Good morning, everyone. My name is Chris Pierce. I'm with the Needham Research Team covering transportation technology stocks. Thanks for joining us for the fourth annual Needham Consumer Tech and E-Commerce Virtual Conference. Big welcome this morning to the team from ACV. We've got CEO George Chamoun, CFO Bill Zerella. It's going to be a fireside chat format. If anyone has any questions they'd like to work in, or I'd be happy to ask on their behalf, feel free to put them in the chat box on your screen. Guys, good morning. Why don't you give me, you know, 60-90 seconds on ACV for those that aren't familiar with the company? Then we'll hop into some Q&A. Yeah, thanks, Chris. And good morning, everyone. And thanks for tuning in here. Again, George Chamoun from ACV here with my colleague Bill Zerella. And ACV, for those of you that don't know us, ACV is a digital marketplace that is scaled first here in the U.S., where dealers are selling cars to other dealers. These are trades or retail units that they deem to be wholesale. And that was sort of our primary vertical that we've started to take a considerable share across the U.S. And we just also got into the commercial-to-dealer category, which would be repos, former rental cars that are then defleeted to wholesale and other categories. So at a really high level, we've built this incredible marketplace business. We've built additional value-added services that enhance the marketplace. And we are selling, on a run rate perspective, over 700,000 units in the U.S. alone. Over 24,000 dealers are participating in our marketplace and growing. Thank you for that. So just for a successful auction or a successful marketplace, as you kind of framed it, you need quality supply and you need confident buyers. Can you frame how ACV has been able to win with both sides of the auction? Yeah, certainly, Chris. So first, let's talk about the demand side. ACV has spent considerable resources building trust and transparency for buyers. And this was an industry that was primarily an industry where buyers felt like they had to go and kick the tires themselves. They needed to go see the vehicle themselves. And it was an industry where buyers would go the day before and look at vehicles before they were auctioned just to kind of get their own quality assessment. For some of you, you may have heard me use a diamond analogy. You'd feel comfortable buying a diamond online if you knew the color, the cut, the clarity, the carat weight. And whether it's a $5 diamond or a million-dollar diamond, you'd feel comfortable purchasing it online. Used cars have the same challenge as diamonds. Each and every one is different. And we've built the platform and technology and inspection tools where dealers can listen to the engine. Our AI can listen to the engine. We scan the undercarriage. We take photos leveraging artificial intelligence to know if there's a scratch or dent and many more. We've spent considerable resources with our 400 teammates in product and technology to create this incredible experience for buyers, but also for sellers. And for sellers, what we do is we have over 700 vehicle condition inspectors. We refer to them as VCIs, who go out into dealerships every week, inspect the cars on behalf of our dealers. They're supported by our 150 territory managers who build relationships with these dealers. And then we have an additional team who works with commercial consignors and also some fixed locations, 10 fixed locations thus far. So both on the supply and demand side, we've done really an incredible job of differentiating, leveraging technology and great people to help both our supply and demand side. Perfect. And on the supply side, I promise we're not going to talk too much about macro, but can you talk about the supply, kind of how you framed it in your S-1 when you guys were going public? What's happened to the supply over time because of lack of new cars being produced and where supply is going moving forward? Yeah, certainly, Chris. So on the supply side for dealer and commercial, let's start with dealer. What you saw was dealers were wholesaling over 11 million cars prior to 2019. So very large market. In that market, dealers were retailing over 17 million new cars and about 34 million used cars. Well, what happened was, as you all know, new car production came down. And so dealers started selling less new cars, which then meant less trades were coming in. And then over time, what's happened because of the 6 million cars that were not produced, there's currently 25% less used cars on dealers' lots. So what we've seen over the last few years is the 11 million dealer wholesale went down under 8 million for a period of time, now at least back over 8. And so still a massive market. I mean, over 8 million units dealer wholesale is still a very, very large market. But we believe it starts to come back up towards that 11 over the next few years. It will take a little time because not only did new need to come back, but there's still 25% less used inventory in these dealers' lots. So as they buy more cars and as time goes by, we will see normalization. Similar challenges happened on the commercial side, even though today that represents a little over 5% of our total share, but that market also contracted pretty significantly. So that market historically was between 8 and 9 million units, and it also came down somewhere between the 5 and 6 million. So both the dealer wholesale and commercial wholesale both contracted and both will return back to normal. So there will be an eventual tailwind. We've tried to manage expectations that the tailwind from the market will probably much of it won't come next year, probably take a little longer than that. But there will be a tailwind in addition to the very consistent market share gains that you've seen us accomplish thus far. Okay, perfect. Thank you. And who are you guys competing against in these markets? You know, we always hear about Manheim and ADESA, but is there a longer tail of auctions that you're competing with and gaining share? And can you kind of touch on physical, digital, how you see the market shaking out? And then just, is there an 800-pound gorilla in commercial? Is it the space you're moving into, or is that much more fragmented? Yeah, I mean, Manheim is the 800-pound gorilla in our category. They're selling, at least I don't know what they're selling today, but they were selling 4 million wholesale units, and about half was dealer and half was commercial. So yeah, they're the largest in the category. Even if you look at our midterm goals that we've put out there, we would still be obviously smaller than Manheim. So they're the largest. There's other, as Chris mentioned, as you said, there's hundreds of other auctions out there. And so in any one market, we could be competing against any number of them. So it is a fragmented market. So even though Manheim is the largest, if you look at 11 million dealer wholesale and 8 million commercial, you know, so you know somewhere in this sort of 18 million plus units a year, they had four. So still, it's a very fragmented space, even though you have one very large player. We continue to take share. In the Northeast, where we started, we do have markets where we have over 30% dealer wholesale share. Now, it will take us a while to get to that type of market share across the whole country. Those are the markets we've been in for over eight years. We've been at it. We've established a brand both on the supply and demand side of things. But we're so new in some and in most parts of the country, right? We're in the low single digits, and in some places over 30%. How that mixes out is where your second question was about total digital in the country, Bill. Would you say total digital is in the probably 11%-12% range of overall wholesale units somewhere in that range, maybe 13%? Maybe closer to 15%. Maybe closer to 15, okay. Of which we're approaching 10% of that 15. Got it. Perfect. Thanks for that. And then, so we've got multiple sources of supply, but the buyers are all dealers. Can you kind of talk about, you know, you talked about what resonates with them, the touchpoints, the data, and then you're also helping dealers get cars beyond wholesale. Since we're talking about dealers on the buy side of the transaction, can you touch on ClearCar and how that's kind of a newer product you put out there to help dealers? Yeah, certainly, Chris. So as Chris mentioned, overall, you know, at the end of the day, the entire demand side is our dealers, and dealers need to buy cars. And as I mentioned, they have 25% less cars on their lots today as they were at 2019. So if you were to go ask a dealer today, "What's your number one problem?" they would say, "I don't have the right inventory. I need more inventory." That would be the first problem that most dealers would answer. And so buying on ACV is one way to solve that. But in addition, another way for dealers to get more inventory is to buy more cars from consumers. If you study CarMax and Carvana just as a proxy, they're buying a lot of cars that are not associated with a trade-in. CarMax put out there that they buy over 21 cars per day per store. That's a massive number. My typical dealer is only buying a handful of cars a month from consumers that aren't associated with a trade. They've got all this traffic coming in from their service drive. They've got incredible brand presence, incredible locations. So step number one was to give them a tool. The tool is called ClearCar. ClearCar is an AI-based pricing engine, also photo capture to understand the condition of the vehicle. So one, we've built the product. Building the product alone does not solve the mission. We now got to get them to go use the product. And so if you think about next year and the following year, it's taking this product, changing their marketing strategies, their go-to-market, and getting them to go after consumers. This will be a several-year journey, Chris. The good news is we've started the journey. We have some case studies we're already developing where we've got dealers buying dozens of cars a month. They went from, let's say, five to seven to more than two dozen, which is, but we had a lot more work to do. There's only a few of those that have not only taken the product, but are really using the product. You'll hear us over the next couple of years do everything we can to make it easier and easier for these dealers to really be in the business of buying cars from consumers, not just selling cars to consumers. Something interesting you touched on there, CarMax and Carvana make a great deal of money wholesaling vehicles that they buy from consumers. Is this a shift in dealer mindset that you guys are trying to push forward that you should be buying all the cars if you trust the data and can put the right price on it because there's no reason you can't? If you don't think you can retail a car, you shouldn't pass on it. You should still be able to make money in the wholesale market. Is that something that dealers are warming up to and that's sort of helping with ClearCar? Is that part of the overall pitch? Yeah, Chris, you're right on. And it is a shift and it is work, okay? But I would say dealers felt like they didn't have the technology. They didn't have the internal process to do this. And so, but when you, like anything in life, you have to take down one barrier at a time. First barrier is, all right, technology is no longer an issue. With ACV, you now have the tech. And then you take process. Process becomes another barrier. What's the internal process to start buying these cars? And then third, the actual go-to-market, the marketing spend. The good news is on the bucket number three, franchise dealers are the largest, you know, spend in almost every DMA in the country in advertising. So it's not like they're not already spending the money, but you kind of need to go through step number one, step number two before you get to step number three to get them to really turn this on. But yeah, I think you referenced this exactly right, Chris. It is a shift. These guys were primarily built to sell cars to consumers, not necessarily buy them, but we're here to help them. And we feel very confident that dealers across the country will become a great way, an easy way. I mean, think about it for the consumer. You could just go down the street and sell your car. Start it out in your driveway, take some photos, answer questions. And whether you go to the local BMW store or Ford store or Chevy store, you can just drop the car off. And so yeah, we're excited, but early in this path. And then you guys, Bill, you guys reported earnings early in November. Could you kind of frame it? I think one thing we want to touch on is conversion rates across the industry are sort of elevated, which plays into the model that you guys have put out there. What's sort of driving the elevated conversion rates in the industry, you think, and how should we think about that into 2025 and beyond? Is it just supply and demand? Is there more to it than that? Like, how do you frame that answer? So conversion rates are typically impacted by whatever the gap is between what the buyer wants to pay for the car and what the seller is willing to sell the car for. And when those gaps expand, then conversion rates typically go down because buyers in those situations are worried about whether they can buy the car, recondition it, sell it, and make a profit. So in Q3, what we saw actually across the industry were conversion rates improved, which is not typical for Q3. Typically, conversion rates are the best in the first half of the year and then decline in the second half of the year. You know, so that gap certainly declined. And then on top of that, we continually fine-tune and improve our marketplace in terms of with the intent to drive conversion rates because there's a lot of leverage in our model if we can drive incremental conversion rates since it's highly accretive to earnings. We've already inspected the car. It's on our marketplace. If we sell it, that margin flows pretty much straight down to EBITDA. So, you know, Q3 was a really compelling quarter for us. We normally, you know, what we see with our business, that's seasonal. Q1 is typically the strongest quarter, followed by Q2, Q3, and Q4. Q3, in this case, on an organic basis, was our best quarter of the year. So that was a combination of driving really strong growth in the number of listings on our marketplace combined with high conversion rates. Okay, perfect. So if we think about, you know, going forward, modest increase in demand against a stable pricing environment and, as George mentioned earlier, tight supply, is that the right recipe for conversion rates to stay elevated? Not specifically asking you, will they stay elevated, but should we think of that as the right recipe for conversion rates to stay elevated? Yeah, fourth quarter is always the lowest conversion rates. That's even, but you know, I would say our conversion rates higher this year compared to prior quarters and years, likely a little higher because of those reasons. But there's still, there's a relative nature. The reason why every fourth quarter they're lower for the whole industry is because new cars are coming back, the new model year is coming out. And so there's a shift in what these cars are worth and that kind of shift in value. So, you know, seasonality is the last element to this, as Bill mentioned earlier, Chris. But I would say in general, next year, I have high confidence for conversion rates, which I think is the primary point of your question. We feel really good about conversion rates because not only is there still this shortage, just 25% less used cars. That's going to take over a year to really for the market to work itself through. But in addition, our core product is getting better and better. The tools are getting better. So we feel very good about conversion rate. And we just take the time to educate investors that in addition to all this, there is a little bit of seasonality. Verification. And then, Bill, one more for you. You touched on growth rates in the third quarter, 32% year-over-year unit growth. Can you kind of give us a breakdown, organic versus non? And then when we talk about non, we can segue into commercial and what you guys have been up to there. Yeah, so approximately 10% of our units in Q3 were as a result of M&A. So when you do the math, that works out to approximately 20% organic growth in units. And then on the revenue side, our revenue growth was 44% for the quarter year on year. Also, about 10% of our revenue was due to M&A. So when you do that math, it gets you to about a 30% organic revenue growth for the quarter. Okay. And then can you, so this is a nice segue into the commercial opportunity and what you guys are doing there, what you've been up to, why you've been making these acquisitions. Can you kind of, you know, just give us a big picture why it's exciting and why you think ACV is primed to do well in this market? Yeah, Chris, thanks. So we're, one, commercials got also a very large TAM, you know, around at least pre-COVID, around 8 million units sold in the commercial category. So a large TAM today, a little over 5% of our volume is coming from commercial today. It's got the opportunity to be even a larger percentage over the next few years as we add additional locations in as we grow. So one, large TAM. Two, similar net unit economics. So if you look at our EBITDA dollars per unit, the EBITDA dollars per unit is similar to the dealer wholesale. You're getting there a little differently. You got a little bit more cost per unit, a little higher RPU, but similar EBITDA dollars per unit. So one, large TAM. Two, similar EBITDA dollars per unit. And three, the end dealers want to buy these cars. So, this gives you an opportunity where more opportunities for the demand side. At the end of the day, our critical thing is we need more and more supply. We've got great demand. We keep getting additional demand, but our primary need is getting more and more supply. So all reasons why we're very excited to leverage our technology, leverage our footprint, leverage our demand, and broaden our TAM. And then so can you talk about AutoIMS just briefly? We did an expert call maybe a month and a half ago, or we talked with someone who used to work at a bank selling repossessed vehicles. And I don't want to simplify it and just say it's an app on their desktop and they can choose auction sites. Like how do you, now that ACV is in that dropdown though, how do you kind of get in front of those sellers and let them know about the opportunity now that you're there and you have these willing buyers that have confidence to bid potentially higher than other sites? Yeah, so Chris, I'll tell you where we are now and where we will be. What we have today is in that dropdown, to your point, is they can choose one of our 10 locations to send a car to one of those 10 locations. It's not yet set up where they can send us to a dealer's lot or upstream to a consumer's home or any of those parts, as we mentioned on some of our prior calls, we said this is a several quarter multi-year investment. So the integration with AutoIMS right now, like a version one is live, but then there, you know, which allows you to go to these 10 locations and in the future that'll be 40 locations. Version two of our AutoIMS would enable us to, which we don't have done yet, so that the car could be anywhere. It could be at a rental car location. It could be at a dealership. That part is not done yet. So, but all of it will be possible. So to answer your question, you'll be able to go into AutoIMS and say, do I want ACV to, do I want to send a car and move it to one of ACV's locations? Do I want ACV to go and inspect the car and it happens to be at the local Ford dealership or local, you know, whatever that dealer, wherever it may be? So we're building all the above, but it'll take us several more quarters of build to have the full solution there that I'm articulating. Is it a new go-to-market with these sellers or how do you get the word out that there's a new player in this market and dealers are enthusiastic bidders on this platform because of the groundwork you've laid in the dealer-to-dealer market? Yeah, I mean, we have three colleagues who are out there meeting with these folks, you know, every week. It's not a massive team, but we're meeting with the national folks. So like last week, for example, there was a conference called Used Car Week. All of these folks were all there and you're meeting with them and you're explaining, here's the first 10 locations, here's where we're going. You also kind of learn where they want you to be. So you start to get advice. You also start to evangelize where you are in that pure digital model and our integration and get any feedback of what they would want in those requirements because while you're building it, you want to make sure you have the requirements. So we've got the ear to many of them at a national level and then they have regional folks who meet with our regional teammates. So they may be giving us cars, let's for example, say in Springfield, Missouri, or in Dallas, Texas, and we've got teammates that work with the regional consignors as well. So there's national partnerships, there's regional partnerships. And the nice thing about this industry is let's say you get somebody excited about selling with us in the Midwest, and then we show them, hey, we've got this location in Connecticut. It happens to be the closest location to Manhattan. And then you build that relationship where you start to go from one DMA to multiple DMAs with that commercial consignor in a way trying to get more of their wallet share. It's not that different what you've heard us talk about with dealers. Get in there, get a little bit of wallet share, build a relationship, show you're doing a good job, and then you start to get additional locations. Bill, on VCIs, this has been something you guys have talked about since before the IPO, growing VCI efficiencies and in terms of the number of cars that they inspect per day. One thing that I've noticed is you guys have grown vehicles, but you actually, you know, I guess just talk about VCI efficiency because you haven't actually grown the number of VCIs. You've actually, it's kind of gone the opposite direction, but you've grown the number of cars that you're inspecting per VCI. Like what's driving that? Yeah, so the last few quarters we have actually improved our efficiency in terms of number of inspections per day, which is how we measure it per inspector. What really drives it more than anything else is really the density of a particular territory. So the more business we have in a particular territory, the less driving from one dealer to another there is in terms of our inspectors. And when they do get to dealers, they can knock out two, three, four cars at a time. For less mature territories that don't have the same level of density, they're typically in the car driving more. When they do get to a dealer, they may not be inspecting as many cars. So, and that's part of our model. You know, it's a territory expansion model. What we see is in our most mature territories, we're already hitting, if not exceeding, frankly, our target EBITDA margins. Part of that includes our efficiency levels for our inspectors, which, you know, today we're averaging about six and a half inspections per day per inspector. In our most mature territories, we're 10 to 12 inspections per day. Then below that, of course, for our less mature territories. It's really scale that drives that efficiency. Therefore, our model, as it evolves over time and we get more and more scale, we'll get more efficiency and leverage from that OpEx cost. That density that you're talking about, is it just shoe leather and knocking on those franchise dealers who tend to be the auto sellers more often over multiple years and showing them the model and you guys gaining share and it all sort of just knocks the wall down over time and then density increases in that market? Yes. Okay, perfect. Sounds so easy when you say it like that, right? That's right. Can you just talk? I want to talk about data, but before we do that, can you talk about self-inspection? And I just want to make sure I fully understand. ClearCar, going back to that, is that the consumer inspecting it in their lot and where the dealer also uses ClearCar? Or like when the consumer brings a car to a dealer, how does self-inspection get involved there? Just want to make sure I don't conflate the two. Great question. Self-inspection is a broad category. It starts with the consumer. So ClearCar is, at least in the U.S. version of the product, the consumer both describes their vehicle with a simple yes and no of what the condition is, plus take photos using our Monk Imaging AI tool. And then we're able to price a vehicle based on the consumer answering a few questions and taking a few photos, and they literally could do the whole thing in five minutes. So that's the most basic self-inspection, and that's the consumer in their driveway. Then in addition, there's dealer self-inspection capabilities that take that base, and you can add on additional capabilities to understand the asset. We're in the early days of that. So for example, the dealer leveraging the same OBD-II sensor to understand the engine readout. And we're piloting that in a few stores. We don't yet have our other tools like Apex or other tools in the hands of the dealers yet, but there will be a day where you'll have both the consumer self-inspect and dealer self-inspect where the whole focus is being able to give certainty on the value of the car for the consumer. So you can start in the driveway or show up at the dealership, and there'll be more to this story, just not more I can tell today. But think about it as whether wherever you start in that journey, it's going to be very easy to sell your car to that local dealer. And ACV is going to make it so easy that dealers can just turn it on at each one of their locations. So ClearCar today is a great first start. We're piloting with these other tools as a good first start, but there's more to come. Since we're on inspections, let's talk about data. Let's spend the last five minutes or so on data. Whether it's ClearCar or your VCI does the inspection, where does that data go? How do you use it to improve your process? And can you talk about sort of how does that sort of feed into like create a positive feedback loop for future inspections? Yeah, Chris, so I'll give you some examples on this incredible data moat we're building. You know, the million-ish inspections a year we're doing with our vehicle condition inspectors give you this pure curated data moat. You're listening to the engine. You have the undercarriage. You have the pictures, the dents, the scratches. You have, if we look at the diamond analogy of color, cut, clarity, carat weight, you have that for the used car. And what that data moat does for you is when you go inspect the next vehicle, let's say you're about to go inspect a Nissan Altima or a Jeep Cherokee or a Ford Explorer, you know based on the hundreds, if not thousands of inspections of that same model, you know that 15% of the time it has these issues. And you know in the next year, you may have that odds goes to 40%. So you not only know before you even start inspecting the car what may be wrong based on that model, that mileage, but you also know what could happen next. And then while you're inspecting the vehicle, the way our model works is we start telling the inspector and hopefully soon the dealer, hey, this is what I see, look out for the following. So what does that mean for the seller and what does that mean for the buyer? What it would mean for the seller is before they even trade in the car, they won't make as many mistakes. Because one of the reasons why sometimes sellers ask for too much of the auction was they paid too much for that asset because they didn't see that one issue. They just made a mistake buying the car. And so. If you fix the issue upstream then, does that lead to lower, better conversion rates downstream? Do I have that right? Right on. Okay. And then. And then on the buyer, it means the more of this you can catch upstream, the less issues then get arbitrated later because we find these in the inspection process. And the better and better we get, we'll have happier buyers who at the end of the day will have less arbitrations, which will also help our business model. So, how do you? One thing I always sort of get hung up on is you've done that on, we'll call it a 2018 Grand Cherokee. How does the seller know what a good price is and how does the buyer know what a fair price is? And I think this sort of relates into ACV MAX. Like if you have data on both sides, wholesale and retail, you sort of don't need other pieces of the industry. You can sort of become that trusted data source on both sides of the business for the retailer. But can you walk me through? Am I going too far with that analogy or is that sort of what things can look like or how does that sort of all play together? The simple answer would be yes, but you're going to that end state. And our teammates are evangelizing that end state every day. We have dealers flying out to Buffalo to talk about this end state. We're in meetings every day, every week. The simple answer is, Chris, you've got it. I mean, we've got, we know what they should buy the car for. We're within reason of what they're going to retail it for. Our new AI priced retail pricing, it's technically still in beta, but we're getting so freaking close to what they're going to retail the car for. The next area should be how much should they put in recon or not, reconditioning. That part still needs a little bit more work, but at the end of the day, you are right on. This has been an expert-driven industry where human beings had to make all these hard decisions and they work really hard to do that. But you're exactly right. You use ACV tools to understand the condition. It will also tell you, should you retail it, should you wholesale it. If you are going to retail it, here's your expected recon cost. Again, we don't have that part done yet, but that's what it should do, and then here's what you'll retail it for, and, by the way, this is how many days we think it'll take you to retail it. We don't have that part done yet, but once you have all that, then it becomes this incredible tool for dealers to be able to make the right decisions. Just Bill, to wrap up that glorious end state that George described, what does that mean for the model, for ACV's model in the financial? I'll just answer that by saying again, it's all about scale. This company really has tremendous unit economics. And if we apply that scale across our business, because we're clearly subscale in a lot of ways today, even though we have particular territories that are absolutely at scale where we're the share leader, and we can see those EBITDA margins exceed our target margins even with our current level of scale in terms of OpEx leverage. So the short answer is we can build a very large, very, very profitable business. Okay. Well, I appreciate the time this morning. I'll let you guys get on with your meetings and have a happy holiday to yourselves and any investors listening. Talk to you guys soon. Same to you. Thanks, Chris. Happy Thanksgiving, everyone. Thanks so much. Bye now.