wanna set any timing expectations just yet-
Yeah
... but we're all over it, and, you know, our overall inspection efficiency will only improve as we keep innovating.
Got it. Got it. That's, that's very clear. We have one question here from Chris. Mic coming.
Maybe, just thinking about as the commercial opportunity scales, is there, for the inspectors, is it just, you know, is there any difference between inspecting a, you know, a D2D car or commercial? I assume not, but if not, does that create an opportunity for uplift in productivity? And then for markets, you know, you guys started out in the East Coast, where the kind of like drive time or windshield time is pretty minimal. Like, for markets where you have scale in the West Coast, is windshield time for inspectors like a limiting factor for getting to the productivity levels you see in the East, where there's maybe more density?
So on your first question, the inspection for a commercial car and a dealer car are similar from the buyer experience, what we call the condition report. Where we've got a little work to do on commercial is the way they want that data back to them to make their pricing decisions is part of that spend we kinda loosely talked about earlier. We do have requirements of how 'cause we've got this really rich inspection, and our inspection helps them decide what recon they want to do per car. This also will be an area where we'll differentiate over others. I think we will help commercial consigners make better decisions based on our inspection.
So look at it, we're already using it today, but there are enhancements we need to make so that those commercial consigners can make the right decision, and then also, hopefully, in the very near term, this could be a significant differentiator to win business. On your second question, efficiency, where we have land, it... Yeah, you could do over 15 cars a day, right? So, because you're not driving around, if you're doing repos all day long, you could do a lot of cars. So you-- we mentioned that the cost and revenue is different. For example, on repos, one of the areas where our cost is lower is our inspections per-day cost and per unit are lower because you're doing a lot in one spot.
That would be different than, let's say, an off-lease car that never got shipped to an auction that we were doing upstream. That'd be the same as our current business. We're already at that Ford dealership, and now we're inspecting that car. That would be no different than our today business. I'm trying to remember your third question.
That was it.
Oh.
That was it.
Okay.
Oh, great. I think that's a good way to end. So, you know, George, Bill, thanks for the time.
Yeah. Thanks, Rajat.
Yeah.
Thanks, everyone, for coming by. Appreciate it.