Good day and thank you for standing by. Welcome to the ACV Fourth Quarter and Full-Year Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker for today, Tim Fox. Please go ahead.

Good afternoon and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2023 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill Zerella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our investor relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our investor relations website. And with that, let me turn the call over to George.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are pleased with our fourth quarter performance, which capped off another strong year of execution by the ACV team. We delivered 21% revenue growth in Q4 and adjusted EBITDA have once again exceeded our guidance. For the full year, revenue grew 14%. We gained market share and exited the year with over 28,000 dealer partners buying and selling on our marketplace. We launched new innovations that expanded our competitive moat and drove operating efficiencies, resulting in approximately 70% year-over-year improvement in adjusted EBITDA. Along with our continued momentum in dealer wholesale, we expanded our TAM with the launch of ACV's consumer sourcing solution, ClearCar, and by building the foundation for our commercial wholesale strategy. We are pleased to announce that our expansion into commercial wholesale will benefit from securing access to the AutoIMS software platform and also by growing our remarketing center footprint. More on our commercial efforts later in the call. As we turn to 2024, ACV is focused on accelerating top line growth, continued margin expansion, and achieving an important milestone with adjusted EBITDA profitability in 2024. We're confident that executing on this profitable growth strategy will result in creating long-term shareholder value. With that, let's turn to a brief recap of fourth quarter and full year 2023 results on slide four. Fourth quarter revenue of $118 million was in line with guidance and grew 21% year-over-year. GMV increased 6% year-over-year despite a 9% decrease in GMV per unit as wholesale prices continued to normalize. We sold 144,000 vehicles on our marketplace, growth of 15% year-over-year, reflecting solid listings growth and improved conversion rates. For the full year, revenue of $481 million increased 14% as unit growth rebounded year-over-year, along with strong attach rates for ACV…

Thanks, George. And thank you everyone for joining us today. We are very pleased with our Q4 and 2023 financial performance. Along with delivering accelerating revenue growth in the back half of the year, we had meaningful revenue margin and adjusted EBITDA margin expansion, which demonstrated the strength of our business model. Turning to slide 18, I'll begin with a recap of our fourth quarter results. Revenue of $118 million was at the midpoint of our guidance range and grew 21% year-over-year. Adjusted EBITDA loss of $5 million beat our guidance range and adjusted EBITDA margin improved approximately 800 basis points versus Q4 '22. This demonstrates both the operating leverage in our model and continued strong OpEx management. Next on slide 19, I will cover additional revenue details. Auction and assurance revenue, which was 56% of total revenue, increased 19% year-over-year. This performance reflects 15% year-over-year unit growth and auction and assurance ARPU of $456, which grew 3% year-over-year. Note that ARPU increased year-over-year despite a 9% decline in GMV per unit, reflecting our Q3 price increase, and we believe we will still have pricing headroom going forward. Marketplace services revenue, which was 38% of total revenue, grew 29% year-over-year. Results were driven by strong ACV Transport performance and another record revenue quarter for ACV Capital. Our SaaS and data services products comprised 7% of total revenue and revenue was flat year-over-year. While ACV MAX revenue grew modestly year-over-year, recall that we have been taking a measured approach to customer acquisition, while making significant improvements to the ACV MAX platform. As George discussed earlier, we recently launched the upgraded ACV MAX suite and we're confident these improvements will drive long-term growth. Turning now to slide 20, I will cover costs in the quarter. Q4 cost of revenue as a percentage…

Thanks, Bill. Before we take your questions, I will summarize. We are very pleased with our strong execution in 2023. 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. We are 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 near-term 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. [Operator Instructions] Our first question today will be coming from Michael Graham of Canaccord. Your line is open.

Hey, thanks a lot for all the detail and congrats on the quarter. Just wanted to ask on the 2024 guide, you know, we understand that it includes about $30 million from the acquisition. And I know you mentioned, you know, expecting some recovery in the wholesale market underpinning that guidance, but just wonder if you could go into a little more depth about what you're seeing, you know, on the macro and you know, how you handicap sort of, you know, whether the market might perform, you know, better or worse than what's embedded in your guidance.

Hey, Michael. It's George. I'll start first, and then Bill can always add in. So, yes, thank you. Thanks for your comments on the quarter. Yes, it was another strong quarter and great execution as a team. I appreciate you saying that. We had some comments earlier that we discussed that we believe '23 would be the trough on overall dealer wholesale supply. When you look at the broad trends, we obviously saw even in Q4 another sort of year-over-year decline in overall wholesale supply, right. We do think things will marginally be better this year. Obviously, we didn't give much more details than that, but it's not like we're expecting this year to be the market to improve, you know, significantly. So when we said marginally earlier on the call, we're speaking to, you know, new car supply is coming back nicely. Used car, year-over-year, retail is still a little lower. Obviously, with interest rates and everything, we're still seeing an environment still tough on used retail. Overall, cars on dealers' lots are about 30% lower than 2019. So when you look at overall supply on a dealer's lot, we're still seeing it's still going to take some time for the market to kind of get back to normal. But we're thinking, you know, this year, things will marginally improve. Bill, I'm not sure if there's anything more to, you know, communicate.

Yes, I'll just say the only other thing I would add, Michael, is that, you know, if you subtract out this Texas-based acquisition, right, at the midpoint, results in about 22% revenue growth versus 14% for last year. So think of that as a combination of both an improvement in ARPU and then some modest improvement in the market, along with share gains. So just to frame out the math for you.

All right. That makes sense. Thank you, guys.

Thank you, Mike.

Welcome.

Thank you. One moment for our next question. Our next question will be coming from Chris Pierce of Needham & Company. Your line is open.

Hey. Can I talk about the sequential downtick in ASP on the platform? Is that a concerted effort to kind of attack a different part of the market, or is that just the market itself and wholesale prices kind of moving lower consistently? And then should that inform lower retail prices or you're just -- you're still not kind of baking that in?

Hey, Chris. As we predicted, ASP's decline, you know, somewhat consistently with used car value is declining. You know, we've been seeing just like two years in a row overall used cars going down in value and you've been seeing a pretty consistent decline. But as I think you also noted, our ARPU, our revenue per unit has gone up. So we've done a great job of mitigating over -- you know, over the last year, kind of facing, you know, the ASP, you know, overall GMV going down, but ARPU staying very strong. So we're in a really good spot. But yes, that was as we predicted, if you look back last year, we had predicted used car values would continue to decline. And we also predicted we should be fine from a revenue per unit perspective. And I think both of those ended up being true.

Okay. Okay. And then on the call, you framed a million auctions per year and you did 600,000 units. I mean, is it right to think about that conversion rate at 60%? Because that's roughly 1,000 basis points ahead of industry sources. So is that sort of part of the go-to-market or do I kind of have the math wrong?

Conversion rates are little lower than that. There's a few auctions in there, Chris, that are done for dealers, retail cars, and also -- so that's a few thousand units a month. And then, you know, in addition, there's a few other like commercial cars we're inspecting, but conversion is a little bit lower than that 60% range. But it's -- you know, it's in the ballpark.

Yes, Chris, we're basically in the mid-50s, which is pretty consistent with historical trends.

With your historical trends or industry historical trends, if you could go in a little bit more detail?

I would say both, both our historical and industry. Yes.

Okay. okay. Perfect. Thank you.

Yes. Thank you.

Thank you. One moment for the next question. Our next question will be coming from Bob Labick of CJS Securities. Your line is open.

Yes. Hi. Thank you. It's Pete Lukas for Bob. You guys covered a lot in the prepared remarks. Thank you for that. I guess just one for me in terms of innovation. You guys have introduced a lot of cool tech over the years and you discussed innovation. What has you the most excited from that? And where do you see the biggest impact coming from in 2024 in terms of the new stuff?

Yes, Pete, thank you. Yes, it's a great question. We're -- ACV, like many companies out there, are faced with artificial intelligence changing really how we all operate, changing our intelligence, changing how we think about everything from how much time it should take us to inspect a car. So that won't all hit us this year, but we're investing in capabilities to help us inspect cars faster, but yet with more accuracy. That wasn't possible last year or the year before with our focus on artificial intelligence, with our focus on the acquisitions we've made, like Monk, with our R&D team inventing things like ArbGuard and other areas where we can approach a vehicle and know the common issues we've had on that vehicle. Going into next year, our investments this year will help us, we believe, both take the time down on inspections, but yes, improve accuracy and ultimately make us more efficient. So we're really excited about that. So I had to pick one. Now, I can go on and on, take the whole call, but if I had to pick one, that would probably be the one where generally our inspection capabilities are just improving dramatically and artificial intelligence is going to help.

Great. Thank you. I'll jump back in the queue.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Eric Sheridan of Goldman Sachs. Your line is open.

Thank you so much for taking the question. Can you reflect a little bit on the key investments you see necessary to make that are putting some pressure on margins in 2024 and how to bridge that to sort of what you've talked about at prior Analyst Days in terms of the exit velocity of 2024 against your more medium-term EBITDA margin guidance? That'd be super helpful. Thank you.

Why don't you start and then I'll add in?

Sure, yes. Thanks. If we're -- if I list a few and I think we're on track with really each of these, I just spoke a few minutes ago that our ability to inspect a car both deliver on buyer satisfaction, but also hit our medium-term arbitration objectives, we're really doing a great job. So that's one area where we're doing a fantastic job. On conversion rates and what we're doing on our platform to keep improving conversion rates, if you look at what we're doing with selling vehicles on our platform, again, it's really a tough market. You can see with our peers and everyone else, it's been a tough market and our conversion rates have held up really well. That's been all the improvements we've done on our marketplace to keep including -- enhancing conversion rates. When you look at where we're at with Trasport, we're already at our attach rates and we're already at our margin profile for Transport. Capital take rate is really coming along nicely. We're pacing basically as planned with ACV Capital, and that will also improve overall margin, and then really just growth. Growth will help because, you know, in many of these areas across the country, continuing to take market share allows for that one territory or region. And Bill has shared some data on the call regarding our regional profile. Bill, I don't know if you want to expand on that.

Yes, I think maybe first, I'll just take a step back, Eric, at a high level. So, you know, based on the modeling we've done for this year, if we look at revenue margin dollar growth year-on-year, we're going to take about 45% of that down to adjusted EBITDA, right. So we will be growing OpEx this year, but we feel pretty good about the amount of margin that we're going to take down to the bottom line. So first, just, again, just taking a step back, I would just add to everything that George said. We're also going to be making platform investments to further our commercial strategy, and that's baked into our guidance and our OpEx envelope as well. So it's kind of all of everything that George described, specifically driving the commercial strategy. And then outside of that, it's just really scaling the business, you know, as we continue to grow. So hopefully that gives you a little more context.

That's helpful for context. Thanks, guys.

Thank you, Eric.

Thank you. One moment for the next question. Our next question will be coming from Ron Josey of Citigroup. Your line is open.

Great. Thanks for taking the question. Hey, George. Hey, Bill. Wanted to ask about ClearCar and then maybe another crack at the EBITDA long-term guidance, Bill. On ClearCar, George, you talked about 600 dealer rooftops and higher conversion rates relative to the market. Talk to us about just the tie between ClearCar and the core auction marketplace and how that's helping to improve, call it, dealer integration, if you will. And then just on EBITDA, and I know, to Eric's question, we talked about maybe how we get there, but Bill, really helpful to see the regional breakout, again, an update on that post Analyst Day today. So talk to us just about the expected ramp and regional profitability at 35% now of ACV's, call it, 20 regions and just want to understand how we sort of ramp to that number over time, given we're at mid-single EBITDA margins at a company today. Thank you.

Yes, thanks, Ron. I'll tackle the ClearCar one. So if you take a step back and we mentioned, even though we had a fantastic quarter, 2023, we had a great growth year, dealers are still struggling to get the right inventory. And with ClearCar, we are helping dealers with that core problem. 10 million cars sell a year peer-to-peer. Those -- many of those cars, if you just -- if you assumed over 50% of those, a dealer could have purchased it, whether it's 50% or 60%, that would be massive TAM expansion for dealers buying cars from consumers. And a lot of these cars meet the profile of cars dealers would like to retail. And going after that core problem is important. I mentioned earlier that there's still 30% left inventory on dealers' websites. But don't look at all inventory as equal. Dealers should be retailing the right inventory and wholesaling cars that don't match their inventory. And the only reason why they're retailing some of these cars right now, and I'm speaking to franchise dealers, is because they don't have the right mix. And so franchise dealers aren't ecstatic. But the fact that we're not here to just complain, we're here to help them fix that problem. And we offer them two business models. They can pay us a monthly subscription, or even preferably, they could give us a fair share of their wholesale. So we offer them more of a partnership model or a fee model. The majority of our partners are choosing the wholesale model, meaning that by taking ClearCar and leveraging it on their website, on their other channels, creating separate landing pages, using billboards, their service drives, so think about when the consumer comes in to change their oil and it says, hey, we want to buy your car. You know, now, dealers have an effective tool to do that. It focuses on their brand. ClearCar is like a co-brand, and we're helping them with this really key problem. So that's why we're ecstatic really about just using our technology, using our machine learning, using our massive data that we have. And over the next few years, we're going to help dealers buy more cars from consumers, trade cars more effectively online, and ultimately help them have the right supply on their lot. And what that will mean to us is they'll go back. Over the next few years, they'll go back to wholesaling the percentage they were wholesaling in 2019 and prior. Bill, do you want to go on to the second one?

Okay. Yes, I'll -- yes, let me handle the second question, Ron. So, you know, again, just to kind going to review the territory data that we just put out or prepared remarks, right, so we had, you know, approximately 50 territories, which is about a, you know, little more of the -- roughly a third of the country, are already at breakeven or better, right. And we've got, you know, a number of territories over 20 that have double-digit adjusted EBITDA margins and several, you know, that are already, you know, north of 25%. So the way we get from here to our midterm targets is really twofold. It's, number one, growing our margins to around -- from around 50%, which is where they are now, to 60%. And you can expect to see some progress that's baked into our 2024 guidance as part of that path. So that's one component. And the other component really is the OpEx leverage we will get on the engineering, sales and marketing, and G&A side. So if you go back to our materials from our Analyst Day last June, you know, roughly 75% to 80% of those costs are very fixed in nature versus variable. So, you know, it's all about continuing to gain scale, gain market share, increase our unit volume, and then getting that leverage in the model. So that's ultimately how we'll get there. But, you know, again, we've got some territories that are already -- even in today's cost structure, already hitting, you know, double digits, which, you know, gives us comfort in knowing that we can get there over time as the rest of our territories scale.

Thank you, George. Thank you, Bill.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Rajat Gupta of JPMorgan Chase. Your line is open.

Great. Thanks for taking the question and congrats on good quarter here. Just a couple of questions on the 2024 guidance methodology. Firstly, are there any meaningful assumptions baked in from, you know, the commercial business or any assumptions in the revenue from, you know, the off-platform Transportation product? So just that clarification and I have just a quick follow-up. Thanks.

Yes, hey, Rajat. You know, thank you for saying that. Yes, it was a great quarter. We appreciate it. The -- I'll start and then Bill can chime in. And commercial for this year, we're not assuming like a significant ramp. We will start winning some business. But just to be -- just to sort of level set, we just got AutoIMS done like in the last 24 hours. So we still need to integrate with them or that might take a few quarters. And then on the where we're having land to help us on commercial, it's great that we're up at, you know, eight locations. But as we mentioned, it would take 40 locations to get to 80% of the population. So we will have some wins this year. We don't have a huge ramp expectation for this year, you know, just so we don't get over our skies from like how fast that will be, but we think out over the next couple of years that we're investing now really for the next few years, and we're really excited about that TAM. It's going to be, I would say, very significant TAM expansion for us, both for the commercial accounts -- some accounts don't need land, some accounts do. Either way, we're here to help support them and getting AutoIMS in the way was huge.

Yes, and then on the Transport side, Rajat, so yes, look, we're really pleased with the progress the team is making, that's ramping really nicely, but the numbers are still relatively small, so it's not going to materially change, you know, our expected results in terms of Transport revenue. We're still assuming that attach rates are, you know, in the mid-50s, so there'll be some incremental revenue there, but it's really not going to move the needle yet. You know, potentially, as we go into next year, it might be more meaningful, but we'll cross that bridge when we get to it.

Got it. Got it. And a quick follow-up, you know, you mentioned in your prepared remarks, and even the slide deck around, you know, how like 2023, you know, and prior years were impacted by like a very low trade to wholesale ratio. Curious, like, in your expectation of the modest recovery you're expecting in dealer wholesale this year, is it -- I mean, what's kind of like embedded in terms of like trade to wholesale mix in that guidance? Do you -- are you expecting like meaningful change there in behavior or are there other factors that's giving you comfort around that low single -- that modest growth outlook? Thanks.

Yes, Rajat, we're seeing modest improvement over, you know, really kind of coming into this quarter, and we are starting to see dealers. Obviously, the overall supply hasn't improved materially yet, but we are seeing some signs that dealers are a little bit more willing to wholesale. So very small and I would say our assumptions of this year is just continued small improvements. We're not assuming, you know, a significant improvement. You know, but just I would say, consistent with the trends where we've already been observing. So I think we're being very reasonable. But obviously, the majority of the growth comes from taking market share, so that's where the majority is coming from and which we've been doing very consistently. And then like I said, very small additional gains in commercial, but you know, I would say the overall market improvements, we're assuming very modest improvements.

Got it. Got it. Great. Thanks for the color. I'll jump back in queue.

Yes. Thank you, Rajat.

Thank you. One moment for the next question. Next question will be coming from Gary Prestopino of Barrington Research. Your line is open.

Good afternoon, gentlemen. I have a couple of questions surrounding AutoIMS. First of all, as you prepare to utilize this license, what do you have to do? Do you have to sell the consignors on your services or the fact that the dealers already have your product, they can just -- once you hook into -- you hook in whatever integrate, they can just use it to buy these cars that are offered by AutoIMS?

Yes, Gary, thank you for the question. I'll take a step back and just explain. AutoIMS is a middleware in the industry between commercial consignors. So these are folks like banks who have repos, fleet accounts. Fleet accounts are like company-owned cars, government vehicles, and other sort of fleet lease type accounts. So there's about 1,300 of these commercial consignors who use AutoIMS to -- they go into AutoIMS and they sign a vehicle today to a physical option, and it's been in that role for many years. It really doesn't touch the dealer at all. And that ecosystem of -- and there's many commercial accounts that exclusively use AutoIMS, meaning the only way for them to provision a vehicle is to go through AutoIMS. And so the way they would provision is, they would say, okay, I'm going to send this specific vehicle to this specific auction, and then the auction company then would be responsible to auction that vehicle off to dealers. So this is a middleware. It doesn't really touch the end dealer. It's just these commercial accounts who send their vehicles to auctions. We had access to AutoIMS only in a few locations up until recently. Like, think like literally three or four locations across the whole country and only where we had land. And now, with this lawsuit being behind us and the sentiment behind us, we will -- in collaboration with AutoIMS do an integration that is two -- it allows for two different ways for a commercial consignor. Again, when I say that, think bank, think a fleet company. When they have cars, they can either sign it to one of our locations or to other locations wherever the vehicle may be. The first, meaning sending it to a like an auction, that they've already been doing. This other, which is more suitable for our digital model, they've never done this before, and it will take us -- I'm not exactly sure yet if this is going to take us three months or six months or nine months. Again, we just got the lawsuit done, but we will work in good faith on the digital side, where they can assign -- have a commercial consignor assign us a vehicle, wherever that vehicle may be. So, again, to summarize, this middleware provides us the methodology for a consignor to send us a car today to where we have land, and hopefully in the very near future, think more like end of this year to support our digital model.

Okay. But it does open up a market of a couple of million vehicles a year to you eventually, right?

Yes, at least a few million to your point. It's a pretty significant TAM expansion.

Okay. Thank you.

No, thank you. Appreciate it.

Thank you. One moment for the next question. And our next question will be coming from Naved Khan of B. Riley Securities.

We can't hear anything.

Yes, I'm waiting for his line to open up. Is he still there? One moment, please. Okay. I would like to just turn the call back over to Tim Fox for closing remarks. Thank you.

Great. Thank you. And thanks, Lisa, and thanks for 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, and have a great evening.

This concludes today's conference call. You may all disconnect.