ACV Auctions - Q3 2024
November 7, 2024
Transcript
Operator (participant)
Good day, everyone, and welcome to today's ACV Q3 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note, this call is being recorded. Lastly, if you should require operator assistance during your conference today, please press star zero. It is now my pleasure to turn the conference over to Vice President of Investor Relations, Tim Fox. Please go ahead.
Tim Fox (VP of Investor Relations)
Good afternoon, and thank you for joining ACV's conference call to discuss our Q3 2024 financial results. With me on the call today are George Chamoun, Chief Executive Officer, and Bill Zerella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found on our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and Non-GAAP financial measures.
A reconciliation of GAAP to Non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. And with that, let me turn the call over to George.
George Chamoun (CEO)
Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We're very pleased with our Q3 performance. We delivered another quarter of record revenue and Adjusted EBITDA, both exceeding the high end of guidance. The ACV team drove strong market share gains in our core dealer wholesale business, along with record performance for ACV Transport and Capital. Our growing suite of dealer solutions continued to gain market traction, and we progressed on our tech roadmap to address the commercial wholesale market. Based on our strong Q3 performance, we are raising full-year guidance, reflecting our commitment to drive top-line growth, expand margins, and deliver our first year of Adjusted EBITDA profitability. 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 Q3 results on slide four. Revenue of $171 million grew 44% year-over-year.
We sold 198,000 vehicles, a year-over-year increase of 32%, reflecting strong listings growth and conversion rates, as well as solid execution across our remarketing centers. GMV increased 17% year-over-year, driven by strong unit growth, which more than offset a 12% decline in GMV per unit. Next, on slide five, today's discussion will focus on the three pillars of our strategy to maximize long-term shareholder value: growth, innovation, and scale. I'll begin with growth. Turning to slide seven, I'll start with observations about the automotive market as context for dealer wholesale volumes. On the retail front, sales were fairly muted in Q3. New retail sales increased 1% year-over- year, while used retail sales were flat. Importantly, new vehicle inventories have recovered to historical levels, and OEMs are increasing incentives, which should support retail sales returning to more normalized levels in the near future.
In terms of used vehicles, inventories have started to recover from the 2023 historical lows. However, they remain 25% below normal exiting the quarter. Used vehicle shortages continue to be a material headwind for the dealer wholesale market, as dealers retain a higher percentage of trades for retail. However, we did see another modest uptick in the trade-to-wholesale mix in Q3, and we expect the mix to normalize over the next few years as used vehicle inventory recovers. As expected, wholesale price depreciation returned to more normalized patterns in Q3. Conversion rates were strong and above historical Q3 averages, driven in part by favorable market conditions and from our innovative marketplace investments driving dealer engagement. On balance, we're encouraged to see pockets of improvement within the broader automotive market. Moving to slide eight, let's cover highlights on our value-added services, beginning with ACV Transportation.
The transportation team delivered record revenue in Q3 with 108,000 deliveries in the quarter. AI-optimized pricing achieved 95% lane coverage again last quarter. By leveraging AI, our team delivered 27% volume growth while driving operating efficiency. Revenue margin of 20% was also a record, expanding 170 basis points year-over-year and exceeding our mid-term target of high-teens margins. Lastly, our off-platform transportation service is gaining traction with our dealer partners. We're in early stages but excited to deliver new value-added services that create long-term growth, accelerate network densities, and deepen carrier relationships. Turning to slide nine, the ACV Capital team again delivered solid growth while managing risk in an environment that continues to be challenging for independent dealers. As we highlighted last quarter, the Capital team is piloting a new offering that provides financing for consumer-source vehicles and dealer trade-ins that are sold retail or wholesale on ACV's marketplace.
We are uniquely positioned to bundle ClearCar with ACV Capital to support dealer-sourcing strategies. We look forward to updating you on this new offering in the coming quarters. Next, I'll address the second element of our strategy to drive long-term shareholder value: innovation. Turning to slide 11, our investments and marketplace engagement continue to pay dividends. As I mentioned earlier, Q3 conversion rates were strong. Along with favorable market conditions, conversion rates benefited from features like advanced search, vehicle merchandising, AI-enabled pricing, and flexible auction formats, which deliver a best-in-class buying experience on our marketplace. Our commercial tech investments are progressing well. Recall that our initial focus is integrating with AutoIMS and delivering marketplace enhancements to support commercial consignors. Furthermore, these key initiatives will support platform standardization across our remarketing centers.
The new ACV MAX suite continues to gain traction in the market, including a recent win of a regional Texas dealer group and a growing pipeline of new prospects. MAX is proving to be a valuable solution to create cross-sell opportunities for ACV's core wholesale offering. We're excited to roll out new bundled offerings that focus on both expanding the ACV MAX footprint while driving additional wholesale market share. Our objective is to align the interests of our dealer partners and ACV. Finally, in the dealer self-inspection category, demand for ACV's vehicle appraisal technology is growing across a number of use cases. Dealers are appraising trades, vehicles sourced through digital channels, and making offers to consumers in their service drives. Across these use cases, accurate pricing is the critical success factor.
Our appraisal solutions incorporate AI imaging for damage detection and real-time localized pricing that is condition-enhanced based on millions of inspections in our data moat. It's still early days in this category, but we believe self-inspection can unlock a number of long-term growth opportunities, including TAM expansion. Let's turn to slide 12 to highlight one of our fastest-growing consumer self-inspection solutions, ClearCar. Market traction of ClearCar remains strong, and our team is targeting to have over 1,000 dealers live by year-end. ClearCar provides us with another avenue to grow wholesale wallet share and deepen our strategic partnership across their retail and wholesale operations. And like ACV MAX, ClearCar is also driving new customer acquisition, including some of the largest dealer groups in the country. Our teams will be working to grow wholesale wallet share with these new dealer partners over time.
Again, this quarter, we're excited to share feedback from one of our dealer partners, Kearny Mesa, the number one Volkswagen dealership in San Diego, which is using ClearCar and our marketplace. We posted a video on our IR website featuring their team describing the significant value they're deriving from ACV solutions. It's another great opportunity to hear directly from a dealer partner. To wrap up on innovation, ACV is delivering industry-leading technology to our dealer partners and to our own operations, driving both growth and scale. We look forward to sharing more progress with you next quarter. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth and scale.
Thanks, George, and thank you for joining us today. We are very pleased with our Q3 financial performance. Along with accelerated revenue growth, we delivered meaningful margin expansion and strong custody of growth, demonstrating the strength of our business model. On slide 14, let's begin with a recap of our Q3 results. Revenue of $171 million was well above the high end of our guidance range. Approximately 10% of revenue in the quarter came from acquisitions, which was in line with our expectations. So the overperformance was driven by strong organic growth. Adjusted EBITDA of $11 million was $3 million, or 38% above the high end of our guidance range. And adjusted EBITDA margin improved nearly 1,000 basis points versus Q3 2023. The upside was driven by strong high-margin auction and assurance revenues and by operating leverage.
Finally, non-GAAP net income was also meaningfully above the high end of guidance, with margin increasing approximately 800 basis points year-over-year. Next, on slide 15, let's review additional revenue details. Auction and assurance revenue was 59% of total revenue and grew 52% year-over-year. This performance reflects 32% year-over-year unit growth and auction and assurance RPU of $506, which grew 15% year-over-year. Note that approximately 10% of Q3 units came from acquisitions. So we delivered strong organic unit growth, underscoring our share gains in a market that grew in the low single digits. Marketplace services revenue was 37% of total revenue and grew 39% year-over-year, reflecting record revenue for both ACV Transport and Capital. Our SaaS and data services products comprised 5% of total revenue, with growth once again in positive territory. Next, on slide 16, I'll review costs in the quarter.
Q3 cost of revenue, as a percentage of revenue, decreased approximately 400 basis points year-over-year. The improvement was driven by auction and assurance results and by ACV Transport. Non-GAAP operating expenses, excluding cost of revenue, as a percentage of revenue, decreased 700 basis points year-over-year. These results reflect our focus on expense discipline as we optimize and scale our business. Moving to slide 17, I'll frame our investment strategy as we drive profitable growth. Our focus on spending discipline and operating efficiency resulted in a decrease in OpEx growth in 2023, yielding a significant improvement in Adjusted EBITDA. In 2024, we continue to expect OpEx growth to increase year-over-year as we execute on our remarketing center strategy and commercial platform investments. Even with these investments, Adjusted EBITDA margin is expected to increase by approximately 800 basis points year-over-year.
Next, I will highlight our strong capital structure on slide 18. We ended Q3 with $288 million in cash and cash equivalents and marketable securities and $115 million in debt. Our Q3 cash balance includes $177 million of float in our auction business. The amount of float on our balance sheet fluctuates meaningfully based on business trends in the final two weeks of each quarter, which has a corresponding impact on operating cash flow. In the figure on the right, we highlight our strong year-to-date operating cash flow of $69 million. Note that even when excluding the change in marketplace float, year-to-date operating cash flow increased $34 million year-over-year. The significant improvement reflects our transition to positive Adjusted EBITDA and strong margin expansion. Now, turning to guidance on slide 19.
For the fourth quarter, we're expecting revenue in the range of $152 million-$156 million, growth of 28%-32% year-over-year. Adjusted EBITDA is expected to be in the range of $2 million-$4 million, consistent with our commitment to achieving positive adjusted EBITDA each quarter going forward. Note that our fourth quarter guidance reflects the impact of the recent hurricanes in our southeastern regions. We estimate a negative impact of approximately $2 million in revenue and $1 million in adjusted EBITDA. For the full year, we are raising our revenue and adjusted EBITDA guidance. Revenue is now expected to be in the range of $630 million-$634 million, growth of 31%-32% year-over-year. Note that we expect acquisitions to account for approximately a high single-digit percentage of full-year revenue.
Adjusted EBITDA is now expected to be in the range of $25 million-$27 million. As it relates to guidance, we are assuming that dealer wholesale volumes will be approximately flat year-over-year for 2024. We expect conversion rates and wholesale price depreciation to follow normal seasonal patterns. We also continue to expect revenue growth to exceed non-GAAP OpEx growth, excluding cost of revenue and depreciation and amortization, by approximately 10 percentage points. And finally, moving to slide 20, we remain committed to achieving our midterm target model. Our targets are underpinned by sustaining market share gains, penetrating adjacent markets, and expanding margins through revenue mix and scale, all of which we've clearly demonstrated in our performance. Our midterm targets are primarily predicated on the dealer wholesale market recovering to historical volumes over time.
But in addition, we are expanding our TAM and consistently taking share, which will drive long-term growth. And with that, let me turn it back to George.
Thanks, Bill. Before we take your questions, I will summarize. We are very pleased with our strong execution in Q3. We are especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace while expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product roadmap to further differentiate ACV and drive operating efficiencies. We are on track to achieve our 2024 Adjusted EBITDA targets and deliver on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A.
Operator (participant)
Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. And we will pause for a moment to allow questions to queue. And we will take our first question from Chris Pierce with Needham. Please go ahead.
Chris Pierce (Senior Analyst)
Hey, good evening, guys.
George Chamoun (CEO)
Hey, Chris.
Chris Pierce (Senior Analyst)
I had a question on the metrics. If I look at the metrics and Bill, you sort of reiterated on the call, the $506 in auction and assurance RPU, over time, more of it seems to be coming from auction versus the assurance side on a per vehicle basis. But I just want to know the right way to think about that, if that's something intentional or if that's not something we should read into. I just want to kind of better understand that.
Bill Zerella (CFO)
Combined. Hey, Chris. It's Bill. So, I wouldn't really read anything into that. Again, think of auction and assurance revenue combined, not segregated, because, again, the GAAP accounting can distort some of the trends.
Chris Pierce (Senior Analyst)
Okay. Perfect. And then on the, if we think about some of the larger players like the Carvana or other, what does your business look like as someone that has their own wholesale side of the world, runs their own wholesale auctions, grows retail share, just thinking longer term here?
George Chamoun (CEO)
So Chris, can you repeat that question, George? I just want to understand what.
Chris Pierce (Senior Analyst)
Yeah. Yeah. Like what happens if we talk about independent dealers and consolidation within dealers? What happens if larger players like a Carvana, as they grow share, what happens? Because at that point, you have these larger players that run their own wholesale auctions. I just kind of want to think about what's the right way to think about your business if that kind of possibility plays out.
Bill Zerella (CFO)
Yeah. No, sorry. So yeah, I believe today Carvana has around 1% market share, if I remember correctly. And when you think about the 16,500 franchise dealer rooftops in incredible locations across the country, and then the 30,000-plus independent dealers across the country, all those dealers need to compete. And they need solutions. They need solutions to buy cars from consumers. They need appraisal solutions. They will all need machine learning and artificial intelligence to help them drive their businesses. So look at, we are building the technology that empowers all these dealers to really compete against the Carvana and the other big box players. So I think that's the way to think about this. It's a really important category. And our dealers have some of the most incredible real estate and incredible brands across the U.S.
We think they could be buying a lot more cars from consumers and selling more used cars. We're going to help them get that inventory.
Chris Pierce (Senior Analyst)
Okay. Thank you.
Certainly. Thank you.
Operator (participant)
Thank you, and we will take our next question from Nick Jones of Citizens JMP. Please go ahead.
Hey, Nick.
Nick Jones (Managing Director of Internet Equity Research)
Great. Thanks for, hey, George, hey, Bill, hey, guys. Could you kind of remind us how you're thinking about just pricing broadly? I know there's some levers if depreciation picks up, you have some room to take price up. But as we kind of look at the industry and we can kind of see competitors seem to be taking price up each year, maybe a little bit ahead of inflation, philosophically, how do you think about tracking that? Are you at a level that kind of makes sense for you around $500, give or take? Or how should we think about how you may kind of track competitors from a pricing perspective? And then I have a follow-up.
George Chamoun (CEO)
Yeah, certainly. So first, we've made great progress on closing the gap on our buy fees, as you know. We were significantly under market. And we did that without really any impact on our ability to continue to gain share. So very pleased with how we've done it. A little at a time each year. We were very careful on doing the right things for our dealer partners, but really getting our pricing to more of a competitive level. So really ecstatic with the way our team prepared to make those changes. We probably have a little bit more room on that sort of headroom, but we'd rather keep you all thinking around that $5, I'm sorry, $500. $5, we went the wrong way. $500 as we set out for the midterm target.
Just to remind you, our sell side, our dealers on the sell side do get price discounts with volume. As we continue to grow volume, some of our sellers, and that's already part of our mix, but we'd like for you all to be thinking still in that $500 for now until we guide you all otherwise.
Nick Jones (Managing Director of Internet Equity Research)
Got it. $5 would be a pretty good deal. As we think about kind of the midterm targets, I guess, could you speak to, I guess, kind of maybe some debates as to what's going to happen with interest rates post the election? I mean, any challenges in kind of getting to a more normalized market if rates stay higher? Do you think we're kind of on a path to a normalized market kind of one way or the other over the next few years? Just any thoughts on kind of the industry post-election and maybe the debate around the rate environment? Thanks.
George Chamoun (CEO)
Yeah, certainly. So obviously, what we've seen is we've seen new cars. We're starting to see incentives. We're starting to see interest rates playing to the way new car dealers are pricing their vehicles. And the more incentives on the new will help. I think we will consistently, between now and the end of next year, see new cars have more and more incentives. So if we kind of look at that as one area that there's different folks who are thinking about next year from a new perspective. You're seeing a few different folks report that new could be off a little bit next year.
When you think about how that relates to dealer wholesale, really one way to think about next year is that some of the industry folks like NAAA and AuctionNet think that dealer wholesale could be sort of. I would read into what they're saying is sort of flattish. And why do I say that? Is you're still going to have a lack of used cars. So if I had to, at least from now, say, okay, when will we have a true tailwind? I think a true tailwind may be going into 2026. But I feel like next year, I'm at least thinking about next year sort of flattish from a market perspective.
But hopefully, with all the other things you just mentioned, lower interest rates, other things, we could all have a little bit more enthusiasm than that, more to come between now and when we talk more about next year.
Nick Jones (Managing Director of Internet Equity Research)
Thanks, George.
Operator (participant)
Thank you. We will take our next question from Bob Labick with CJS Securities. Please go ahead.
Bob Labick (President)
Good afternoon.
Bill Zerella (CFO)
Hey, Bob. Taking the questions. Hey, great job on the quarter. Nice upside on the volume in particular. So as I look at it, it seems like, and I know this is my rough math, but it seems like quarterly volume, the organic growth accelerated versus the first half. And if that is true, what are the key drivers? What's kind of the incremental organic growth from the quarter versus an already strong first half?
Hey, yeah. Okay. All right. I'll start. Hey, Bob. It's Bill. So yeah, so the upside was certainly driven by the organic growth of our business. Our remarketing centers were pretty much on track based on what we forecasted. And that was really driven by several factors. So number one, just continued share gains. Number two, we had better-than-expected conversion rates for the quarter. And we had really great performance in terms of our marketplace services offering. So those combined really drove the highest organic growth that we've seen, frankly, in several years. So we're really, really pleased with that performance. And we've seen that continue so far early into Q4. However, we're obviously baking in kind of seasonality for the rest of the quarter in our guidance.
Bob Labick (President)
Right. No, it makes sense, the seasonality in Q4 versus Q3 if you just look back for every year. Great. And then just one other for me. Obviously, we just talked about the accelerating organic, which is great. But you also have made these acquisitions to advance in commercial. What have you learned so far? I know you guys are kind of like, do, learn, observe, tweak it, and then move on. So what have you learned so far, and how does it affect your future acquisitions into commercial or reconditioning centers? How should we think about 2025 and beyond?
Bill Zerella (CFO)
Yeah. Thanks, Bob. So to your point first, we're learning a lot. We've got some great locations for our commercial consignors where it's really enabling us to both work with the consignors, learn the technology they'd like to see in place. You'll see us talk more about how we're going to implement our inspection technologies at these locations early next year. You'll hear us talk about that more. You'll hear us talk about how we're combining some of our back-end office systems and other capabilities. And so when you really think about the technology that we're building to help these commercial consignors, it's going to help them make the right decisions. So when a car shows up, should they be reconditioning that vehicle or not? How much should they be spending on reconditioning? And I think we're really going to have some breakthroughs over the next year or two.
Now, having said that, we're still early stages. A little over 5% of our current volume right now is commercial. So I don't want to get ahead of ourselves just yet. Next year, we'll still be investing in that product and technology required. But when I think about this in out years, commercial could become a very meaningful part of our overall volume.
Bob Labick (President)
Okay. Super. Thanks so much.
Bill Zerella (CFO)
Thank you.
Operator (participant)
Thank you. And we will take our next question from Rajat Gupta with JPMorgan. Please go ahead.
Bill Zerella (CFO)
Hey, Rajat.
Rajat Gupta (Research Analyst)
Hey. Hey. Thanks, George, Bill, Tim. Yeah. Congrats on a good quarter here. I just wanted to ask about the framework around incremental margins. We know you're going through the commercial initiatives this year. Some acquisitions are coming through. You have a lot of other product initiatives. How long would you expect to be in this kind of incremental EBITDA range, 29%-30%? I mean, once you're through with this integration phase, should we expect this to inflect next year? Are there more areas or working on the pipeline that should depress that? Just curious if you could help us understand the near-term framework around that and have a quick follow-up. Thanks.
Bill Zerella (CFO)
Yeah. Hey, Rajat. It's Bill. Yeah. So what we've talked about in the past is kind of a normalized organic target in terms of incremental EBITDA of 40%. So our guidance this year implies approximately 30%, taking into account the investments that we're making as part of building out our platform to support commercial business. So right now, the thinking in terms of next year is we'll continue to make progress in terms of improving that incremental EBITDA margin. But we'll continue our planned platform expansion to support the commercial rollout similar to what we've done this year while expanding our EBITDA margins. So we'll continue to move the ball forward, but we wouldn't expect that next year we would get to fully hit the 40% incremental EBITDA on marginal revenue growth. Yeah.
George Chamoun (CEO)
Rajat, let me add to that. It's really this sort of ramp of making sure we're showing gains and progress in our EBITDA. Obviously, we're going to stay committed to that. But we'll also be committed, as Bill said, to execute on expanding our TAM both in the commercial and helping dealers source more cars from consumers, which is the self-inspection capability. So we're very excited the fact that next year, we believe we can do both, both improve year-over-year what we've done from an EBITDA perspective, but also invest not only in the core dealer wholesale, but also in expanding our TAM.
Rajat Gupta (Research Analyst)
Got it. That makes sense. And just as a follow-up, I mean, if I heard you correctly, I think, Bill, you mentioned that you're not expecting the same kind of market share acceleration that you saw in three-tier in the fourth quarter. Is that correct? And why would that be the case if you could just give us more color there? Thanks.
George Chamoun (CEO)
Yeah. I don't think we said market share. I think what we said is there's typically in November and December, conversion rates typically go down. That's at least what it's done almost every year. So when you look at the seasonality of this business, and you heard Bob mention it earlier, every year, conversion rates in November and December tend to come down. Yeah. I didn't mention, by the way, Rajat, the other impact in the quarter that we discussed in our prepared remarks that we're estimating the impact from the hurricanes on our southeastern regions is about $2 million in revenue and about $1 million in EBITDA. So we baked that into our guide for Q4 as well.
Rajat Gupta (Research Analyst)
I think maybe I meant to ask it in a different way. The 22% organic growth in the third quarter, it seems like it's 20 points, 22 points above what the market did. I mean, that's an acceleration from what you saw in 1Q, 2Q. So are you assuming that similar kind of market share delta in the fourth quarter as well, or is that not the case? I think that is what I was trying to get at, but it seems like it isn't similar.
Bill Zerella (CFO)
Yeah. I think it's actually a good question. I would say our thoughts on market share was pretty much continuation to Q3, although I will say we don't have that exact prepared answer that way. But I will say we didn't really bake it in based on market share. I don't see any difference on market share between Q3 and Q4 at this point, meaning the data in front of us. We're purely looking at this as seasonality. Seasonality plus a little bit of this hurricane stuff. But basically, when I look at listers, when I look at listings, I don't see any difference on market share gains right now from Q3 to Q4. Yeah. And again, Rajat, I mean, we've seen a really strong start to the quarter, kind of a continuation of the same kind of growth rates we saw in Q3 through October.
But we're always trying to be prudent in terms of our guidance and taking into account, again, the seasonality factors that George mentioned. So we'll see how things go, obviously, but that was the basis for us to guide what we did.
Rajat Gupta (Research Analyst)
Understood. Great. Thanks for all the color and good luck.
Bill Zerella (CFO)
Okay. Thank you. Thank you.
Operator (participant)
Thank you. And we will take our next question from Michael Graham with Canaccord. Please go ahead.
Michael Graham (Managing Director and Director of Research & Investment Strategy)
Hey, thanks a lot.
George Chamoun (CEO)
Hey, Mike.
Michael Graham (Managing Director and Director of Research & Investment Strategy)
Hey, how are you? I don't think you mentioned this yet on the Q&A. If you did, I apologize. But just on the commercial wholesale market, you talked a little bit about your efforts there in the prepared remarks, but just was hoping to get another layer of depth around how that's going and how quickly you think that can become a more significant part of your business?
George Chamoun (CEO)
Yeah. Certainly, Michael. Yeah. One of the things we mentioned, and I'll try to go a little bit deeper, is our volume in commercial today is a little over 5% of our overall business. So going well, investing in some key areas. So the areas that will help us really differentiate in this commercial business will be, no surprise to you all, will be inspections, right? That's an area where we've always innovated on the dealer side, bringing that to the commercial side. You'll hear us talk about that some more in Q1. So that'll be one area that I'm really pleased with the team is innovating around how we're going to really sort of enhance the way we inspect these cars at the auctions, how we're leveraging AutoIMS, which is how we get the consignments, how we're then integrating with sort of the back-office systems.
Not to get in the weeds here, but all going well so far. I mean, we'll be making this investment throughout next year. But at the end of the day, we feel good that the experience we're building will be differentiated, will be both great for our commercial consignors, the sellers and buyers. So I think for the sake of repeating what I said earlier, so more to come probably in Q1 on this topic, but happy with the build-out we've done so far.
Michael Graham (Managing Director and Director of Research & Investment Strategy)
And then just last quick one related to that is maybe a comment on the profitability of those units relative to dealer wholesale.
George Chamoun (CEO)
Yeah. At the end of the day, if I looked at this as EBITDA dollars per unit, EBITDA dollars per unit are basically the same. Slightly higher revenue per unit, slightly higher cost per unit. But if you kind of look at what matters, you basically get into the same EBITDA dollar per unit.
Michael Graham (Managing Director and Director of Research & Investment Strategy)
Perfect. Okay. Thank you, George.
George Chamoun (CEO)
Thank you.
Operator (participant)
Thank you. And we will take our next question from Naved Khan with B. Riley Securities.
George Chamoun (CEO)
Hey, Naved.
Naved Khan (Managing Director)
Thank you. Thank you very much. Hey, guys. On the conversion rate, which you saw did pretty well in the third quarter, I'm curious if the improvement that you saw is a function of the macro and the market, or are these a result of the changes that you are making to the platform, or just give us your thoughts there?
George Chamoun (CEO)
Yeah. Great question. And it was definitely both. So the market conditions helped Q3, helped us definitely. There was definitely a lot of demand for used cars. So that was definitely a factor. But also very proud of the technology and product enhancements we continue to add. We've gone through this. We showed you some of it in the slides here. There's some of the enhancements we've made on conversion. It's constant here, as you know. Our engineering team and product team are constantly making sure we're merchandising the cars the right way so our sellers really get the full amount of money for these cars. Buyers know what they're buying. We keep making a bunch of enhancements there. We're making enhancements on how and when to sell these cars, enhancements. If the car doesn't sell the first time around, how it could be sold the second time around.
So we keep investing in the area of conversion, and it's definitely helping. So the simple answer is both. Both some market benefit and also enhancements we've made from a technology perspective.
Naved Khan (Managing Director)
Got it. And then on transportation, the margin improvement, the revenue margin improved year on year. Was there any change in this on a sequential basis?
George Chamoun (CEO)
Yeah. The transport team here, they're making incredible strides on leveraging artificial intelligence on pricing lanes. So when you choose lane by lane how to price a vehicle, coupled with we're just starting to do some bundling. Bundling would mean there's already a car, let's say, going from Long Island to Virginia. So let's get the same truck to take the same vehicle. So bundling, it's only a small portion of our cars today. That will also keep growing. So yeah, we're very happy with how we're leveraging technology to make sure we're giving the right price for our dealers because that price is important to our dealer partners, but also using the tech to help us make sure we're hitting our margin objectives.
Naved Khan (Managing Director)
Thanks, guys.
Operator (participant)
Thank you. And we will take our next question from Stephen McDermott with Bank of America. Please go ahead.
Steven McDermott (Equity Research - Internet)
Hi. This is Stephen McDermott on for Curtis Nagel. So just wanted to talk about kind of market share gains versus wallet share. How are you thinking about the mix in terms of growth there? And then I have a follow-up as well. Thank you.
George Chamoun (CEO)
Yeah. No, it's a great question. And look at this as more of like a it's a regional story. It's a local story. And then there's like a national kind of overlay to the whole thing. But there's only a few markets in the country where we have 70%-80+% wallet share from a lot of dealers in one territory, right? And we have a few of those, and we're happy about that. But there's many markets where we can still grow in multiple ways. There's national dealer groups that we study their wallet share consistently. And when I see 20% or 30% wallet share, I see a lot of great opportunity to help those dealers, show them why our pricing is right, show them why our conversion on our marketplace keeps getting better. So it's both. We will continue to grow the business.
There's some markets where we're still relatively new, and we only have a few sellers, and we don't have a lot of wallet share yet. We got a long ways to go. I think that's the great thing about the ACV model is we're still in the early days here. We're very happy with the overall market share. We're ecstatic with all the hard work the team has done, but there's a lot of headroom here for us to keep growing.
Steven McDermott (Equity Research - Internet)
Awesome. And then I know this is pretty early, but autonomous vehicles definitely dominated the discussion last quarter for some rideshare names and some OEMs. So still many years away, but just philosophically, what do AVs mean for you guys in the long term? And have you really put much thought behind the strategy there?
George Chamoun (CEO)
On EVs?
Steven McDermott (Equity Research - Internet)
AVs, autonomous vehicles.
Autonomous vehicles.
George Chamoun (CEO)
I think one, the good thing about autonomous vehicles is they will become used too. They'll go from new to used. They will need to be purchased by someone else in the U.S. or someone else overseas or somewhere else somewhere. So I think the simple way to look at it is whoever the initial user was, whether the user was Uber or the user was whoever, that asset will then get sold eventually. I would look at generation one of this is look at that as just a fleet category. In our world, almost like commercial. And okay, those vehicles, once that consignor believes they don't want to keep it on their balance sheet, it's a great car to go through an auction and go to some, whether it be a franchise or independent dealer that will go in, recondition it to what it needs.
So, quick answer would be it's probably no different than the rest of the commercial world.
Steven McDermott (Equity Research - Internet)
Awesome. Appreciate the answer and great job this quarter. Thank you.
George Chamoun (CEO)
Thanks so much.
Operator (participant)
Thank you. And we will take our next question from John Healy with North Coast Research. Please go ahead.
George Chamoun (CEO)
I think she can answer.
John,
John Healy (Managing Director and Senior Research Analyst)
I wanted to ask, I guess, a little bit about the commercial side of the business. When I think about that business, I think about rental, I think about repo, and I think about off-lease. I'm just wondering if you could give us some thoughts on which of those buckets do you think the solution makes for out of the gates? And now that you have AutoIMS and maybe we're six months into learning and practicing and system work, is there one of those buckets that you think might be kind of first to move and first to really embrace you guys? And we'd just love to hear your thoughts on that. Thanks.
George Chamoun (CEO)
Yeah. Certainly. Great question, John. We're definitely making from a volume perspective, most of the volume I mentioned on commercial today is from repos and rental.
So those two have been the first areas we've been able to take some share, grow those relationships. A lot of them where we are doing business with one city and now we might be doing business in two or three cities. And we'll try to keep growing our relationships with each one of them. So wherever ACV is, we can become one of their sort of auction partners of choice. So definitely those are the first two. Off-lease, we're just getting started. Hopefully, I'll be able to talk a little bit more about that next year. So we're in discussions. We're working on some things, but not much to share just yet.
John Healy (Managing Director and Senior Research Analyst)
Gotcha. And then just kind of wanted to pick apart kind of a phrase you just mentioned on the last question regarding AV. You talked about cars being used here or overseas. Just let me get your thoughts just about international expansion. Now that you're kind of making money here and growth is, we're talking about incremental margins that are sizable. Where are you at in the solution globally? Thanks.
George Chamoun (CEO)
Yeah. I'll give you two perspectives on sort of the global front. So one, we're still early in our strategy creation, but we first and foremost think about and I'll separate demand from sort of supply and demand. So as it relates to supply, we think about taking the ACV model in a very sort of technology-first mentality. Think self-inspection by the consumer, self-inspection by the dealer, appraisal-type solutions that then the vehicle then goes into a marketplace and is sold. And so the model we go globally will not necessarily be the same model we do here in the US. And it'll be a very much asset-like model. It'll be our technology helping OEMs who, let's say, OEMs are trying to sell a new car to a consumer, we'll be that trade-in module, and then the car will go into our marketplace.
Or if it's a dealer, they'll go around, they'll use our artificial intelligence on their lot, and they'll upload the car to our marketplace. That's the direction you'll hear us start to talk about over the next year. We're still in the very, very early stages of that model. But great question.
John Healy (Managing Director and Senior Research Analyst)
Great. Thank you, guys. And again, congrats.
George Chamoun (CEO)
Thanks, John.
Operator (participant)
Thank you, and we will take our next question from Glynn Schell with Raymond James. Please go ahead.
Glenn Schell (Research Analyst)
Thanks. First on the Manheim Market Report showing 11% year-over-year new and used car sales growth in October. Have you seen any of those trends within your own data? I know you said that wholesale should be flattish, but getting some volumes in for that trade-to-wholesale mix. So then off of that, where is the trade-to-wholesale mix now on a more specific number and then versus normalized levels? I know it's a bit layered, and I can break that down again if you need.
George Chamoun (CEO)
Yeah. I think one, Bill mentioned October got off to a good start, right? So I'm sure one of the reasons why October got off to a good start was, to your point, market was healthy, conversion rates were healthy. That probably the wholesale to retail mix was likely healthy, although I haven't seen the recent stats on that specific month. But I would generally say the quarter, fourth quarter started out well. As we mentioned, when we thought about fourth quarter, we don't assume conversion rates will stay as high. We don't assume some of this will stay as high over the next couple of months because it typically doesn't, right? As you start to look at the price depreciation and the seller asking for one price, the buyer willing to pay another, you typically see conversion rates start to come down. And we mentioned that earlier.
So I'm not sure if there's any other way to kind of back into your question just yet more than we've shared, but if you want to try to ask the question another way, I'll try to answer it.
Glenn Schell (Research Analyst)
Yeah. Well, that's super helpful. But then just on even just 3Q, do you have a more specific trade-to-wholesale mix number? And where is that versus normalized levels?
George Chamoun (CEO)
Yeah. I mean, yeah, I think our trade-to-wholesale mix improved marginally in the quarter. We won't see trade-to-wholesale mix move up materially until that used car supply comes back. Just to remind you, most dealers have 25% less used cars on their lot today than they did in 2019. And I was recently out with a dealer group in Texas, and the dealer principal looked at me and all his leadership team in the room and said, "We have 30% less cars on our lots right now than we need." And looked at us like a call of action.
Like, "We need to go buy more cars from consumers." And so just to kind of get you in the mentality of these dealerships, and I'm really pleased, obviously, with the ACV results, but it's going to take several more months here for the market to kind of come back from these dealers having 25% less inventory, and so it will take some time, but having said that, your specific answer, we did see a marginal improvement, and it was nice to at least see a marginal improvement.
John Healy (Managing Director and Senior Research Analyst)
Perfect. Thank you.
George Chamoun (CEO)
Yep. Certainly.
Operator (participant)
Thank you, and we will take our next question from John Colantuoni with Jefferies. Please go ahead.
George Chamoun (CEO)
Hey, John.
John Colantuoni (Equity Research Analyst)
Hey, everyone. Thanks for taking my questions. Hi. Wanted to ask a question on market expansion. You've historically been strongest in the Northeast. I'm curious if you could update us on your progress expanding into new markets, particularly those that you rolled out a few years ago. And as part of that, talk a little bit about how long it'll take to start reaching a level of density in those newer markets where you'll start getting to the levels of scale where it'll start showing through into better profitability across the company. And second part of that, right around the IPO, Canada, I think, was an aspiration for you. Where do those plans stand today? If you could just update us there. Thanks.
George Chamoun (CEO)
Yeah. Certainly, John. So yeah, to your point, we're very strong in the East Coast. We've actually continued to gain more share in the East Coast, which has been great. I'd say pointing towards Texas for a second, we're doing extremely well in Texas, as an example of a market that's pretty far from Buffalo. And we've year-over-year gains, I think, were some of the highest in the country for us in Texas. So I think that's all I have from a preparation to give you an example on the moment. There may be more to come on this topic, but I'm very pleased. The ACV brand is increasing. We're working with more and more dealer groups. As you're working with more dealer groups, the dealer groups, as you know, are in many cities, so that kind of pulls us into some markets.
Our new products are helping us break into new markets. Products like ClearCar are helping dealers buy more cars from consumers. So so far, so good. That was your first question. Trying to remember your second.
John Colantuoni (Equity Research Analyst)
Canada.
George Chamoun (CEO)
Oh, Canada. So yeah, I think when you put together these plans, I think you always assume the first international market you'd go into would be the one right next to you, like Canada. And that would have been my assumption during the IPO. The irony is you sometimes go where you're getting pulled. And we've been pulled into some markets in Europe. So you'll probably hear us talk more about that next year. But I think very small, early stages, this is where OEMs and others are pulling us in. So yes, you will start to hear the ACV story beyond the US. It'll be very small numbers for next year. It won't be zero, but it will. And when we start to think about 2026 and beyond, hopefully, it'll become more material. But we are starting to take the model.
And the way the model, as I mentioned earlier, the way we're doing the model is it's a self-inspection-based model. So you're using artificial intelligence to have the consumer or the dealer walk around the car, do the condition report, and then it goes into our marketplace. So we're in early stages at this. Very pleased with the team's progress. More to come when we can report a little bit more about this topic.
John Colantuoni (Equity Research Analyst)
Thanks so much.
Sure. Thank you.
Operator (participant)
Thank you. It appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.
Tim Fox (VP of Investor Relations)
Thanks, Madison. I'd like to thank everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. And again, thank you for your interest in ACV. Have a great evening.
Operator (participant)
Thank you. This does conclude today's presentation.