Sign in

    ACV Auctions Inc (ACVA)

    Q2 2024 Earnings Summary

    Reported on Feb 20, 2025 (After Market Close)
    Pre-Earnings Price$14.83Last close (Aug 7, 2024)
    Post-Earnings Price$16.40Open (Aug 8, 2024)
    Price Change
    $1.57(+10.59%)

    What went well

    • Strong Revenue Growth and Raised Guidance Despite Macroeconomic Headwinds: ACV increased the midpoint of its full-year revenue growth guidance to 28% to 30%, indicating confidence in sustained momentum. The company is experiencing a strong start to Q3, with revenue growth guidance of 33% to 36% year-over-year. This growth is notable given the current market conditions.
    • Early Signs of Market Recovery Benefiting ACV: ACV is observing positive market trends, including new vehicle inventories normalizing, increased OEM incentives, and dealers starting to wholesale more vehicles. The Trade-to-Wholesale mix is showing improvement, suggesting that dealers are beginning to wholesale a higher percentage of trades, which could lead to increased volumes for ACV as the market recovers.
    • Expansion of High-Value Services Enhancing Growth Opportunities: ACV is expanding its service offerings, notably with ACV Capital and a new offering that bundles ClearCar with ACV Capital to help dealers buy cars from consumers. This innovative approach positions ACV to capture additional market opportunities and increase wallet share with dealers.

    What went wrong

    • Increased competition from established players like CarMax's MaxOffer, Copart entering wholesale, and physical auctions consolidating may pressure ACV Auctions' market share and margins.
    • Growth in ACV Capital is intentionally constrained due to risks associated with high interest rates affecting independent dealers, and new initiatives like bundling ClearCar with ACV Capital are in very early pilot stages, suggesting limited near-term growth from these areas.
    • The dealer wholesale market has only modestly improved but is still declining year-over-year, and used vehicle inventories remain 20% below 2019 levels, indicating that the challenging macro environment may continue to constrain growth.

    Q&A Summary

    1. Revenue Growth Outlook
      Q: How does the outlook for revenue growth look for H2?
      A: The company raised the lower end of its revenue guidance, moving the midpoint to a full-year revenue growth of 28% to 30%, which is strong considering the current macro environment. They see a strong start to Q3, with July and August performing well, and Q3 guidance reflects 33% to 36% revenue growth.

    2. Profitability and Investment Strategy
      Q: What investments are needed to reach your targets?
      A: They expect to deliver about 40% of every incremental dollar of revenue down to EBITDA, accounting for investments in their commercial strategy through M&A. Without these investments, margin expansion would be impacted due to lower revenue growth.

    3. Market Recovery Signs
      Q: What positive signs are you seeing in the market?
      A: Positive signals include new vehicle inventory normalizing and more incentives from OEMs, even with high cost of capital. Used car supply is still 20% below 2019 levels, but there's a slight uptick in dealers willing to wholesale vehicles, indicating cars are starting to add up on lots.

    4. Impact of CDK Outage
      Q: What was the impact of the CDK outage on business?
      A: The CDK outage slowed down new and used car sales towards the end of the quarter. The impact is estimated to be over $600,000 of EBITDA and over $1 million of revenue.

    5. Competitive Landscape
      Q: How do you perceive the competition in your market?
      A: Competition remains unchanged; they've always had competitors since starting in 2016. Physical auctions and other players have been in the market for a long time, and they respect their strong competitors but continue to focus on their growth.

    6. Price Increase Plans
      Q: Are you planning any price increases in Q3?
      A: They implemented a small price increase for some fees as part of their plan for the year. Their target is an average fee of $500, and in Q2 they achieved $493, moving towards that goal.

    7. Commercial Expansion Strategy
      Q: How are you approaching expansion in the commercial space?
      A: They have two parts to their strategy: leveraging AutoIMS integration for vehicles that don't need reconditioning, aiming to go live before year-end ; and expanding locations for vehicles needing minor reconditioning, currently at 10 locations, targeting at least 40 locations to cover over 80% of the population.

    8. ACV Capital Progress
      Q: What's the progress with ACV Capital and new opportunities?
      A: They're pleased with ACV Capital's execution, managing growth and improving bad debt expense year-over-year. They're piloting a new product bundling ClearCar with ACV Capital to help dealers buy cars from consumers, expecting to ramp next year.

    9. Dealer Penetration Metrics
      Q: Is the 50% market penetration based on dealer count or wallet share?
      A: The 50% penetration refers to dealer count working with them, not wallet share. Gaining more wallet share is the next step in their path to success.

    10. Opportunity from CDK Outage
      Q: Is the CDK outage an opportunity to work more closely with dealers?
      A: Dealers may be more cautious about all-in-one systems, seeking best-of-breed solutions. This situation could be beneficial, as they can help dealers diversify and strengthen back-end systems with their products and technology team.

    Related Publications