My name is Chris Pierce with the Needham Research Team in the Transportation Technology sector. Welcome to one of the virtual sessions of the 20th Annual Needham Tech and Media Conference. It is my pleasure to welcome the team from ACV A. We have Bill Zerella, CFO, and Tim Fox, VP of IR and Strategic Finance, here with us. It is my pleasure to welcome you guys. We are going to go about 35 minutes or so, fireside chat format. If any investors watching have any questions, you can put them in the portal on your screen, or feel free to email them to me at cpierce@nedmco.com. Bill and Tim, welcome. I appreciate your time today and this morning. I thought I'd let you guys, you know, go 30, 60 seconds, 90 seconds, wherever you think you need to kind of give us a high-level overview of the business, what differentiates ACV A versus legacy peers, and how you've been able to win share in the market consistently. Yeah, sure. Hi, hey, good afternoon, everybody. I'll start, and Tim, feel free to add in if I miss anything. ACV is an online marketplace supporting primarily dealer-to-dealer wholesale transactions. We've been disrupting kind of the legacy market for quite a number of years. We went public four years ago. Really, what we offer is a digital solution in place of a physical auction for dealers to wholesale their cars that, you know, they receive typically in trades and would rather wholesale than retail on their lots. The bedrock and the value proposition that we offer is really data-based. We're very much a technology company. We've ultimately disrupted this market by creating a data set on the condition of a used vehicle that allows us to sell that vehicle online, sight unseen by buyers with confidence. We will stand by the disclosures that we make in terms of the condition of that vehicle. If we miss something, we will arbitrate it and make good on it with the buyer. That has allowed us to be very successful in terms of growing our business over time. We now have a roughly 10% market share in this market. Our next nearest competitor is roughly half our size in terms of a digital offering. The rest of this market is physical. Roughly 85% of this market is still physical in nature. We have deployed a territory model to expand the business, started in the Northeast, moved down the Eastern Seaboard, and then started moving west. We now have national coverage across the country. The way our territory model works is the longer that we're in a market, the more maturity and vibrancy we can generate in terms of the marketplace since, you know, we have a two-sided marketplace with both buyers and sellers. In our most mature marketplaces, you know, we are in certain cases actually the market share leader in those marketplaces. Over time, we just continue to mature and kind of expand our footprint. We've been, you know, very successful. When we went public, the company was at roughly $200 million in revenue. We'll be kind of approaching $800 million in revenue this year. You know, our guidance is $765 million-$785 million. Last year was our first year of profitability. This year, we're looking to expand our adjusted profitability by 150% on 22% revenue growth. There's a lot of leverage in our model. It is all about scale. As we generate more and more scale because of the digital nature of our business, it is highly accretive to incremental margins. We have what we call a midterm target, which is $1 billion in revenue and $350 million of adjusted EBITDA. You know, we are kind of aggressively moving forward and gaining share every quarter. I will kind of leave it at that. Is there anything you want to add, Tim, in terms of background? No, I guess the only thing I'd add in is just from a, you mentioned the market share. So, you know, about 80% of our supply on the listing side comes from franchise dealers. There's about 17,000 franchise rooftops across the country, so individual stores. We engage with about a third of those franchise dealerships across the country. So there's still an enormous amount of white space out there and market share to go after. While we've made great progress, it's still very early days and, yeah, a long growth trajectory, even just within dealer wholesale. Lastly, I think, Chris, you're probably going to get into this a little bit, but we've invested in an adjacent wholesale part of the market, which is commercial. These are repossessed cars, fleet, off-lease, rental cars. That's a 6 million unit market today if you consider everything that's downstream. That's another very large TAM that we're going after. We'll be going after more formally later this year when our technology platform has been rolled out. Going back to Bill's early comments, I'd love to hear about, you know, who are the biggest competitors? You know, we hear, we know about Manheim and ADESA. Talk about winning share from them. Talk about winning share from regional auction houses that maybe don't get the publicity that investors would have heard of. Like, or talk about other digital players that have come and gone, however you guys want to take it. I'd love to hear about how you've gotten that 10% share and where shares come from. Sure. First, we maybe should just talk about the market itself because the market has actually shrunk as a result of COVID and supply chain issues. New car sales basically drive trades into franchise players, which drives wholesale volume. Pre-COVID, the wholesale dealer-to-dealer market was somewhere between 10 and 11 million units. Last year, it ended at roughly about 7.5 million units or so. You know, the market still needs to recover from what it was pre-COVID since a lot of dealers, when they did not have enough cars to sell, retained a lot of cars they normally would have traded into the wholesale market, reconditioned them, and put them for sale on their lots. Used car inventory levels are still well below normal. You know, we expect that to change over time and our market to recover. That is first the backdrop. In terms of competition, as Chris mentioned, Manheim is the largest player in the space. Manheim is owned by the Cox family, which has a, you know, a very large automotive portfolio of products and offerings. Manheim is their auction business. They're a private company, so we're not exactly sure how big they are, but, you know, rough estimates were certainly pre-COVID that they were doing about 2 million units a year in the dealer-to-dealer market and about 2 million in the commercial market. They have a very big commercial footprint. You know, just based on the dealer-to-dealer market, you know, that would pre-COVID represent about 20% share. The market is highly fragmented. There are several hundred independent physical auctions around the country. These are mostly family-owned. There is one group of physical auctions that are owned by a PE firm. We certainly compete with all of those local auctions as well as Manheim auctions. As I mentioned earlier, physical is about 85% of this market. Outside of ACV, you know, we do have a competitor that is, we believe, roughly on average about half our size in the digital market. We're not exactly sure since they don't disclose their U.S. market data or unit volumes. You know, that is a company that bought several smaller technology players, put them together, and created a unified platform. That's kind of the landscape. You know, we compete, we believe, as the only true technology player in this space. Again, we're very data-driven, and we've now inspected millions of cars and have what we believe is a significant data moat that we've built over time. Talk about, you know, two parts to that. Just go a little deeper on the 10-11 of time by PO to the market being 7.5 now. Like, I understand the dealer behavior side of things, but as we think about the market coming out of it and maybe off-lease cars coming back in 2026, what drives, like, there's multiple levers towards the market moving back to where it was, even if it doesn't get all the way back or it's hard to, you know, time things out, but just what do you guys see the market developing or how do you see it developing? And then that's probably my last macro question, I promise. Okay, sure. So what happened because there was a period of time where all these supply chain issues related to chips that were not available resulted in millions of new cars not being produced as a result of COVID, which meant there was a dearth of new car sales and new car leases. The average lease expires and matures in roughly 36 months. Off-lease, you know, has historically provided a very strong flow of late-model used cars that dealers would then acquire if the consumer does not buy the car and remarket those on their lot. Those are, you know, typically what are called frontline vehicles. Low mileage, you know, in pretty good shape cars. As a result of that, that air pocket, there was a dearth, there has been a dearth of cars coming off-lease and that supply feeding into dealers. Basically, that market will bottom out at the end of this year because it was three years ago that the market bottomed out, and it's progressively been recovering over time. That will provide a shot in the arm for dealers in terms of late-model used cars that are available on their lots. That in turn will help them be more prudent in terms of which cars that they retain from trades and recondition and sell versus cars that they receive as trades that they wholesale. That behavior obviously has just been different since these supply chain issues with franchise dealers retaining cars and reconditioning them that they otherwise would not have done so. Keep in mind that also reconditioning these cars uses up resources in their service bays, which are primarily dedicated to service, which is highly profitable and kind of guaranteed margins for dealers and is a very big profit engine for dealers. We believe that's one key to kind of returning this market to pre-COVID levels. The other is affordability as well. Interest rates play a role, obviously, in the cost of both a new car and a used car. Affordability issues have certainly impacted used cars since typically, you know, with a new car, you can get potentially low APR financing from OEMs due to their captive finance organizations, right? Over time, as new car sales recover and as off-lease cars start to feed back into the ecosystem, we believe that will create a tailwind in terms of the TAM for the wholesale market, which will benefit us versus a headwind, which it's been for the last several years. Say, great, enough for that. Tim, why don't you, I'd love if you went a little deeper on the commercial TAM. I know you gave us the number, but, you know, what it's new for, it's something you've been talking about for a while. How are you attacking it, whether it's through acquisition, greenfield, kind of, and how you kind of, you can take to leverage the tech that you've already built and the data you have to win in that market? Yeah. So it's really, it's a natural extension of what we did and have been doing in dealer to dealer. We are leveraging effectively the same technology. We've had to invest in new parts of the platform to service commercial consignors. They have some distinct requirements around reporting and, you know, you have to build in costs for recon and so on. That work is coming to a close here, which is great. Within the next quarter or two, we should be launching our first greenfield opportunity, which isn't a, you know, a business that we buy, but necessarily it's land that we basically lease. We have some recon facilities there, and we'll be able to do a pure digital commercial transaction. To supplement that, what we did do is we bought a number of physical auctions across the country that you, we have a footprint today of about 10 of these. Basically, you need land to service certain portions of the commercial space. I mentioned rental, repo, fleet, and off-lease. Certainly for repos, you need to have land to store the car for a certain period of time based on the state. You may be up to two or three weeks for the car to have to sit there. Some of the other categories will require some light reconditioning. Having access to land and recon facilities is sort of part and parcel of this commercial go-to-market. As I mentioned, you know, if you sort of exclude the upstream off-lease, it is 6 million units. It is a very big market, very attractive. Our buyers that buy dealer cars want to buy commercial, right? Some of this stuff is really, really attractive inventory, particularly some of the fleet and rental car tend to be later model in kind of lower mileage. It is a great way for us to leverage our inspection technology, all of our AI pricing, pricing guidance, and building, you know, an incremental amount of supply that we can provide to our buyers, right? It just increases the velocity and vibrancy of our regional markets by adding more commercial supply over time. How do you kind of convince the sellers to give ACV a chance? Is this a warm market where it's a small industry and they've sort of heard of you guys? Is it brand new? Because of the way you're entering these 10 markets to start, how do you kind of get them to trust you on supply? Is it that the buy side drives the equation because you've got buyers that are willing to bid because they trust the condition of the car? Yeah, I think, you know, look, we're obviously, we're leveraging some of these businesses that we bought have a, some of them have a substantial amount of existing commercial business today. Part of the initial playbook, even before we have our tech platform rolled out, is to broaden the relationship that we may have in a certain region and bring that commercial consignor to nine other areas across the country, right? There's a natural expansion with existing commercial customers that we'll be able to drive even before the tech is completely done. You know, it really is just we've got a commercial sales team that's out there building business, convincing the commercial consignors as we get this thing launched that we have a, you know, we have a much better value proposition. We'll be able to get them a better value, better margins, better clearing prices, faster cash conversion. You know, remember these physical auctions run basically once a week. If it doesn't sell in the first week, it sits there for another week. Our auction runs 24/7, basically seven days a week, right? This is a much faster turnaround. You got a bigger buyer base. You've got transport and capital that are available to the buyers. We think that the sort of nationwide footprint, vibrancy, and all of the ancillary services along with the tech stack will really be a highly differentiated value proposition for commercial consignors. Okay. And then before we move on to sort of the model and the puts and takes, I'd love to hear just, you know, I don't want you guys, I want to give you guys a chance to, you're not just an auction platform anymore, right? You're not, there's more that you're doing with dealers. I'd love to hear what you're doing with dealers and how to become more of a partner with them and why you're uniquely positioned to do that versus maybe someone in lead gen trying to move into wholesale or something like just kind of what sets you guys up for success and what are you offering them that others aren't? Yeah. So, you know, for those not familiar with ACV, you know, we clearly started as an auction player. You know, over time, we have found that we've increasingly been able to use our data moat to put a value on a used car with more accuracy than we think has ever been done before. And we've talked about this, you know, the last few earnings calls where, you know, we're starting to see a lot of empirical data that says we can value a used car condition adjusted based on, you know, the results of our inspections within $100 of what it would sell at the wholesale level and within $200 at the retail level. The name of our company, ACV, stands for actual cash value. We believe ultimately this can be the holy grail in terms of, you know, disrupting, you know, an industry that's really never had the capability to do what we believe that, you know, we're doing today. Being able to value a used car, which is a highly complex asset, can open, you know, a lot of doors in terms of opportunity to help dealers buy cars from consumers, okay? Help dealers more easily understand what they can sell their cars for that they do not want to keep, that they want to sell wholesale, whether it is dealers or commercial consignors. It allows us to, you know, potentially put a value on a car and stand behind that value and eliminate any risk for dealers in terms of transacting. It really gives us a lot of opportunities to augment our marketplace and kind of go beyond what, you know, traditional auctions have done for dealers. Part of this is delivered via other offerings that we deliver today. One is what we call ACV MAX, which is an inventory management and merchandising application that incorporates an offering that we call ClearCar, which allows a dealer and a consumer ultimately to answer questions, use our application to take pictures of the outside of a car, you know, using some optical technology, and based on our data, allow us to put a value on that car, you know, that we can ultimately stand behind. You know, there are about 10 million cars in the United States that are sold peer-to-peer that are outside of the dealer network. Obviously, companies like Carvana and CarMax are capturing, you know, some of that market. It is a very big market, and typically franchise dealers have historically not aggressively, you know, tried to buy those cars. Ultimately, we believe we can help them acquire those cars from consumers, you know, through ACV MAX and ClearCar. You know, the more cars that they buy, the more they'll keep and they'll have as frontline vehicles to retail on their lots. Ultimately, the more they'll wholesale, which would, you know, allow us to leverage our marketplace to help them monetize those transactions. There is really more and more opportunity for us to be more of a partner to dealers versus just an auction, you know, kind of remarketing partner for them by bringing in some of these value-added services and leveraging, you know, technology. In certain cases, we're leveraging actually LLMs to deliver a new level of capability and insight to guide dealers as to, you know, how to most cost-effectively monetize any inventory that they have on their lots. I would say we're moving, you know, directionally towards being more of a strategic partner to dealers. That's what we're hoping to achieve over time versus just a transactional partner, if you will. You know, time will tell if we're successful. So far, you know, we're starting to get an engagement, you know, at a really compelling level with some big groups around the country, you know, kind of better understanding the value that we can deliver. Ultimately, it's if we can help dealers improve their business, deliver better, you know, operating results, you know, we believe we can be even more successful over time. You know, who are you displacing there? Or do dealers not have this real-time data on what a car would actually be valued with like science and data behind it? It's sort of greenfield or like, what's and what do they do with this information? I know you touched on it's buy-sell decisions and helps them gain inventory or that type of thing. Yeah, it's like an example would be providing insight that they have a car on their lot that's been sitting there for 30 days, hasn't moved. This would be a used car that they're trying to retail. And we, you know, based on our data insights, we would suggest, you know, they should adjust the price from X to Y, and they should remarket it and, you know, provide the explanation and the rationale for that based on a data-driven analysis. And hopefully, as a result, help them drive better decision-making, right? At the end of the day, it's all about how do you help them improve their operating performance. Perfect. So we've got the auction, you've got your VCIs out there kind of doing the legwork, the shoe leather, car goes into auction, condition report, buyers bid on the car, you've got a winner. What happens next? You know, talk about ACV Transport, finance, capital, kind of how do you guys these ancillary products within the auction that you guys have been layering in that have been growing? Yep. Yeah. So these are, you know, other services that attach into our marketplace. Last quarter, they represented roughly a little over 35% of our total revenue streams. The largest being ACV Transport. We have our own transport marketplace. We do not own any actual trucks ourselves. We have a marketplace in which transporters can compete for business. When a buyer successfully wins an auction, there is a button they can press and get a price for ACV Transport. If they move forward, 80% of those transactions are automatically dispatched via software. There is no human involved. You know, we deliver on an SLA in which we can very quickly and reliably get that transporter to pick up those cars on the dealer's lot and deliver them to the buyer. We have been doing that with great success. Over the past couple of years, we went from a business that was actually generating negative margins to low 20s revenue margins or gross margins, if you will, which does not sound like a lot, but on an accounting basis, we have to record those revenues on a gross basis. You know, it is increasingly more and more material to our results over time. We are employing, you know, some pretty sophisticated pricing algorithms to optimize our margins. Now we are starting to expand that offering to include cars that need to be transported beyond just those that transacted on our marketplace. That is our transport business. We also have what we call ACV Capital, which is our floor plan business, which is something that our competitors do. This is common in the industry for auction players in which we provide short-term secured financing for independent dealers who buy on our platform. Typically, those dealers do require financing to consummate a transaction. If they select our capital floor plan, then, you know, basically they can take delivery of the car and then we get paid at the sooner of maturity of the loan or when they sell it to a consumer. The average days outstanding for those loans are about 65 days. It flows through at over 90% margins down to our EBITDA. It is very attractive, very attractive to buyers and certainly has attractive financial attributes. That business grew 33% last quarter. We expect accelerated growth through the rest of this year. You know, those two together represent kind of these offerings that attach into our marketplace and have been a nice augment to our auction, just our pure auction revenue streams. Tim, I'd love to get your take on, you know, cost of revenue. What are some, you know, puts and takes there and where do you guys have leverage there as you move forward? Where have you seen leverage? Because it's been a positive cost of revenue story. Yeah. So cost of revenue, it has been quite a great story. We're just looking at this a little bit earlier today. Since we went public, that gross margin equivalent, we call revenue margin, has increased by 1,000 basis points, right? We're actually within a relatively short distance of getting to our midterm target, which is 60%. You know, Q1, it was 55%. One of the biggest drivers there was Bill just mentioned transport going from being basically losing money at a margin level to low 20s. That's been a part of that as well. As ACV Capital grows as a percentage of revenue, when that mix comes in, and we're going to grow that pretty quickly over the next number of years, that comes in at a very high revenue margin as well. Then we get just a little bit better on arbitration, right? Arbitration can be, you know, a relatively high level of cost associated with that. Even though we have a very small percentage of our vehicles that get arbitrated, it's something that we focus on very heavily. We think through technology and different processes, we can continue to drive down the incremental unit cost of arbitration over time. The combination of those three things really will get us to, I think, 60%. Again, we're 500 basis points away from that. If you move down to SG&A, I think you've kind of referenced it this year. Should investors be thinking of this? I don't want to use the term investment year, but you said you're spending money to build out the plumbing to connect the marketplace to the commercial seller marketplace. What sort of going in, like what are you doing to kind of connect those two? And how should we think about spending this year and beyond? Yeah. So a lot of the plumbing that you're referencing is really on the technology side. Our product and tech team has been kind of building our next generation platform that will support commercial consignors. So on the SG&A front, let's separate kind of the sales cost, sales and marketing cost versus G&A. We inherited a lot of G&A when we acquired a bunch of these physical auctions. So, you know, that's kind of distorted our OpEx leverage the past year. You know, this year, unless we do a number of other acquisitions, we'll start to, you know, kind of not see that distortion continue and start to see leverage going into next year. So, you know, we are starting to launch, our plan is to launch a greenfield site to support commercial business by the end of this year. That will have a different cost profile and give us better unit economics. You can expect to see us, you know, launch more of those over time as we, you know, as we get our platform built out and kind of create the workflows and processes to operate, you know, a greenfield site, which also will result in a dramatic reduction in capital required versus acquiring, you know, some of these locations. Not to say we may not acquire some other locations if they're very strategic and have, you know, a strong level of commercial business. Right now, our focus has shifted much more so to greenfield launches. That has been a big part of the G&A, you know, lack of leverage, if you will. You know, and then on the sales and marketing side, a lot of those costs are primarily fixed. I mean, all of our territories are fully staffed, you know, with territory managers and regional sales directors, you know, rolling all the way up to our Chief Sales Officer. So, you know, we do not expect those costs to dramatically increase, you know, outside of inflation and, you know, expanding our commercial sales team as we kind of build that out over time and scale that business. So, you know, we will start to see more leverage, operating leverage next year as we head closer towards our, you know, midterm targets, which, you know, from a model perspective is very doable. But M&A does distort it a bit. So we have had to, you know, try to parcel that out as best we can for investors to understand how much is M&A versus the true operating leverage we get in terms of incremental margins associated with organic growth. Can you talk about leverage on the vehicle condition inspectors? I I think, you know, at the end of 2021, you had X number of VCIs out there. I believe you have roughly the same number now, but you're doing a lot more cars. Is it the tools they have in place, the training you've put in place for them, them sort of getting more comfortable in the territories? Sort of talk about the leverage you've got there and where they sit within the model. Yeah. So for those of you not familiar, we have about 800 inspectors around the country that inspect cars. They go to dealers' lots every week. We're averaging about six and a half inspections per day per inspector. However, that's an average. Our most mature territories are averaging 10-12 inspections per day. There's a lot more density in those territories where an inspector can go to a particular dealer, inspect a bunch of cars versus driving from one dealer to another, right? Much better operating efficiency. Our less mature territories are, by definition, obviously even, you know, less productive in terms of low single digit cars that they're inspecting per day. That's just the way our model works, right? We kind of plant a flag in a territory. We have to have an inspector to get started. As volume increases, then we get more operating efficiency over time. You know, as we continue to scale and grow, our less mature territories get bigger and we improve the productivity in those territories. Our midterm model assumes that we get to between eight and a half and nine inspections per day, you know, across the country. That is primarily a function of our less mature territories getting more mature. For our more mature territories, we are very happy with kind of 10-12 inspections per day. Notwithstanding the fact we are looking at ways that we can, in general, reduce the inspection time, you know, and make our inspectors more efficient. Even on our more mature territories, you know, to the extent we can leverage, you know, our tools and help them inspect cars in 15 minutes instead of 20 minutes, then, you know, we can make them more productive as well. Just lastly, let you guys get out of here and you got a flight to Boston. I'd love to hear, you talked about data a couple of times. I'd love to hear just sort of, you know, the data advantage you think you have versus peers, the data you've collected. You sort of talked about how you leverage it, but just kind of what investors should look for here in the future. Yeah. So we've inspected millions of cars at this point in time. And we've created what, again, we believe is a data moat. We just continue to leverage that data. That's one of the prime drivers of us being able to determine, you know, the value of a used car, you know, based on not just inspecting, you know, a car in the field, but also leveraging data, you know, make, model, year of those cars. You know, there are certain cars that have at certain levels of mileage, for example, might have transmission issues, might have other things that we've seen, you know, based on our data. Then merging that with market data in terms of what used car pricing is. Again, as I said earlier, this is kind of the bedrock of our business. We are ultimately a data company. You know, we'll continue to leverage that data and deliver value to dealers as a result. You know, the more scale we get, the more data we're going to get. The more data we get, the more value we can deliver. That's kind of the reinforcing cycle and leveraging some of these other offerings that I mentioned earlier, which is the way that we deliver, you know, that value in terms of the data to dealers. You know, so far we're liking what we see in terms of dealer engagement. The good news is there's a lot of opportunity for growth with 85% of this market still being kind of white space for us because most of this market is still physical. I appreciate the detail there. I appreciate the time, Bill and Tim. I appreciate spending a day with investors today. We'll let you get out of here and on to the next conference. Okay. Great. Thanks, everyone. Okay. Take care. Bye. Bye.