ACV Auctions - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered record revenue of $193.7M and adjusted EBITDA of $18.6M, with adjusted EBITDA margin rising to 9.6% from 4.4% a year ago, driven by market share gains and strong adoption of Marketplace Services.
• Guidance was trimmed modestly: FY 2025 revenue range moved to $765–$775M (midpoint -$5M), while adjusted EBITDA was maintained at $68–$72M; Q3 2025 guide set at $198–$203M revenue and $18–$20M adjusted EBITDA.
• Versus S&P Global consensus, Q2 revenue of $193.7M missed $196.0M*, and Primary EPS of $0.0719* missed $0.0750*, largely due to weaker conversion rates in May/June and higher trade retention rates at dealerships (≈300 bps YoY).
• Management emphasized profitable growth, AI-driven product differentiation (No Reserve/Guarantee, Transport pricing, Capital expansion), and early progress in the commercial wholesale strategy (first car sold on new platform; Houston greenfield) as medium-term catalysts.

What Went Well and What Went Wrong

• What Went Well

  • “Record revenue and continued cost discipline resulted in adjusted EBITDA margins more than doubling year over year, underscoring the scale in our business model.” – CEO George Chamoun.
  • ACV Transportation set records for quarterly revenue and transports delivered; revenue margin expanded ~370 bps YoY and remained in the low-20s, supported by AI-optimized pricing.
  • ACV Capital revenue grew over 60% YoY in Q2, third consecutive quarter of accelerated growth, expanding TAM via off-platform offerings (consumer-sourced vehicles).

• What Went Wrong

  • Unit growth faced an approximate 500 bps headwind from lower-than-expected conversion rates in May/June despite listings being in line, pressuring revenue vs. consensus.
  • Dealer trade retention rates increased ~300 bps YoY, reducing wholesale flow-through and contributing to the revenue trim for FY 2025.
  • Macro crosscurrents (tariff uncertainty, affordability) drove management to be more conservative on the back half outlook, trimming FY revenue guidance by $5M at the midpoint.

Transcript

Speaker 3

Greetings and welcome to the ACV Auctions Inc. second quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Fox, Vice President of Investor Relations. Please go ahead. Good afternoon and thank you for joining ACV Auctions Inc.'s conference call to discuss our second quarter 2025 financial results. With me on the call today are George Chamoun, Chief Executive Officer, and William R. 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. With that, let me turn the call over to George.

Speaker 2

Thanks Tim. Good afternoon everyone and thank you for joining us. We are very pleased with our team's execution in the second quarter, delivering revenue and adjusted EBITDA within our guidance range. Despite challenging market conditions in the back half of the quarter, record revenue and continued cost discipline resulted in adjusted EBITDA margins more than doubling year over year, underscoring the scale in our business model. Our results were driven by three key factors. First, solid execution in our dealer wholesale business. We continue to gain market share and expand our dealer partner network by delivering a highly differentiated marketplace experience. Second, we had another record quarter for ACV Transport and ACV Capital along with strong adoption of our value-added dealer solutions. Third, we further executed on an exciting product roadmap for our dealer and commercial partners, expanding our TAM and growing our competitive moat.

As Bill will detail later, we've updated our 2025 revenue guidance to reflect ongoing cross currents in the broader macro environment and are still expecting to deliver strong top line growth of at least 20% year over year. Furthermore, we have maintained the midpoint of adjusted EBITDA guidance reflecting our commitment to deliver significant margin expansion while continuing to invest in our long term growth objectives. We're confident that executing on this profitable growth strategy will create significant long term shareholder value. With that, let's turn to a recap of our results on slide 4. Q2 revenue was $194 million and grew 21% year over year. We sold 210,000 vehicles which was 13%.

Speaker 0

Year over year growth despite the sharp.

Speaker 2

Market deceleration throughout the quarter. Next, on slide 5, we will again focus our discussion around the 3 pillars of our strategy to maximize long-term shareholder value: growth, innovation, and scale. I'll begin with growth. On slide 7, we highlight how ACV Auctions Inc. is leveraging AI across our suite of solutions. Beginning with our marketplace, we provide dealers with highly accurate condition-adjusted pricing guidance, enabling them to set attractive reserve prices, which increases buyer engagement and conversion. Seller experience is further enhanced with flexible auction durations and scheduling, and our new IN Auction tool allows sellers to set their own start price for each vehicle and remove the reserve price, which also drives buyer engagement and conversion. On the demand side, the buying experience is tailored across buyer personas, and we're optimizing the bidding experience by providing AI-enabled recommendations informed by dealer preferences and current market factors.

Turning to slide 8, let's review our marketplace service offerings. Beginning with ACV Transport, the transportation team had another quarter of strong execution, setting records for both quarterly revenue and transports delivered. AI-optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 370 basis points year over year in Q2 and was in line with our midterm targets in the low 20s. Lastly, our off-platform transportation service continues to gain traction from our dealer partners. These new value-added services increase transport network densities and create additional long-term growth factors. Turning to slide 9, the ACV Capital team also delivered very strong results with over 60% revenue growth in Q2. This was the third quarter in a row of accelerated growth, which supports our confidence that we continue to scale ACV Capital while managing risk.

The ACV Capital team is expanding its TAM by delivering new value-added offerings to our dealers, including off-platform transactions such as helping them buy vehicles from consumers, creating additional growth levers for our business. Lastly, I'll wrap up the growth section on slide 10 with data service highlights. Market traction for ClearCar remains strong with over 1,600 active rooftops as of Q2. ClearCar service, which enables dealers to provide instant appraisals and offers to consumers in their service lanes, is particularly attractive in the current supply-constrained market. One proof point is our success with a top five dealer group that has deployed ClearCar service at over 150 rooftops. The plan is to expand nationally this year. The ACV MAX team delivered another strong quarter, reflecting the investment we've made to advance its features. Through Q2, bookings were up 50% compared to 2024, driven by a number of large competitive displacements.

Our strategy to bundle data services with ACV wholesale is gaining traction, creating another exciting long-term growth lever for ACV. Again this quarter, we're excited to share feedback from one of our dealer partners, Mercedes Benz of Bakersfield, California, which is using ACV's full suite of offerings. We posted a video on our IR website highlighting the significant value they're deriving from ACV solutions. Next, on Slide 11, I'll address the second element of our strategy to drive long-term shareholder value: innovation. Turning to Slide 12, let's go deeper into how we leverage ACV AI across our products, services, and operations. Using machine learning, we are fusing inspection and dynamic market data to provide pricing for every vehicle in real time within ACV's pricing platform. A great example is ACV Guarantee, one of the fastest growing channels on our marketplace, accounting for over 15% of units sold.

Exiting Q2, our Guarantee sales accelerate better engagement, remove market risk for our sellers, and deliver a 100% conversion rate. We're confident this highly differentiated offering will be another key lever in driving market share gains while maintaining attractive unit economics. We are expanding our competitive edge with AI-driven next generation products like Virtual Lift 2.0 and Project Viper. On Slide 13, we highlight these next generation products in action at one of our dealer partners. We kicked off several pilots in Q2 and feedback has been very positive. Today, our dealer partners have run over 10,000 vehicles through Viper. We're leveraging this data to fine-tune our hardware and software as we expand our pilots over the next few quarters. We believe we're on track for commercial launch for both Project Viper and Virtual Lift 2.0 in 2026. On Slide 14, we highlight another growth lever powered by ACV AI.

Our AI-backed platform is capable of processing trade-ins at scale with repeatable guaranteed pricing in under a second. We're taking pricing and guarantee capabilities on our marketplace and by our e-commerce partners directly. Now to our dealer partners. We currently have five of the top 10 dealership groups in the U.S. leveraging our pricing data to appraise trade-ins and acquire vehicles from consumers. Think of this as pricing-as-a-service, which is another high margin revenue stream to support our growth objectives while expanding our relationship with these major dealer groups. Wrapping up on innovation, let's cover our commercial wholesale strategy on slide 15. With our initial commercial platform nearing completion, we are excited to announce the upcoming opening of our first Greenfield Remarketing Center located in Houston, Texas. Our commercial platform includes capabilities to receive assignments from AutoIMS, conduct commercial inspections, create work orders and repair estimates, and receive consigner approvals.

We will leverage our technology by opening up additional Greenfield locations to address the large commercial TAM, providing another long term growth lever for ACV Auctions Inc. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth at scale.

Thanks George and thank you for joining us today. We are pleased with our Q2 financial performance. Along with record revenue, we delivered meaningful margin expansion and adjusted EBITDA growth, demonstrating the strength of our business model. On slide 17, let's begin with a recap of our second quarter results. Revenue of $194 million grew 21% year over year and was within our guidance range despite challenging market conditions in the back half of the quarter. Adjusted EBITDA of $19 million was at the midpoint of guidance with margin improving 520 basis points year over year. Finally, non-GAAP net income was also at the midpoint of guidance with margin increasing 430 basis points year over year. Next, on slide 18, let's review additional revenue details. Auction and assurance revenue was 57% of total revenue and grew 20% year over year.

This performance reflects 13% unit growth and auction assurance ARPU of $523, which grew 6%. To add some context to unit growth in the quarter, we were pleased with strong listings performance that were in line with our expectations. However, weaker market conditions in the back half of the quarter resulted in lower than expected conversion rates, resulting in an approximate 500 basis point unit growth headwind. Marketplace Services revenue was 39% of total revenue and grew 25% year over year, reflecting record revenue for ACV Transport and ACV Capital. Our SaaS and data services products comprised 4% of total revenue with revenue approximately flat year over year. Next, I'll review Q2 costs on slide 19. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 200 basis points year over year. The improvement was driven by auction and assurance results and by ACV Transport.

Non-GAAP operating expense excluding cost of revenue as a percentage of revenue decreased 300 basis points year over year. These results reflect our ongoing focus on expense discipline as we optimize and scale our business. Moving to slide 20, I'll frame our investment strategy as we drive profitable growth in 2025. We expect OpEx growth of approximately 11% to support our Greenfield Remarketing Center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 500 basis points year over year. Next, I will highlight our strong capital structure on slide 21. We ended Q2 with $305 million in cash, cash equivalents, and marketable securities and $187 million of debt. Note that our cash balance includes $198 million of marketplace float.

In the figure on the right, we highlight our strong operating cash flow for the first half of 2025, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 22, based on elevated trade retention rates observed in late Q2, we now expect that dealer wholesale volumes will be flat to down modestly year over year in 2025. In terms of conversion rates, we were pleased to see trends improve in July, and we currently expect normal seasonal patterns for the balance of the year. Wholesale price appreciation is also expected to follow normal seasonal patterns. As George mentioned earlier, we are trimming our 2025 revenue guidance by $5 million at the midpoint to reflect the ongoing macro cross currents. Revenue is now expected to be in the range of $765 to $775 million, growth of 20% to 22% year over year.

At the midpoint of revenue guidance, we continue to expect market share gains in the mid teens. Consistent with our midterm target model, we are maintaining the midpoint of adjusted EBITDA guidance with a range of $68 to $72 million, reflecting growth of approximately 150% year over year. At the midpoint, we are now expecting non-GAAP OpEx excluding cost of revenue to grow approximately 11% year over year, resulting in a 200 basis point increase in incremental adjusted EBITDA margin versus our previous guidance. For the third quarter, we're expecting revenue in the range of $198 to $203 million, growth of 16% to 18% year over year against a tough comparison in Q3 2024, which had revenue growth of 44%. Adjusted EBITDA is expected to be in the range of $18 to $20 million, reflecting growth of approximately 70% year over year.

With that, let me turn it back to George.

Thanks Bill. Before we take your questions, I will summarize. We are pleased with our strong execution in Q2 and especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace while expanding our addressable market, which positions ACV for attractive growth. As market conditions improve, we are delivering on an exciting product roadmap powered by ACV AI. To further differentiate ACV and drive operating.

Speaker 0

Efficiencies.

Speaker 2

We are focused on achieving substantial adjusted EBITDA growth in 2025 and delivering on our midterm targets that we believe will drive significant shareholder value.

Speaker 0

We are committed to achieving these results.

Speaker 2

While building a world-class team to deliver on our goals, I'll turn the call over to the operator to begin the Q&A.

Speaker 3

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is from Chris Pierce with Needham & Company.

Speaker 0

Okay, good afternoon everyone.

Just kind of parse out from Bill's comments the 500 bp unit growth headwind despite.

Speaker 3

Listings being in line with expectations.

Does that mean dealers opted?

It does mean dealer.

I'm assuming dealers opted to keep these.

Vehicles because they weren't getting the prices we wanted.

Is that what you mean by higher trade retention rates, or is higher trade retention rates something else?

This is.

They're two different things. I just want to confirm the tenant.

Speaker 0

Parse that a little bit. Yeah. Hey Chris. Two separate things, semi related, but let's call them two separate things. One is dealers. When you survey and you talk to dealers right now, they're keeping the higher percentage of cars, keeping more used cars. They need this inventory. We're still overall as an industry, as we spoke about coming into this year, working ourselves from a several million unit gap.

Speaker 2

That broad industry challenge has been going on.

Speaker 0

The specific headwind that Bill referenced on the call regarding conversion rate was more of, I would say, short term, just a few months. Our expectations on what the sell through rate was going to be, the conversion rate of the platform first, what it was. Yes, these two things aren't directly related. Bill, I don't know if you want.

Speaker 2

To add any more.

Yeah, I think just to take you through the math, Chris, just so you understand what we're referencing with the 500 basis point headwind. Our listings were consistent with our expectations and what we bake into our modeling. The difference in actual unit growth was attributable to lower conversion rates than we had initially anticipated and modeled through May and then especially in June. That's the math behind the unit growth versus what our expectation was.

Speaker 0

Your question of combining the two makes sense. Meaning if you're going to keep some of them versus wholesaling them, some % of those lower conversion meant they just kept the vehicle. It's not the whole story, but Chris, that is part of the story.

Speaker 3

Okay.

Lastly for me, can you talk about any competitive dynamics?

Competitive changes in the marketplace you're seeing.

Should we think of this as, you know, 80/20 macro versus competitive or whatever kind of ratio you might?

Speaker 0

I'd love to hear your thoughts there. I think the things we saw in the quarter were pretty much in line with what the industry saw. We get data from NAA Auction and other data, and conversion rates came down the quarter pretty consistently, I would say, for us and the competitors. I would say we probably all thought similar trends where you saw the pull forward, you saw a lot of activity in the beginning of the quarter, you saw a few different macro headwinds all happening. I would say the slight dip in the conversion rate made sense now, because I say that also confidently, that conversion rates did come back up to start this quarter. I think some of that is the market and some of that also could be the things we're doing with our no reserve sale and pushing the guarantee offering.

Chris, we did see the quarter start out stronger from a conversion rate perspective and actually see pretty healthy conversion rate. All good right now.

Speaker 3

Okay.

Appreciate the detail. I'll pass it along.

Our next question is from Bob Lavick with CJS Securities.

Speaker 2

Hi, this is Will Gildea for Bob. Can you discuss the progress on your pricing engine and the benefits to auction liquidity from being able to have guaranteed pricing?

Speaker 0

Yeah, certainly. We're making a lot of great progress. Bill mentioned on the call or I mentioned, one of us mentioned that we exited at around 15%. When you think about that progress, we're really proud of the progress. We're comfortable at the end of the day putting a number on a vehicle that's really, let's call it, give or take, within $75 of what the vehicle sells for. That's incredible. You're talking about a vehicle that could be $5,000, $10,000, $20,000, whatever the vehicle is. Our data set that we've trained, condition-adjusted data set, we've trained from all the inspections we've done and also the direct integrations we have with our dealers' DMS systems through our ACV MAX system. The combination of those two data sets gives us a tremendous competitive edge.

We think our sale, we hear us refer to it, it's a guarantee to the seller, it's no reserve to the buyer. We think this sale is going to grow pretty substantially over the next few years. Obviously, we're going to take our time doing it in a really smart way, but our confidence is going up. Bill, I don't know if there's any more you want to share that we could share at this point.

I would just say in terms of the numbers again, we exited the quarter at about 15% of our unit volume was no reserve. With these guaranteed sales for the full quarter, it worked out to about 11% of volume, which was 200 bps above Q1. We saw an acceleration exiting the quarter and that kind of continued through so far this quarter.

Speaker 2

Thank you. What's next after the price guarantee in terms of new tech and data products?

Speaker 0

We have three of the top five dealer groups either live or in beta, using our data to help them price cars with consumers. Obviously, we have one of the largest marketplace companies in the world, Amazon, using our data set as well. It's becoming a true differentiator. It's a way, when you think about aligning yourselves with the market's key, the market's key focus.

DNA.

Dealers are here to buy cars from consumers, here to price them. Right. We're really nailing this on wholesale. We will move to retail as well. We have in beta today predicting the price of retail, which is also really incredible that with our data set and with the same data science team, we can predict not only what the car is going to sell from wholesale, but we were within last month, $360 prediction within 30 days, what a vehicle sold for, which is really incredible. Think about this data set. It's a way for us to launch new products like no reserve. The no reserve, this guarantee is going to be a, you know, it's going to be a big part of the company.

It also comes in time prior to Project Viper coming live where we'll be able to inspect cars within a dealer service drive, start to put a number automatically in these vehicles and other capabilities that we'll be launching. We're really proud of the efforts thus far. Thank you.

Speaker 2

Thank you.

Speaker 3

Our next question is from Eric James Sheridan with Goldman Sachs Group.

Thanks so much for taking the questions.

Maybe two if I could.

We have gotten a number of questions about the Amazon partnership and how to think about that scaling and delivering volume to the platform. Not sure how much you're willing to say or able to say about how to think about the embedded assumptions about what that looks like over the next couple of years, and just putting a finer point on some of the AI solutions you talked about in the prepared remarks. How should we be thinking about the geographic expansion of those tools and sort of coverage across your market so we can get a better sense again of the travel from point A to point B and think about some of the contributions to growth in the coming years? Thanks so much.

Speaker 0

Yeah, certainly, I'll try to tackle both of those questions, Eric.

Speaker 3

So first.

Speaker 0

The contributions will come as we roll out these solutions this year. Keep in mind, initiatives like Project Viper, to your point, your second part of your question will be very small. I mean, we're not baking in a lot of these new capabilities and these sales. What we're doing with Amazon, we can't predict what they're going to do. You're not going to see us do a forecast. Whether it's Amazon, whether it's Project Viper, whether it's these other new initiatives, you're not seeing us bank on a lot of these things this year. Obviously, as we get closer to the end of this year, we'll think about how much we want to bake in for next year. Right now we're obviously spending the resources.

Speaker 2

It's in our R&D.

Speaker 0

Budget, it's in our spend, but we're not expecting a material contribution this year. I think these are incredible medium to long term benefits that should flow through. I don't think I could really talk much more about direct partnerships, whether it be about the name you mentioned or others. I'm not sure there's any outlet we can share.

Yeah, I would just say this year, frankly, Eric, it's more the case where our P&L is being burdened with the cost to kind of get these platforms scalable going forward, especially Project Viper. With Amazon, we built that platform so it's capable of processing trade-ins at scale. The opportunity is really for growth down the road. Project Viper especially, we're investing in this year and that's baked into our current modeling in terms of our OpEx spend. Really, the opportunity on Project Viper is going to materialize next year in terms of revenue and opportunities to sell this overall solution that plays into the guarantee all things that we have as well. Great. Thank you guys. Thank you.

Speaker 3

Thank you. Our next question is from John Colantuoni with Jefferies LLC.

Yeah, hey, thanks for taking the question. This has been sent on for John at Jefferies LLC. After consistently delivering roughly mid teens outperformance of entry unit volumes for the last couple years, it looks like growth relative to the broader dealer wholesale business may have slowed down a bit in the quarter. You expect a return to mid teens gains going forward. Maybe just help us think about the drivers of the deceleration relative to the broader industry, whether you think they're transitory, and then just help us think a little bit about the contribution from commercial units in 2Q as well.

Speaker 2

Thanks.

Speaker 0

Yeah, certainly, I'll start and then Bill can chime in. First, when you look back at the last several years, looking at these percentages based on a quarterly.

Basis.

We don't believe shows the full picture. We still put up a lot of growth. We look at year over year on an absolute basis. I think when you look at an annual basis it really shows a better picture of, and we did that last year. We did it the year before. We plan on doing that this year too. I think there's no, in our mind, no change in our ability to continue to grow share and to your point, the numbers are getting bigger. The numbers are bigger, so our absolute number does need to grow more. We're not shy about that, but we're pretty confident that with all the things you're hearing about here, our broader array of being able to go to market with these new products, we do think we've got additional growth ahead and really we're not changing our perspective.

Bill, any more on that before I.

No, I would just say again to put things in context, so a few things for the second half of the year. First, keep in mind that the first half of last year the market was down. The second half of last year in Q3 growth was 4% and then 6% in Q4. The compares are a bit different, but the context is we're assuming that the market for the full year ends up being flat to slightly down because of all these potential cross winds that are out there.

Right.

Hopefully things are better and will perform better. Right now that's our baseline assumption, and that sort of gets us back to kind of the mid-teens in terms of the math. Right. Just to make sure you guys understand the way the math works and what we've modeled and what's therefore baked into our guidance, understanding, of course, again, as I said on our prepared remarks, that we're maintaining the same midpoint of adjusted EBITDA, so we're actually generating higher incremental margins based on the revenue guidance that we provided for the second half and the full year. That was just some context, if you want to say anything else.

I think he covered it.

Any other questions?

Commercial contribution.

Oh, commercial, that's right.

Speaker 2

Thanks, Tim.

Speaker 0

Yeah, on commercial, we're still very early. Our wins of the quarter is we just got our software done for our new platform. We did sell our first car. It is something to celebrate, not something to go in the earnings script per se, but we sold our first car at our Greenfield Remarketing Center location at Houston, Texas, which was like a practice run. It worked. Everything worked. We reconditioning and everything went back and forth. We also sold our first car in our new software that didn't require a Greenfield Remarketing Center.

So both.

Both trials went in place during the quarter. We're ready to go live very soon. The team's working on live dates for both Houston, Texas and the ability to start taking a vehicle that's not at one of our locations and still do the, with our recon estimates, decide whether or not we're the right remarketing channel for it or not. Think more like an upstream commercial. Really proud of what we achieved the quarter. It was more software than anything else. It's always great to sell that first car on a new tech platform. I would call it in the process of going live as we speak.

Speaker 2

Got it.

Thanks so much.

Speaker 0

Thank you.

Speaker 3

Our next question is from Rajat Gupta with JPMorgan Chase & Co.

Great. Thank you for the questions, George. Bill had a little bit of a philosophical question. You've obviously done a tremendous job, you know, historically managing EBITDA. Even though growth has fluctuated a lot, like on a quarterly basis, share has fluctuated quite a bit. You talked about some of these software development all gaining traction. I'm curious, is this a resource allocation decision every quarter where it looks like sales and marketing expense came down a lot this quarter, but you made all this progress on the software side. I'm curious, is this like a more concerning decision around to take this approach? You know, would you consider like investing more on like boots on the ground sales and marketing to maybe accelerate share, you know, even if, even if it could come at the loss of some EBITDA in the near term.

Just curious, like how you're thinking about this or the focus totally on managing, like your guidance on the dollars and EBITDA.

Speaker 0

I have a quick follow-up.

Speaker 3

Thanks.

Speaker 0

Yeah, right. I think in a way your summary also was a good representation of how we're thinking about, like, first and foremost, we've always protected in our annual budget a pretty significant product and technology spend. Think about that as core because at the end of the day, obviously, we have to get through these quarter by quarter calls. Five years from now, 10 years from now, we're going to talk about ACV Auctions Inc. being the global way cars are priced and sold. We're going to talk about ACV, you know, sort of like how we think about Kleenex today, right? Like, what's the ACV on a vehicle? What's the actual cash value? That's how we're going to think about the brand. We'll never get there if we don't invest in the product and tech. Look at it as we approach our budget.

We never lose sight of that. At the end of the day, we're building the tech stack here that's going to create less friction in the marketplace, wherever the vehicle is—upstream, the consumer's driveway, at a Greenfield Remarketing Center location for a bank, wherever the vehicle is, first and foremost in the U.S., eventually globally. That part of the budget, it's worth, we're spending at least X, and if we do well, we might even spend a little more. We have our first order of bit from an R&D perspective. The next part is inspectors. We never ever will allow our budgeting or adjusted EBITDA quarter by quarter to affect hiring inspectors.

Because to your point of boots on.

The ground, it's important everyone here knows that hiring inspectors is a core part. At times you need a little bit more in one location, a little less in another location. The team won't hold back. As soon as we need more, we need actually right now about 30 more inspectors across the country. My last readout, I saw that those 30 inspectors we need are in the process of being hired wherever they are in that process. It just happens. It's like, it kind of, we don't really look at it as it relates to EBITDA. It's there, but it's its own machine. I would say, generally, broadly, sales are, yeah, we have a lot of sales teams. I don't think we need boots on the ground for sales selling any more than we have today.

We've got well over, you know, well over 100, I think it's somewhere around 150ish teammates out in the field. We have another team of like 20 or 20, so that are majors and strategics, and we have another team. Raja, we've got a really healthy size sales team that's already kind of built into the budget. Hopefully that kind of gives you how we think about prioritization. Go ahead, Bill.

Yeah, and then I would just add, Rajat, you know, look, we're still a relatively young company and we're still maturing a lot internally and operationally. We know that over time, in order to hit our financial targets, we need to continue to just optimize operationally. That's kind of a daily and weekly process. We're always looking at ways that we can optimize and streamline the way we operate internally, and that's frankly probably never going to change. Continuing to leverage technology, not just in terms of the products that we offer our customers, but also how we can leverage technology internally from an operational standpoint, is important. What you're seeing is just the continual effort to continue to do that. To George Chamoun's point, we're really not looking to sacrifice the investments that we need to make to drive future growth on the product and tech side.

Because at the end of the day.

That's really our core DNA, product and technology, and how do we leverage, invest in order to drive more value for our customers and continue to drive growth.

Understood. Thanks for the answer there. Just on your market outlook commentary, it’s like July was another decent month for the industry. It does imply a pretty material slowing in the remaining five months. Curious, is it just primarily tariffs related and the impact it might have on new car sales? Is there some assumption around worsening wholesale to trade ratio? I’m just curious what’s guiding that outlook or material worsening in outlook here. Thanks.

Yeah. Rashad, as you know, July was strong. It was strong from retail, was strong from wholesale. It was a good, it was a really good month. We also saw in the prior quarter what happens when there's a little bit of a pull forward, right, where you got one strong month and then you kind of have a few months after that that aren't as strong. I'll answer by saying this way. We've been reading your reports and you don't seem so bullish. I'm half period, not joking. You do have a lot of data on this and yes, we've read it all, but there's quite a few analysts out there and when you speak to the dealers themselves, you're not hearing the most bullish back of the year. It's a tougher compare when you got the tougher compare and also not as much bullishness going on.

That's why we're trying to be thoughtful. Bill, anybody want to add to that?

Yeah, I mean, what I would add is as, you know, trade retention rates are pretty key in terms of the wholesale market. What we did see is data that supported the fact that in Q2, trade retention rates increased about 300 bps year on year. Earlier in the year versus early in the year rather than the potential trend, and we'll have to wait and see how this plays out, is dealers could be keeping more trades for retail purposes in the event that consumers shift their buying preferences depending upon what happens with tariffs and how it affects new car pricing. Therefore, potentially there could be more demand and potentially higher pricing for used cars.

There's just a lot of puts and takes here, and we're just trying to do our best to try to handicap this and be prudent in terms of how the second half could play out. To George's point, you've probably been studying this more than we have. We've been reading a lot of your material, so you might have more perspective than we do, but that's the basis for our modeling.

I understood. Fair enough. Thanks for all the color and good luck.

Thank you.

Speaker 3

Our next question is from Ron Jose with Citigroup Inc. Hi George.

Speaker 2

Bill, Jamesmichael, and for Ron here, two questions please. First, given the challenging macro, curious how dealer conversations around your value prop have evolved over the last 12 months, particularly regarding appetite for cross sell and have a sell of offerings like ACV MAX. Second, on ClearCar specifically with its 1,600 active roofs, can you update.

Speaker 0

Us on the go to market.

Speaker 2

The success you're seeing in supply-constrained markets.

Thank you.

Speaker 0

Yeah, certainly, we mentioned in the prepared remarks that we had one of our best bookings yet for ACV MAX. Granted, it's a smaller revenue stream for us, so I don't want to oversell it, but it's great to still break records. We brought on more dealers, as we mentioned to you, both ClearCar and MAX. We're really not, we're focused on selling these things at a reasonable rate to dealers. More of our focus is on long term differentiation on the wholesale side. We tend to approach these products as a partnership where we're giving MAX and ClearCar for really extremely low prices at times to create that partnership. If we help them buy more cars from consumers, help them price it right, become their long term wholesale partner, it's really a win-win for both us and our dealer partners. Record bookings for MAX, ClearCar is making great strides.

I'll dive in a little bit more. Probably the most recent trends have been the biggest success they've had are buying cars out of their service drive, which I think getting dealers to buy more cars from their website is still going to take us more months and more work to really help them do the right marketing, get to the consumer. Just kind of look at this in phases. It's like a phase one, phase two. Phase one, they already have consumers coming. They're there to change their oil, they're there to rotate their tires. We have some dealers buying three to five cars a day right out of their service drive.

Now, trade retention wise, they're keeping a higher % of those, a lot of them, but in time as they kind of get their inventory to be right, it will mean we will eventually get back to historical wholesale trade ratios. So far so good. That's going really, really well. We are about to take our guarantee offering and combine it as a feature with both ClearCar and MAX. We are just about to launch that, so think about that's probably more like Q4, Q1. It's definitely in beta right now. More to come. We're helping these dealers, we're helping them put the right price in cars, and it gives us a differentiator and really a longer term partnership outlook with these dealers.

Any other questions?

Speaker 3

Our next question is from Alex Potter with Piper Sandler & Co.

Speaker 2

Perfect.

Speaker 0

Thanks very much, guys. I hate to beat on this revenue guidance thing because it was a relatively minor adjustment at the end of the day, but just to put a finer point on this. Primarily, what you're talking about here is market-wide changes to your own expectations. You've got these puts and takes with conversion rates and things like this. There's nothing fundamentally changing with regard to your own market share or competitive dynamic or anything like that. This is purely just a reassessment of the way the market is functioning. Is that correct?

Yeah. Hey Alex. Yes, it is. If you remember coming into the year, we said we were assuming that the market could be flat, which meant it could be up a little bit, could be down a little bit. Now our assessment is at least for the full year, the market potentially is going to be flat to down and we'll see.

How that actually plays out.

That's what we assumed based on just some of the trends that we were seeing, especially exiting Q2, where again, there's all these cross currents and macro signals that are kind of pointing in different directions. There's a lot of uncertainty on tariffs. I just talked earlier about how trade retention rates were up 300 bps in Q2. We kind of plug all that in and our conclusion was, you know what, we should probably be a little more conservative in terms of what the back end is going to look like and therefore the full year while we're still able to maintain our EBITDA guidance, which was kind of meeting our commitment to investors. I wouldn't say that there's anything more than that. We're pretty excited about all the things that we've been doing.

We talked about the guaranteed sales, we talk about Project Viper, launching our first Greenfield Remarketing Center, which as George mentioned, we're testing the software. So far so good. There are a lot of reasons for us to be excited about the future, but we're just trying to level set a little bit and be a little more conservative for the second half. That's why it's just a small trim in terms of adjusting the midpoint down revenue by $5 million. Perfect. That's very helpful.

Maybe one other question, I think earlier, Rajat, I think mentioned sort of dialing up OpEx spend as a way to, or dialing it down as a way to manage EBITDA. Pricing is another lever that you guys have historically had sort of in your back pocket. What's the outlook just based on, you know, the fees that you're charging for auctions, you know, what's the outlook there, what's the recent trend and any ability to, or intention, I guess to take price at all in the coming several months or quarters. Thanks. Yeah, listen, we're always looking at this, you know, on the supply side we basically reduce the price if we get volume. That's how we handle the supply side commitments to our sellers. I think we've been doing that since 2016. Give us more cars, we charge you less. It's pretty simple.

On the buy side, we've got an array of features. The opportunity here isn't just buy fees.

Like you've seen us historically.

It's also adding new products where buyers can get additional assurance and other capabilities.

Which we're starting to get a little.

Bit of take for these newer offerings. We're always dialing in here and trying to find that right balance of the right product mix and the right assurance. We do have some more room. Our fees are still a bit lower than the traditional physical auctions, but we're always looking at it. We don't have any timing expectations to talk about today.

That is not baked into our guidance. There is going to be, call it, a 5% or 6% increase in ARPU just based on the buy fee increase that we passed through earlier this year. Other than that, we didn't assume any other fee increases per se in.

Our model for the take of some of these assurance products and other things that we're saying. Right. That's, yeah, yeah. Okay, perfect. Thank you very much, guys.

Sir.

Speaker 2

Sure.

Speaker 3

Our next question is from Naved Khan with B. Riley Securities.

Thank you very much.

Speaker 0

Hey guys.

Just last year you did a couple of, well, more than.

A couple, I think.

A few stuck in acquisitions and I'm.

Wondering what the growth rate looks like.

If we strip out the ones that were acquired in the back half of last year, what the organic growth would be.

Be, and then just on the sort of commercial traffic and the build out of physical.

Are you seeing more opportunities?

To acquire some locations around the country?

How are you thinking about it for this year?

Thank you. I'll handle the first part. I don't see what I comment on the second part. Yeah, we did an acquisition last year. It was a location that was primarily a commercial location in Indiana. If we look at the impact on the dealer unit growth, it added about 1% to the dealer unit growth in the quarter. That was from that acquisition. All the other acquisitions were prior to Q2 of last year. That was the only one that affected organic versus inorganic growth.

Your second question. We're always here to talk to the owners of the current options, and if so, we're always willing to get into active engagement. Our focus has been a little bit more on these Greenfield Remarketing Centers. We're really excited about this, our first one going live in Houston, Texas. We'll have our second one go live early next year sometime.

Speaker 2

We'll come back and tell you.

Speaker 0

Location of that one. We're already at the contracting phase for that one. We're feeling really good about this strategy. I'm not ready to give you a ramping of that yet, but when you think about our 40 locations we said we'd like to have, we haven't yet given you how many that will be M&A versus greenfields. As we get a little bit more confident on the greenfield side, we'll update you all more as we see how fast we can grow these greenfield locations. We will have multiple growth lever opportunities here. In addition, we can also look at M&A in certain geos. There are some great little business out there that we'd love for them to be part of the ACV family at the right price. We shall see. At the end of the day, we're going to really bank on the greenfields, our core strategy.

If we happen to have some M&A opportunities come along the way, great. More of a focus on greenfields.

Just a reminder with greenfields, we would have some OpEx up front, but the total capital consumption obviously would be dramatically lower for those cases where we can launch a greenfield instead of acquiring an option. George said we're kind of open to both, but greenfield certainly potentially offer a much more efficient way to grow our business. We'll see how the first one goes. We have already publicly said that we have a second greenfield that will be launching in Q1 of next year with a location to be announced.

Thank you.

Speaker 3

Thank you, George.

Speaker 0

Thank you.

Speaker 3

Our next question is from George Josh Beck with Raymond James & Associates.

Thank you for taking the question. This is a little bit more of a go forward look. It's early, so I totally appreciate the caveats and the like, but it seems like for 2025, the visibility has probably gone down a little bit with the slight kind of reduction in the market growth from flat to flat to down. It sounds very conversion and retention, not really listed oriented. It also seems like things are just kind of somewhat hot and cool by the month because of the macro. I guess when you start to think about 2026, it's obviously too early for that. What are going to be some of the key milestones that you're looking for as we close out this year to help kind of better inform maybe what 2026 could look like from a market point of view.

I think at the end of the.

Speaker 0

Day, obviously we all want consistency.

But.

I think we're seeing dealers, at the end of the day, they're buying more vehicles, they're not going to be as reliant on just trades. We're seeing a lot happen at once. We're seeing the OEMs parse out all this tariff stuff, and really we're seeing OEMs focus on moving products. I think at the end of the day what we all want to see is we want to see new cars continue to be developed, kind of get through these pretty significant pull forward and then drag type situations we've seen, get through that. Meanwhile, what we'll see is off lease will start to come back in 2026. Used car inventory will start to come back in 2026. It does feel like 2026 should be a much healthier time for us, for the whole industry, not just ACV Auctions, but the whole industry.

Bill, you want to chime in some more?

Yeah. I would say there's two other variables for us all to think about. Hopefully by the time we get into 2026, all these tariffs and trade deals are behind us, which will certainly eliminate a lot of uncertainty that a lot of dealers and even consumers are dealing with. That would certainly provide a lot of stability. Hopefully interest rates will also come down, which would improve consumer affordability, which I think would just kind of raise all boats and help us and everybody in our industry. I think it's a, hopefully it's a safe bet that the tariffs will be behind us by then. It certainly seems that way, it's going in the right direction at least.

Interest rates, we'll see what the Fed does, but at least there seems to be an increased consensus out there that the Fed will start reducing rates and what the rate will be, who.

Knows and how often.

If they start reducing rates further, it'll move us in the right direction.

Okay, that's super helpful. I think, Bill, maybe going back to some of your earlier comments about you being a relatively young company and there are still opportunities to unlock operational efficiency. It certainly seems like that's an area you're excited about.

Is there a short.

List of a couple of initiatives that really kind of rise to the top? Is it maybe more related to the adoption of some of these newer initiatives that would help usher that in? Just any other talking points there that we should be considering?

I can't give you anything specific. I would just say in general, we're always looking across the company for operational efficiencies and everything that we do. It's hard for me to call out one thing specifically. We've got now 3,000 employees. We've got a pretty big company and growing. I don't want to be specific at this point. As things kind of play out over time, we can talk specifics. We will in the future.

I would say no different than any other larger scale company.

Speaker 2

We're using data to help us understand.

Speaker 0

Where are we efficient, where are we not, where are opportunities to grow? As we all see AI mature, we're really starting to see how can we actually increase our customer satisfaction by getting back to customers faster. Not always need a phone call or could be a text. It could be faster ways to get back. We're looking at it across the whole business. We're looking at ways for dealers to be, you know, they want to move forward and have a self service faster, they can do it. As Bill mentioned, there's not one thing, there's not like one area of the business where we're both improving our customer satisfaction and also making ourselves more efficient. It's more built. It's built into our DNA, built into how we're capturing our data, built into how we really look at the entire business. Super helpful.

Thank you, guys.

Thank you.

Speaker 3

Thank you. This concludes our question and answer session. I would like to hand the floor back over to Tim Fox for any closing comments.

Speaker 2

Thank you, Paul.

We appreciate everybody joining us this afternoon.

Speaker 3

Thank you for your interest in ACV Auctions Inc. and I hope everyone has a great evening. I look forward to hopefully seeing you on the conference circuit this quarter again.

Speaker 0

Bye now.

Speaker 3

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.