ACV Auctions Aktie

Okay. Great. Thanks, everyone, for joining. Very pleased to have with us the team from ACV Auctions: CEO, George Chamoun; CFO, Bill Zerella, and we also have Tim Fox from Investor Relations in the audience.

My name is Rajat Gupta. I'm a member of the autos team at JPMorgan. We'll keep this format pretty informal. I'll go through some questions with the team, and we will open it up to the audience in between every few minutes.

So with that, thanks, George and Bill, for doing this.

Yes. Thank you, Rajat.

Yes. Thanks.

Let's get right into it. So just starting with the outlook for the year, you reduced your industry outlook versus the initial framework from February. Could you recap the drivers of your tempered view? You now expect to be down mid-single digits year-over-year as opposed to the flattish guidance previously. And what does that mean for the pace of share gains at ACVA?

Yes, certainly. So yes, we kind of came into the year, like most of us, we were looking at some of the sort of pros and cons going on, both from the retail and wholesale climate. Coming into the year, I think all of us had some enthusiasm to off-lease would bring back some supply, we would start to see -- we could look at interest rates potentially going down, retail year-over-year should start to go up, like that was part of our sentiment of thinking the sort of flattish wholesale. Obviously, with Q1, the data show that, that didn't happen. According to the industry data, wholesale was down in the mid-single digits that we said.

So all we're forecasting for the rest of the year is that retail basically stays where it is. We're not really saying it's getting worse. We're not really saying wholesale is getting any worse. All we're really articulating is this climate of where we are, we are. We don't really know. So we're not really trying to predict the market, trying to predict what could happen with interest rates or with consumer sentiment. Yes, it's obviously challenging. Many of you study this a lot. So all we're really doing in a way is not making a prediction by just saying the status quo continues.

Understood. Okay. That's fair enough. And in terms of share gains, there's not like any material like volatility we can expect. Given maybe March had like good conversion for the industry, maybe that conversion is there. It looks like conversion maybe takes a step back, like we saw last year in June. Is that top of mind as well in how you're managing things?

I mean, conversion rates are always sensitive quarter -- each quarter, right? You always have -- at least historically, Q1 is our highest conversion rate, and then, it starts to tail down throughout the year. That's part of your modeling. And we're -- so that I would call that just normal. So you're always going to have some conversion rate sensitivities based on where we are. But I would say nothing that we really are trying to express coming into the call or post call that we're yet very concerned about.

Understood. Maybe if I just -- let's discuss some of the growth investments that you're embarking upon this year. First, how should we think about the timing of the benefits from recent headcount investments and inspectors and territory managers? When do they hit full productivity? I'm assuming I think you've mentioned later this year. Any more -- any update there on timing when we should start to see that reflect in your growth estimates?

Yes. We said most of this will start to help us in the back half of the year is what we've articulated. So it's both hiring, it's training, it's getting our teammates in the right spot across the country. We didn't have enough resources in several regions. So we were really going out there and hiring and training. And there are also some regions where we've upgraded some talent in some areas, where we really use this as an opportunity to bring in some additional folks.

So I would say we're really on plan. I believe I said in the earnings call, we had something north of 50 more folks to hire and train to sort of to get to our number. So I would say we came into the quarter about halfway there-ish. And we've got a little bit more work to do, but on pace for, I would say, the year of where we wanted to be. I think from -- we've kind of leveled that up a little bit. We just -- we were under-hiring in some areas. And we owned it, going to take care of it.

And while we did share that data, we also shared that in our regions, where we have the most people, we're already at $230 or higher on EBITDA dollars per unit. So the model works, where literally we have the most people. So look at this as it's just a game of making sure you armed yourself with getting the supply, and then, once you get that supply, the business model works.

I don't know if you want to double down on that at all, but -- on why we have conviction on hiring in our areas where we have less folks.

Yes, I would just say it's a proven model, right? And we have a lot of territories and regions around the country where we can obviously see how the unit economics work, and we can see it's tied directly to density and staffing. So we're really not guessing in terms of what works. We pretty much have plenty of proof points, and that's why we're -- we made the decision to lean in here for this year.

Understood. That makes sense. The next area of investment, you've talked about a lot recently, is Viper. Maybe just help like recap for the audience, what's the TAM for that product? Is this a product for every dealership? Or is it limited to certain dealerships or certain dealer groups of a certain size and scale? Maybe just like dig a little deeper into that TAM and opportunity.

Sure. Let me try to frame it this way. So our core dealer wholesale business thus far has relied on dealers, obviously, retailing, taking in trades. And then, we've gotten a certain percentage of these trades. And as dealer supply goes down, our supply went down, right, just to oversimplify it. Dealers have over 250 million cars a year going through their service drive. I'll say it again, over 250 million cars a year going through the service drive. It's a massive, massive audience.

Last year, we started to see with dozens of rooftops, not thousands, with our early products, ClearCar, even before Viper, we were getting dealers to buy 5 or more out of 100 cars coming through the service drive. So we started to see if a dealer has the right tools and the right process, it becomes a very large number. And so these are consumers, if you just take 5% of all cars going through a service drive as a reasonable addressable market to go after.

Dealers will be buying cars before a consumer decided they were going to trade it, before they were deciding they were going to sell it on peer-to-peer, or however, they were going to sell or trade that vehicle because these consumers are already interacting with the dealer. And we're not inventing a problem here. Dealers want to solve this problem, like they want this. We've tried it with ClearCar. We tried it with our first round of products, but that required people. That required them staffing $20 to $30 an hour folks in their service drive using our tools going around each car.

We weren't able to so far get thousands of dealers to staff hourly people in their service drive doing this work. So we all know why this sort of AI movement is so meaningful for a lot of categories like automotive is if you can automate that process. And so if you just look at Viper, it's very simple. And it does more than what I'm going to articulate, but to oversimplify it. If you have 250 million cars a year going through a service drive, and dealers can automatically put a price on the car, know the condition, know the price. And then, the consumer gets a report, and it says Rajat's car has the following issues, the following conditions and here's your price.

And then, when you come home at night, you get that condition. And a month later, we say, "Hey, Rajat, how are you doing"? Just remind you, we sent you that price. And by the way, 60 days later, just follow up with you. Over that next 90 days, we're seeing 5 out of 100 of these cars. This is even before Viper. So that's the addressable market. It's really -- it's a very significant TAM. And it could not only help us in wholesale, they could help franchise dealers tremendously improve their business. So we love the category. We've got a great emerging product, albeit we're early. We've got like 18 of these out in the market right now. We're deploying every month right now, however, maybe we're deploying a month like 5 to 15 a month right now. So we're really early. It's obviously hard to describe what this could mean for the company at these early stages. But maybe you can lean a little bit more.

Sure. So first, just to follow up on what you said in terms of as we help dealers buy more cars from consumers, they will keep some of those cars and recondition them and retail them, and then, they'll wholesale the rest. So really, what the opportunity is, is to increase the amount of wholesale transactions at that particular dealership. But we have done a fair amount of modeling in terms of what the implications could be for our business. And I'll start with there are roughly 17,000 franchise rooftops in the United States. We currently do business with roughly about 6,000 of those.

So some of the modeling that we've done has been if we assume, for example, that at some point in the next few years, we have half of our current rooftops, franchise rooftops with a Viper, that would be 3,000 Vipers. And if we further assume that as a result of them buying more cars from consumers, we can generate more wholesale transactions. And let's assume further, it was 10 units more a month for each of those franchise dealerships, okay, the implications for us could be quite significant, right? If we do that math, that would basically result in roughly $450 million of incremental revenue for us between the wholesale transactions.

And the subscription fees because we are -- our intention is basically to not sell Viper outright. It would be a subscription model. So we would have some subscription revenue streams as well in addition to wholesale transactions. And the implications for us again -- again, this is a modeling exercise, $450 million of incremental revenue and $150 million of incremental EBITDA. And that would augment, otherwise, what our organic growth would be plus our commercial business ramping, which we've talked about on the most recent earnings call.

So our entire business model is based on density and volume in particular territories and regions. In our last earnings call, we talked about the fact that we have 2 regions in the country out of 20 in total, each region has between 7 and 8 territories. And those regions are already hitting north of $200 of EBITDA. Our midterm model is $230 EBITDA...

Per unit.

Per unit, sorry. One region is already there. One region is actually above that. So when we do this modeling, we look at what the implications would be across the United States for our business. At least 10 of our regions, so half of our regions in the United States, would be at that midterm target model of $200-plus of EBITDA dollars per unit. So it has a lot of implications for us.

Obviously, we have to over time kind of prove this model out since we're in the early stages of deploying these units at various dealerships. But that's the kind of potential opportunity that we see that exists for our business, which we're quite excited about. And through the rest of this year, we'll get more and more data points that will support kind of our point of view on this and what we would present to investors based on data and what we've experienced so far.

Maybe one more thing, as I know probably going a bit long on it, but just obviously, I'm pretty excited. This framework Bill is giving, like this 3,000 rooftops, that's just illustrative. I just say if we got half of the people working with us today to take it, it doesn't say what it could be, right? This -- what it could be is, however, many dealers want to automatically buy cars in their service drive. So everyone could ask -- go out and ask the dealers themselves, how many of you would want to automatically buy -- I mean, that's the question asking your own research. If you could automatically put a number on a car and then see whether or not 3,000 or 17,000 is the right number or a much bigger number, okay? So that would be one framing to think about.

And then the second thing to think about is that this 10 incremental is the way you kind of model these things, which is good. Those are good numbers, but I think this could be much bigger than that. But let me give you a framework of that would be like potentially like an incremental. But if you had 20 to 28 wholesale units a month from that rooftop, you're also locking in, let's call it, the traditional organic. So look at that, yes, there's an incremental play, but then there's a lock-in play.

And so it could become, in my mind, look, long term, don't give me -- this is a $1 billion plus of like value creation type of opportunity, right, over time, give me enough years. It's that type of opportunity. We haven't improved it yet, right, albeit early, but that's sort of why you're seeing us -- and to get the feedback, which you all get in your own research is dealers want this. They want to be able to automatically buy cars. They have the audience. They just need the tools to do it.

No, makes sense. That's well articulated. Let's go to the third area of investment. We talked about the headcount. We talked about Viper. The third one looks like commercial. We haven't heard about that in a while, but it looks like a lot of exciting announcements last earnings call. So congrats on all that progress. Could we take a step back and talk about what the early innings results have looked like? From a consignor standpoint, what has changed from a cycle time perspective, conversion rate, remarketing costs, just price realization, anything you can share on that front? And which commercial categories are having more success with this end-to-end online model?

Yes, certainly. I'll start there, and I'll work back to your first question. So as Rajat mentioned, there's a few areas within commercial. There's rental cars, there's repos, which are banks, obviously, there's off-lease and then there is fleet. And we're having -- we believe we're working with about 30% of the commercial consignors at 1 of our 10 locations today. So we don't have a national footprint on what we call downstream when cars need to be sent to a location as land. But we're starting to work with some of the commercial consignors. And what that does is it really -- by having some embedded relationships, you can really see what are their objectives. It's not like this is a new category. It's about 7-ish percent of our overall volume today. We're familiar with the category.

And to your point on cycle times and how fast cars get sold. And in living in that world, it's no longer a nascent for us. We're in the category. We're still small, right, of overall commercial share, but we're very familiar with what it takes to win. Then, in parallel, we just now are launching upstream commercial. Upstream commercial means we take these integrations with AutoIMS, which is this middleware, and we are able to take a vehicle and sell it upstream. So start to do some of the things you would have done downstream at a physical location. And we really just started launching this.

We are in conversations. We said on the call with around a dozen or so fleet in rental car and other types of accounts, where they're starting to give us business both upstream and downstream, and that model allows, let's say, for example, a fleet company, to not have to send a car to a physical auction, but still operate with us as though they were operating with a physical auction, meaning does the car need any repairs or not, what is the condition. In a way, do all that integration virtually just through one of our inspectors who are at a lot for a fleet account. So we're just now starting to be able to operate that way.

Our software, think about it, it was like 90-plus percent complete. We're almost 100%. It was enough to start doing some small samplings of vehicles with some of the large fleet accounts. One of them, for example, sold a few dozen cars with us. They're excited for us to finish our software build. There was still a little bit of manual work going on, just full disclosure in these first dozen cars, but we've almost got our software fully automated. So we could basically do what was happening for the last 50 years at a physical auction now more upstream. So that's at a really high level.

Then, the next part of your question is we've had more so far business traction with rental car and repos and fleet. And we're just getting started with off-lease, but look at the first 3 as where we've had more of our business thus far.

Understood. No, that's clear. Maybe going back to more near-term stuff, again, going back to the first quarter results. Could you give us -- could you give the audience a sense of your geographical exposure, which may have contributed to some volume headwinds in the first quarter due to just weather disruptions? And how do you see this changing with the ramp in some of the go-to-market investments?

Yes. I think what Rajat is bringing up is really broadly the dealer wholesale market and retail were down in Q1. But I think there's been some reports, including your own, that mentioned that the Northeast dealers were affected more than the average across the country. So it is where we're the most dominant. It's where we have the most share is in the Northeast. So it definitely had a pretty significant impact on us, right, and the results we delivered because our dealers where we were the most dominant was affected. I think that's all I shared publicly thus far in that category. I don't know if there's really anything else to share.

No, I don't think so.

Okay. And then moving on to arbitration, again, more near-term stuff, it was a big topic second half last year to really come up a lot on the first quarter call. Curious if you could give us the latest and greatest on frequency and expense. And just wondering if the spring used car pricing balance has only temporarily masked that headwind. And should we worry about this becoming an issue again like later in the quarter or the second half if prices start to like pull back? Just give us an update on what's going on.

Yes. I'll put this into sort of 2 buckets. One, as you mentioned, arbitration does have a seasonal component to it, where Q1 is almost always your lowest. Q4 is always your most challenging. It's not ironic that dealers arbitrate more when they're struggling more, right? Like so it's -- there is that element in our business. We've been mentioning that all along, right? So there is truth to that, and you try to build that into your modeling as best as you can to know that there is some seasonality, okay?

But if you take a step back on what are we doing about it, meaning not just like what's going on with dealers in general, we're maturing very quickly on how our sellers and buyers are treating us, so how are we treating them and how are they treating us. And my team is doing an incredible job as segmenting good sellers who are also good buyers, good sellers who tend to arbitrate more and also buyers who are great buyers who don't arbitrate barely at all and some buyers who arbitrate a lot. And that process, think about this as cohorts of activity going on, is allowing us to mature how we navigate through this.

And so to answer your question simply is, yes, there's seasonality, yes, there's inputs and outlets. But as a company, when you go through some of these challenging moments, you dig a little deeper, you build a little bit more refinement in your core to understand your segments. And Bill and I looked at a segment at our management meeting earlier this week, and we had this segment of good sellers, good buyers that was costing us under $50 per unit. And if you look at it, it's the same exact inspection, same exact people-ish across the company, same exact training in a way. And these customers over here, our business model works incredibly well.

And then, we've got some segments that those buyers or sellers are costing us several hundred dollars per unit. So the average is the average, and -- but that sophistication allows you to build more and more robustness to know you can build more policies, no different than any insurance company does and you get more and more sophisticated. So the quickest answer is I feel good about arbitration. I feel like the company is maturing through this, and it will, over time, build more and more robustness. But to your point, at times have some pros and cons as it relates to seasonality.

Yes. But that, by the way, is taken into account when we look at our year-on-year trends, right? So -- in Q1, our costs were basically flat year-on-year with Q1 of the prior year. So -- yes, there is seasonality, but as long as you're comparing like-for-like in terms of the quarter of the year, then you get a true measure as to how things are going.

Okay. No. That's good to know. One more near term, just around pricing. Did you take price recently? Any recent price increases last few weeks? I think we picked up -- picked that up in some of our checks. Just give us a latest update on pricing.

And just more a broader pricing question. Are you a price-taker or price-maker in this current industry landscape? I recognize you're the largest D2D only player, so maybe gives you some latitude. But just wondering if the internal methodology is to just lead with price increases or perhaps just track along with Manheim or some of your other competitors.

Yes. So let's get some framing just for everyone to understand the overall revenue per unit. You've got overall revenue per unit here that's around $1,000, right, give or take. I'm trying to frame this where you have sell fees, you have buy fees, you have transportation, you have ACV Capital, which is the floor plan. So you've got this business model, where you've got, on average, approximately $1,000 of take.

And when you think about framing the model that way, you could start to think about your revenue expansion, where have fees gone up and where have fees gone down? And why, Okay? So again, this is just for -- just illustrative, Bill can net on the exact numbers, I'll be very close, okay? But if you've got around $1,000 of ARPU, we've now got our supply side of our fees to be about 15% of those fees. Historically, those sell fees and GO GREEN fees were a higher percentage of our overall fees.

Supply is where things get a bit more competitive, okay? We've said that on some of the calls. And we've gotten more competitive. We were the most -- when we started out as a company, we were the most expensive game in town, pretty much across the country, like our sell fees were the highest. We offered more value with GO GREEN and with assurance and blah-blah, but we had the highest fees. On the demand side, we had the lowest fees, right? So we had really, really low over here, really, really high over here.

Our fees are now normalized. Our sell fees are competitive. Our demand fees are competitive. Our transportation fees are competitive. And our ACV Capital floor plan fees are competitive. So when you look at that, how the landscape of these -- of our overall ARPU has matured, yes, there were points in time where our pricing was way under market.

And we've done some small iterative price increases each year. We never want to be a pig. We don't want -- most of the time, we're almost -- we're a national company, and we literally had a few dozen dealers complaining here and there about a few price increases. That's a sign of we're not a pig, like we are extremely pragmatic about these small increases we do.

We do them carefully. We do them thoughtfully. We want -- we care about our dealers. So we do this really well, but we've been able to do this in a way where we've been able to reshape how our ARPU comes together in a very competitive way.

And you need to correct anything or -- I know I'm giving this at a high level, but Bill, if there's anything you want to tweak, please.

Obviously, we are not a pig, but we're a capitalist, and we seek to maximize earnings, right? So -- but in terms of that math that George just took you through, where 15% of "the total fees" that we earn are from the sell side. Doing that same math, about 45% of those fees are from the buy side. So -- and we've changed that pretty dramatically over the years. And that gives us more ability to price accordingly from a competitive standpoint on the sell side to get...

On recent increases, you have...

We always -- each -- we don't broadcast when we're doing fee increases, but we every year have small fee increases.

We have small fee, yes. Exactly.

Got it. Maybe just -- sorry, opening up with the audience here. Any questions here from the room? No. Okay. One of the other revenue items, ACV Capital. Obviously, you had that challenge second half of last year with Tricolor. Just curious what kind of changes you made to the underwriting process, any other process changes at ACV Capital? And just how should investors think about the growth cadence over the next 2 years? Has it changed -- as the outlook changed versus your internal expectations from maybe a couple of years ago?

Yes, certainly. So for those less familiar, ACV Capital is the floor plan business. So this is where you're providing anywhere between 1 week in, let's say, 3 months of short-term lending. So on average, it's 30 days, okay, of lending to an independent dealer to buy a car and then go retail it. The largest floor plan companies are the largest marketplace companies. Traditional banks basically don't lend money to independent dealers. So basically, marketplace companies become the private banks for independent dealers. So that's the background.

We operated extremely well for a number of years. And literally, when we were a tiny nascent company, we launched a small division. We were within our risk tolerance. Our execution was extremely well. We took on a customer with that we shouldn't have taken on. And the analogy I've given folks is this was a black eye. Black eyes look bad. They don't kill you. But they look bad, right? And this one, that was an ugly black eye. Thankfully, JPMorgan was also one of those people that lost money on the deal and other very sophisticated banks. So we weren't the only one that got fooled by this tremendous fraud that took place, okay? Alleged fraud that took place just to correct what I just said.

So we -- but you do learn, right? You do learn, you go, okay, what do you guys do? So we did take a step back. We slowed our -- we did slow down, which we've said publicly. We slowed down our forecast for ACV Capital. We wanted to make sure we got buttoned up. We took the org, and we have an incredible leader within ACV Capital. We have an incredible team, but we did create some checks and balances. Bill now has one of the leaders directly reporting to him from Risk. Our Legal team, led by Leanne, has got much more tighter controls of how the agreements are put in place, and we've created an org structure that has a really strong sense of risk reward in how we are balancing this.

So I'm proud to say, as of like literally this week, we're back hiring ACV Capital salespeople. We're back out there. We feel really good. And the team has done an incredible job going through. Bill and I just approved some hiring there. We've got a great product. We've learned through that challenge. We've got a great process. ACV Capital is a great product offering, and we got some great growth expectations. It's a great business to be in. And where we did slow things down there for a few months, we did in a way slow down our growth, double -- dot all the I's, cross all the T's. We feel really good about it. And now we're back at it.

Bill, any more you want to add to that?

I would say we're stronger as a result. I mean, it was tough working through that. And I think actually, JPMorgan's exposure is like $700 million. Okay. You guys are a little bigger than us. But nevertheless, for us, it was a very big deal. But all the things that George just described, I mean, we did an enormous deep dive and have made and have brought -- not only made some organizational changes, but we brought in some new talent, very, very strong talent. I would say we're just that much stronger for it now going forward in scaling this business.

Understood. No, that's all very clear. One last one, maybe like a softball. We didn't really talk about the secular, your core business and the secular trends in D2D. We've seen this like -- I think since your IPO and like we've seen the steady 300 to 400 basis points of digital penetration in the dealer-to-dealer market. 15%, 18%, 22%, 25%, probably like 29% today, depending on how you define the denominator. It's still like 70% transactions happening at physical. Are we at a point where this just accelerates from here? Have we reached that tipping point? When do you think that happens? Just your thoughts there. Obviously, that's still the bread and butter of the business.

Yes. I think at the end of the day, across the country, to your point, still 70% are at physical. So we still have a long ways to go. But what's also sort of fascinating is there are some regions that are significantly worse than that. Like we have areas in the Northeast where we have some territories where we already have 40% or more share today. That's just us. That's without any of our competitors. So the 70-30 also tells you a story that there are some regions where us and our competitors have not yet even gotten to that 30% share yet. And it's just a matter of when, right? This is happening.

And you will see the majority of dealer wholesale will go to digital. You -- its -- and you're going to hear more and more dealers say, yes. If some of you did your homework 5 to 10 years ago, you might have heard, I don't know. But you will hear the majority of dealers saying that's where it's moving, but you're going to go ask somebody in one town across America, and they'll say, it hasn't happened here yet. Well, it hasn't happened there yet in that town. So Rajat, I feel really good that we've got a core business here that has a lot of room to grow.

Understood. No, it's a great way to end. So thanks again, George and Bill and Tim as well.

Thanks.

Thanks, everyone, for joining.

Greetings, and welcome to the ACV Q1 2026 Earnings Conference Call Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Tim Fox, Vice President, Investor Relations. Tim, please go ahead.

Good afternoon, and thank you for joining ACV's conference call to discuss our first quarter 2026 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 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 be discussing 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.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are very pleased with our first quarter performance and execution while facing a challenging market environment. We delivered record revenue with adjusted EBITDA exceeding the high end of guidance. In addition to strong financial results, we made significant progress in our 3 key objectives.

First, we continue to gain market share and expand our dealer partner network to a new record. The combination of expanding our field capacity and penetration of our no reserve offering contributed to our growth.

Second, we had another strong quarter of performance in ACV Transport and ACV Capital, along with growing adoption of our value-added dealer solutions.

Third, we're gaining traction with our emerging growth initiatives, including the initial launch of VIPER and expanding our TAM into commercial wholesale. While there are cross currents in the broader macro environment, ACV remains focused on delivering double-digit revenue growth and increased adjusted EBITDA while continuing to invest in our exciting 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. The dealer wholesale market was impacted by severe weather during the quarter, resulting in a mid-single-digit decline in dealer wholesale volumes. Despite these headwinds, Q1 revenue was $204 million and grew 12% year-over-year. Even with weather impacts, our market share gains accelerated throughout the quarter, selling 213,000 vehicles, exceeding a difficult comparison in Q1 2025.

Next, on Slide 5. Today's discussion will focus on the pillars of our strategy to maximize long-term shareholder value, delivering innovation that is driving growth and scale. I will begin with growth.

On Slide 7, I will highlight our growth initiatives in dealer wholesale. As we discussed last quarter, we continue to drive strong growth within more established regions, where network effects are driving significant market share. In order to broaden our regional growth performance, we are investing in additional field capacity to accelerate the number and frequency of dealer visits. We are pleased to see early returns on this investment, which resulted in another record number of buyers and sellers transacting on our marketplace.

We also continue to enhance our marketplace experience to drive growth and deliver value to our dealer and commercial partners. We are leveraging machine learning that combines inspection data and dynamic market data to provide real-time pricing. Our platform powers ACV guarantees to sellers and delivers no reserve auctions to buyers. This offering remains the fastest-growing channel in our marketplace that benefits sellers, buyers and ACV. We're removing seller market risk, accelerating bidder engagement and increasing buyer satisfaction while delivering 100% conversion rate. We're confident our guarantee offering will continue to be a key driver of market share gains.

Turning to Slide 8. Let's review our marketplace service offerings. The transport team had strong execution in Q1 with 18% revenue growth and over 120,000 transports delivered. By leveraging AI to optimize transport pricing, we continue to drive growth and operating efficiency. Despite the sharp increase in diesel fuel during the quarter, transport revenue margin remained in line with our midterm target in the low 20s. Lastly, on transport, our off-platform service continues to gain traction from our dealer partners, creating additional growth opportunities.

ACV Capital also delivered strong revenue performance with 30% year-over-year growth in Q1. Last quarter, we highlighted ACV Capital's expanded go-to-market strategy while also driving process enhancements to manage portfolio risk. Our Q1 results demonstrate continued strong execution by the ACV Capital team.

On Slide 9, we highlight how we're further differentiating ACV and creating additional growth opportunities with our suite of AI-driven next-gen products. ClearCar and ACV MAX are adding value to our dealer partners, while also contributing to our wholesale market share gains. We are enabling our dealer partners to more intelligently optimize inventory, automate vehicle selling and buying and strengthen their ability to source more vehicles from consumers.

The VIPER early access program is gaining momentum and receiving very positive feedback from major dealer groups across the country. Within minutes of driving through VIPER, our industry-leading inspection data and vehicle pricing capabilities enables dealers to unlock consumer vehicle acquisition at scale in the service lanes and seamlessly identify service upsell opportunities.

We are on track to grow VIPER's footprint in the coming quarters, offering a VIPER bundle with wholesale to create a powerful new lever to drive unit growth and expand our network. In addition to leveraging AI across our product suite, we have experienced strong adoption of AI tools across a range of operating groups, including our product and development teams, where we are gaining meaningful velocity and efficiency. As such, we have even more confidence in delivering our differentiated product road map to support our growth objectives.

Next, on Slide 10. I'll wrap up the growth section with our commercial wholesale strategy. As a reminder, commercial wholesale is a large adjacent market, made up of 4 segments with both upstream and downstream opportunities. Our team has made significant progress on the next phase of our software build, and we believe this new digital model and end-to-end experience will transform commercial vehicle remarketing.

Our differentiated offering is attracting some of the largest commercial consignors, and we have recently engaged with over a dozen accounts across major captives, banks, fleet companies and auto finance providers. Our strategy is familiar. First land commercial accounts and then expand over time, earning wallet share as we prove our results. Commercial TAM provides another exciting growth lever for ACV, and we are confident that we can deliver wholesale volumes that support our midterm financial targets.

With that, I will hand over to Bill and take you through our financial results and how we're driving growth at scale.

Thanks, George, and thank you for joining us today. ACV's first quarter results reinforce our commitment to deliver profitable growth while investing to drive dealer wholesale market share gains and to support key growth initiatives. Before we jump into the details, I'd like to highlight that as we scale our growth initiatives, our financial model will evolve based on revenue mix, which we believe will allow us to deliver improved unit economics over time than previously anticipated.

On Slide 12, let's begin with a brief recap of our first quarter results. Revenue of $204 million was at the high end of guidance and grew 12% year-over-year compared to very strong results in Q1 '25. Adjusted EBITDA of $17 million exceeded the high end of guidance and grew 23% year-on-year, reflecting strong unit economics and expense discipline. Finally, non-GAAP net income of $7 million was at the high end of our guidance range.

Next, on Slide 13, let's review additional revenue details. Auction insurance revenue was 57% of total revenue and grew 9% year-over-year against a tough comparison of 28% growth in Q1 '25. This performance reflects 3% unit growth in the context of a 5% decline in the dealer wholesale market while also facing a tough comparison of 19% unit growth in Q1 '25.

Auction insurance ARPU of $542 grew 6% year-over-year and 3% quarter-over-quarter. Marketplace services revenue was 39% of total revenue and grew 19% year-over-year, reflecting continued strong performance for ACV Transport and ACV Capital. Lastly, our SaaS and data services products comprised 4% of total revenue with growth declining modestly year-over-year as high single-digit ACV MAX revenue growth was offset by modest declines in our legacy stand-alone inspection services.

Next, I'll review Q1 costs on Slide 14. Non-GAAP cost of revenue as a percentage of revenue increased approximately 300 basis points year-over-year. The increase was primarily driven by a higher mix of no reserve sales in our marketplace, which more than doubled year-over-year. While no reserve sales typically have modestly higher costs than stand-alone auction sales, they drive strong blended conversion rates, improved marketplace liquidity and importantly, are accretive to adjusted EBITDA. In fact, adjusted EBITDA per unit increased 20% year-over-year in Q1.

Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased approximately 300 basis points year-over-year, reflecting operating leverage in our model while continuing to invest in key growth initiatives.

Moving to Slide 15, I'll frame our investment strategy as we drive profitable growth. In 2026, we expect OpEx growth of approximately 8%, which is a decline from 12% in 2025. As a reminder, our 2026 OpEx includes approximately $11 million in additional go-to-market spending to support regional growth objectives. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 100 basis points year-over-year.

Next, I will highlight our strong capital structure on Slide 16. We ended Q1 with $341 million in cash and cash equivalents and $200 million of debt. Note that our cash balance includes $230 million of marketplace float. In the figure on the right, we highlight our solid operating cash flow, which reflects adjusted EBITDA growth and margin expansion.

We're also pleased to announce today that ACV's Board of Directors has authorized a share repurchase program of up to $100 million. In the coming days, the company plans to enter into an accelerated share repurchase program to repurchase an aggregate of $50 million of our common stock.

Turning to guidance on Slide 17. We are reaffirming our 2026 revenue and adjusted EBITDA guidance despite the uncertain macroeconomic backdrop and our updated view that the dealer wholesale market will decline in the mid-single digits this year.

Now for the details. Second quarter revenue is expected to be $213 million to $217 million, growth of 10% to 12%. Adjusted EBITDA is expected to be $18 million to $20 million, reflecting an 8% to 9% margin. We continue to expect 2026 revenue of $845 million to $855 million, growth of 11% to 13%. Note that full-year revenue guidance assumes that our go-to-market investments are expected to drive modestly higher growth in the second half of the year.

We continue to expect 2026 adjusted EBITDA to be $73 million to $77 million, growth of approximately 28% year-over-year. We're expecting 2026 cost of revenue as a percentage of revenue to be modestly higher than in 2025. Lastly, we are expecting non-GAAP OpEx, excluding cost of revenue, to grow approximately 8% 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 Q1 execution while navigating through challenging market conditions. We continue addressing these market challenges by enhancing our technology and operating models. Ultimately, making us even more resilient. We are attracting new dealer and commercial partners to our marketplace and expanding our addressable market, which positions ACV for attractive growth as market conditions improve.

We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering 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 Instructions]. Our first question is coming from Bob Labick from CJS Securities.

I just want to -- part of your growth strategy you've talked about is filling out your territory managers and DCIs and started, I guess, kind of Q4 of last year reignited. Maybe talk a little bit about your progress in finding and hiring good candidates because we noticed that both operations and technology and SG&A grew less than sales in the quarter. I was kind of expecting those lines depending on where those hires fall to pick up a little bit. How is that progress going? What are you learning and what's out there?

Yes, certainly. I'll start, and then I'll Bill sort of chime in. We're making great progress. We've hired really some exceptional teammates. I joined several of the new territory manager classes. We bring them here at headquarters. I'm really, really happy with the talent. The talent comes across not only I would say, Auction background, but really knowing dealer systems, either former GMs, used car managers, just really, really strong talent. I've been really happy with the talent that we've brought in thus far. That's one on the sales for the territory manager side.

In addition, from an inspector side, we've really stepped up our game where you have to go through several tests to become an ACV inspector. We really go through the gating process. So not only are we getting great talent that's going to help us not only inspect cars, but also hit our other goals as it relates to making sure arbitration and everything else is in line. We've really done a great job of hiring and training so far.

Phil, do you want to chime in?

Yes. All I would add, Bob, is you're also seeing the benefit of some operating efficiencies as well, which flows through our operations costs. But we are continuing to add to George's point, VCIs. We're also making sure that we have the right inspectors in the right territories to ensure that we're -- we have the best quality out there as well in terms of our conditional reports. I think we're making good progress. We're pretty happy with how things are moving ahead.

Then just obviously, you talked about overall market being down 5% or whatever mid-single digits in the first quarter and a similar outlook for the year. How does this impact kind of go-to-market strategy and your growth at finding new rooftops versus growing share at existing dealers? It's obviously kind of a tough market. Does that impact how you go about driving growth? Or talk about that a little bit?

Yes. Certainly, Bob. I mean, one data point is we had the most dealer visits between our territory managers and VCIs of a number of different rooftops last month than we've ever had as a company. That goes to your point of if there are less cars available at certain rooftops we need to go find another dealership down the road to do business.

One, not only did we have record-breaking sellers and buyers, but we also had a record number of new visits. Really getting out there, getting the ACV name out there. That would be like step one. I would call that blocking and tackling.

Two is really what you hear us doing on this innovation of ACV AI and bringing out our products from ClearCar to VIPER, you'll start to hear more and more in the media about how we're making incredible progress. What that does is dealers are going to know ACV in a whole another way, because if we help them go buy anywhere between 10 and 100 cars a month from their service drive and from their local consumers, then we're not just a competitor to the local auction. We're really an incredible partner to that dealership. We're both growing -- moving forward from, I would say, blocking and tackling and just showing up more and more, giving ourselves the opportunity as we grow our footprint of talented people across the country, but also this differentiated way, leading with ACV AI.

Next question is coming from Rajat Gupta from JPMorgan.

I had a question on just the first quarter growth rate. It looks like industry conversion trends were pretty strong in March, also a little better than seasonal given strong expectations around tax season. In the past, when we've had these brief periods of very strong conversion, you tend to demonstrate higher share gains.

I'm curious, it felt like numbers came in, in line with what you had guided. I'm curious, was there something that was coming in the way of those typical share gains that you would see in strong conversion periods? I have a quick follow-up.

Yes, Rajat, as we mentioned on the call, it definitely didn't help that the Northeast, where we have our largest markets had the most significant weather impact. That didn't help. Now other parts of the country, like, for example, Texas and the Carolinas grew 15% year-over-year and Southern California grew 24% year-over-year. We had different results across the country depending upon where weather was impacted. I would give that as a little bit of color of difference in our team in the Northeast still did a fantastic job, but they were just impacted the most. So I would say different things -- different results across the country based on factors outside of our control. That would be number one.

I would say with that, Rajat, you're really starting to see that there's all this other great execution going on. You're starting to see the opportunity for us to differentiate, like I mentioned with Bob's question, so I'm feeling really good that we really weathered a quarter there where weather was pretty impacted and still not only hit our numbers, but obviously exceeded our -- some of the expectations.

Yes. I would add, Rajat, because you were asking about the month of March. Actually, our conversion rate in the month of March was 1,000 bps above what it was for Q4 -- for the entire quarter of Q4. We did see a significant improvement in conversion rates. If you do some of the simple math in terms of our growth in March vis-a-vis what the market did, we basically got back to, call it, 10% or so. It's not an exact science, obviously, but a roughly 10% share gain when you do that same math, right? We did see some acceleration going into March ending the quarter.

The fact that you reiterated your full-year outlook despite just lowering the industry outlook number, so where are you seeing that additional traction? Is it something to do with some of these commercial engagements that you're having? Is it just maybe how like March and like the exit rate is turning out here on conversion? Just curious if you could unpack that.

Yes. Certainly, Rajat. Yes, we're feeling very comfortable with keeping our objectives for the year, even though, to your point, the market itself is likely several hundred bps probably worse than we were expecting from an overall market perspective, but why do I feel comfortable?

One, us growing the footprint in the field, that's working Two, this differentiated offering on ACV AI broadly with VIPER and ClearCar and with others, it's working. Three, our commercial focus and the fact that we've got literally over a dozen different major commercial accounts who've raised their hand and said, hey, we'd like to work with ACV, whether it be upstream, pure digital or downstream at one of our greenfields, we feel good about that. We feel good about this year, even though the market conditions are likely going to be a little bit worse than we originally projected.

Next question is coming from Andrew Boone from Citizens.

I'd love to hear a little bit more about what you guys are doing in terms of the VIPER rollout. How are those conversations with dealers going? Then what should our expectations be for 2026?

Yes, certainly. Where we're at is, I would say, the hardware, the software and the AI capabilities all just came together. Over the last few months, both at ACV and the majority of our initial rollouts, the dealers are ecstatic. You'll see one of these on a podcast next week with a large dealer group where they're just going to go out there and articulate how incredible this is helping them in their service drive. You'll hear a live episode of it next week. This up-and-coming opportunity right now is think, okay, hardware works, software works, the AI works. We can see a scratch, we can see a dent. We can see whether or not the tire tread depth are. We can see whether or not there's an oil leak. We can see whether or not the undercarriage has an issue. Our AI can see what it needs to see.

The next step is to really -- we've got to go out and scale this. This year won't be the scale year. This year, we're only rolling out about 150 of these between now and the end of the year. I think, Andrew, it's very simple. This year, we don't want to get over our skis too fast. We want to make sure we can deliver them, install them, support them. We really want to go into early next year scaling the production of VIPER and really proving out the whole thing. We're feeling really good about it.

The other part of this, while we're proving out the hardware scale and production is these integrations going on. We've got integrations going with these companies that are the back end of dealerships. within the service drive, names you probably have heard of companies like Tekion and others who are the back-end service drive sort of software platforms. We're doing those integrations right now so that the data from VIPER seamlessly goes right into the back-end systems of dealerships. This year will be really about going out there, getting this ready to really scale for next year. The most important thing, if I'm thinking as an investor, is the product works. The feedback we're getting is incredible.

Then one of the key trends that we're just hearing across all companies that are talking to us this quarter is just AI efficiency. Can you talk about that both with inspectors and whether there's a step function change in terms of what they can do in the field? Then also internally within corporate, what are you guys seeing there in terms of increased efficiency just given the gains in technology?

Yes, certainly. I'll start and then one of my colleagues wants to chime in at something more specific. Specifically on our inspectors, we're looking at the time to inspect both pre and post having VIPER live, it's sort of 2 different worlds. Pre-VIPER is just really getting the time down, I would say, meaningful. We've got certain inspections right now for certain types of cars, like I would say, a nicer cleaner car. We're now, we believe, under 10 minutes for a cleaner vehicle. I would say the worst vehicles are also now under 15 minutes, whereas all cars -- all vehicles were taking us, I would say, 30 minutes on average prior.

We've got 2 different price buckets of cars now that are about half the time as it used to be. Then kind of the belly, the middle area, we still got a bit more work to do to become more efficient on our time with the cars that have more issues. We're making good progress there and leveraging AI, getting our TV more efficient. Then once VIPER rolls out, I think our inspectors are only going to spend 10 to 15 minutes a car, any car. Like it's just going to be massively efficient. It's going to be so much easier. They're basically going to just check to make sure there's no frame damage, a few other things, launch the car. Next year, we could see breakthrough, really unbelievable breakthroughs on having efficiency, but we've got some work to do to make that happen.

Internally, from a tech perspective, other efficiencies, as you mentioned, the amount of production I'm seeing from our engineering and product team, leveraging platforms like Quad and others, it's just incredible. I mean we've pulled in -- most of my product and tech teams are pulling in the Q4 priorities that were put out for this year into Q3. Not all of them yet, and I say that because for the ones listening, I can't wait for all of my product and tech teams to pull in their Q4 into Q3. We're going to keep seeing that happen. We're going to start to see -- and I feel like this is just getting started.

The amount of code, the amount of development on a per person basis, it's just supercharged over here. With the development of these tools this year, obviously, it's been a breakthrough, not just for ACV, but a lot of tech companies, but I couldn't be prouder of what the team is doing.

I would also just add that we just signed a major enterprise agreement with one of the largest providers of LLM. That approach will not just extend to engineering, but other operational activities. We're kind of in the early days. We're just getting started. Frankly, we think there's a huge opportunity, which a lot of companies obviously are kind of seeing the same opportunities as we are.

Next question is coming from Naved Khan from B. Riley Securities.

Just a couple of questions from me. One is, I think you lowered your outlook for the industry to negative 5% for the full-year. You're reiterating the guidance, your own guidance. I'm just wondering what kind of unit growth are you embedding in that? Are you still thinking about high single-digit unit volume growth? Maybe as a part of that, we've heard some commentary from others about off-lease volume coming back and such. Even with all of these kind of factors, how do you kind of still think about the negative 5%?

The second question I had is around pricing. Do you have any -- are you contemplating any price increase? Or have you already rolled out one? What are you seeing out there with respect to similar moves from competitors?

Yes, I'll start and then Bill can chime in. When you think about the outlook for the year, it's just better to be prudent with all the macro conditions. I think many of you have heard from the dealer -- franchise dealerships out there where they are with retail as well as with some of the OEMs. Keep in mind that the trade-in at the dealership creates the majority of the wholesale.

To your point, as off-lease comes back, could that benefit and could that mitigate some of the dealer wholesale challenges? It could. I don't want to bank on that yet. I hope it does. Our thought right now is just to assume the year stays kind of the way it is right now, where we've kind of got these broader macro challenges and just make that assumption. I hope you're right that off-lease and some of these other things could contribute because to your point, with those cars coming in, the dealer might wholesale more cars. That's really a good point, and I hope you're right. We're just not going to plan for it.

Then as it relates to price increases, as you know, we do some minor price increase every year. We just to make sure we're taking care of inflation and other costs. We've always kind of got that part of what we do.

Bill, any more you want to share? Go ahead.

Yes. What I would just say is that -- so what you saw in Q1 was our ARPU grew 6% year-on-year. That's a reasonable expectation for the full-year, up in a similar fashion on a percentage basis. That's the ARPU side.

You also asked a question about unit growth. Obviously, we don't guide us to unit growth. All we've said is that what we expect and what we baked into our guidance is an assumption that over time, we will improve our share gains, and unit growth versus whatever the market is doing. That's what's baked into our numbers. Hopefully, that gives you some sense in terms of how to model it.

The next question is coming from John Healy from Northcoast Research.

George, I just wanted to ask about the opportunity set with the commercial consignors. I think you mentioned the 12 a couple of times in the call. What's the line of sight to activity with those folks yet? Is that something that we could see before the end of the year? Or is this much more like a '27 story for you guys? Obviously, that's a lot of interest. What would be an acceptable batting average, do you think for capturing maybe some of that business in terms of maybe rooftops or just hats with those folks?

Yes, certainly. Maybe I'll just try to give you a little bit more color. If I separate the upstream versus downstream activity, the upstream being the pure digital where you don't need land, the fact that we've already gone live with one of the top 4 national rental car companies, and we're going live with our second rental car company either later this quarter or early Q3 shows that of the 4 large rental companies, the fact that we're working with 2 out of the 4, that's a little bit more color on -- we're definitely starting here. We're starting to make progress.

We've got 2 of the larger fleet companies who have done, I would say, small tests with us. The small tests have gone extremely well, where they've been able to get results that were just as good or better than any of the physical auctions they work with. We're going -- I would say, from test to, I would say, certain regional deployments with them. These are companies who will give us business. I was sincere when I kind of gave the land and expand earlier on the call. First is the land, get the contract done, which is what we're doing with a few of these guys where we just got the contract done. They'll start to give us some regional business. Keep show beyond the test that gave us that we can do more, which we will. And then we'll start to show that in certain regions across the country, we've got the best remarketing platform.

Then downstream, we've got 2 auto finance repo type customers, one that should go live in like the next probably 30 to 60 days. They'll start giving us whatever it is, let's say, 20 to 50 cars a week or something, show this thing works, prove that we could not only ground the vehicles, do the light recon, that might mean, for example, put in a battery. When I say light recon, I'm being sincere, very light recon. It allows us to go out there, show it works and then let's start scaling it. Hopefully, I mean, that's a lot of detail to give you. I would say this year is go out there, get these guys with contracts, show it works, at least in one region and then go out there as we get in there and start to take additional regions across the country.

Then, Bill, just one follow-up. I think one of the comments you made was that March was like a 10% growth rate. I just wanted to make sure I was hearing that sound bite right because I'm sure folks will focus very much on kind of that exit March data point. I just want to make sure we understood it.

Yes, sure. What I was implying was growth versus market. Again, we're in the context of Q1, the market was declining. When we looked at the math in terms of our actual -- our absolute unit growth in March versus what we understood the market did, can we get closer to "share gains" that would be in the 10% range, give or take. It's never an exact science, of course, but that's -- so I don't want to imply that our growth was actually 10%. It's really -- as you know, there's a lot of context given to what our growth rate is vis-a-vis whatever the market is doing. That hopefully gives you more context.

Next question is coming from John Babcock from Barclays.

Just a quick follow-up on the commercial side of things. You talked about traction with the rental car companies and also on the fleet side of things. Are you making traction with captive FinCos and banks as well? Or it's really too early to say on that front?

We have a few of -- so fleet, yes, I mentioned, fleet would be like corporate cars. We're actually making some progress. On the off-lease cars, we do have a couple of OEMs that we're in significant conversation with where they're discussing giving us a window of selling some of their cars. I don't have those signed. That's why I didn't broadcast it. Usually, when I talk about things, it's signed and ready to deploy. I don't want to jinx us.

Then we have another major, like, I'll call it, OEM type where we're now integrated into their flow, but we're not yet auctioning cars. We're getting there. We're starting to show up and hopefully, more broadly on the captive side, we'll start to win some business throughout the year. On banks and repos, yes, I mentioned that earlier, not only are we doing business with somewhere probably around 30-ish percent of all the banks today. I think is what team told me probably a larger than 30% at one of the locations from our acquisition. We really, in a way, have some of those relationships. Now it's about scaling that. We inherited some of these relationships, and we now need to bring into, let's say, Houston or Chicago or the next location. Yes, we know that category, and now it's about scaling it.

Then next question on the share repurchase side of things. It's not a small amount of repurchases. I was wondering if you could talk about the decision to do shareholder return at this point as opposed to investing back in the business and trying to maybe push harder on the growth side.

Sure. We felt this was a reasonable size for a buyback, and that it's a good ROI for our shareholders based on our views of kind of our future opportunities. We talked a lot about a bunch of those today and previously. We just thought it was appropriate based on the amount of liquidity we had. We have $340 million of cash and marketable securities on the balance sheet. We're leaning in pretty hard, obviously, with a $50 million ASR. We think it's a good use of capital.

Again, we're going to be -- we're still expecting to generate free cash flow this year and expect that to grow over time. We think it's the right time and place to actually launch on a buyback.

Next question today is coming from Jeff Lick from Stephens.

I was wondering if you can expand on John's questions on commercial. Just curious where you're at now in terms of the stand-alone sites or the greenfield sites. I think you had 10 and you opened a greenfield and maybe there was another. Then also just curious if you could talk about with the wins with the commercial consignors, maybe elaborate which ones are true digital versus where you're actually using the real estate?

Yes. I think I gave that detail a few minutes ago. I'll just repeat it. I separated a few minutes ago on the upstream versus downstream. When I mentioned we're working with one and now we believe the second rental car company, I was talking about upstream that was without land. I also mentioned about a couple of the fleet companies we were working with that didn't require land. Some of that color that the listeners heard me saying a few minutes ago, that was upstream to double down on that.

I also talked about a few minutes ago that at our downstream locations, we're working with about 30% of the commercial containers today at one of our existing locations. Then to your point, it's about bringing them now to our new locations. We've got one open, one about to open. That's what I just said a few minutes ago, just to repeat it, and we're making great progress.

Yes, but you didn't say, as you know, sometimes all companies, you can do digital and sometimes they require real estate. That's why I was just curious then on the clarification on how many real estate sites you have, physical sites now?

Yes, more to come on this.

Then just a follow-up on the guarantee, Bill, any color on the penetration of the guarantee you said it doubled. I was just curious the mechanics behind why is the non-reserve -- the guaranteed sale have higher costs?

Yes, I'll start and Bill can chime in. When you look at the way it works, the business models, we charge a small fee for a customer that goes into the no reserve. Then there's a fee. Then we also -- there's no the discount on the buy side ever because it sells no reserve in auction. There's higher ARPU on a no reserve. There's higher cost. It changes the revenue margin percent, but it was really fascinating.

Bill, maybe you can lean in a little bit about our EBITDA profile. We didn't really talk about that at all, just what's going on overall in our EBITDA profile.

Yes. First, on the call, I mentioned that our EBITDA per unit actually in Q1 was up 20%. The way this works through our model financially is slightly lower revenue margins, but that's offset by OpEx leverage. Considering the fact that 70% of our OpEx is really fixed. We get full leverage of our inspection costs due to the fact that it's 100% conversion rate.

In fact, when we look at our adjusted EBITDA per unit in our midterm model, that target is $230 of EBITDA. That's at 1.5 million units of volume. A significant jump from where we are right now. However, if we just look at 2 regions that we have in the country, we've either already achieved or exceeded that target, and that's without future OpEx leverage. We're feeling pretty good about the ability as we continue to grow our volume and further populate a lot of these territories with more scale that we'll be able to drive really strong EBITDA margins on a per unit basis. Yes, per unit basis. It all gets down to the final unit economics, right?

The geography on the P&L might change a little bit, but it's all about profitability. We're feeling really good about the opportunity to continue to ramp that.

Next question is coming from Glenn Shell from Raymond James.

Congrats on the great quarter. You said VIPER are enabling a huge breakthrough next year. That sounds great. Is the VCI investment cycle to support VIPER deployment or just more general growth? What should we expect for the future pace of VCI investment as VIPER reach scale?

Yes, great question. Yes, our VCIs are being trained for multiple different ways of helping us scale the business. It was a really great question. Something I wouldn't have thought to lean in at. One is inspecting vehicles for wholesale. That's obviously their current primary task. Two, I believe I mentioned it on the last call that when there is an arbitration, we used to send the car to like a local facility or to verify and it would actually cost us money every single time we did that.

Now our inspectors are being trained to go out and reinspect the car case for arbitration. That's actually helping us get higher customer satisfaction because we're getting to the cars faster, not waiting on a third party. Two, it's helping us really learn a lot and really make sure we got our arbitration under control. That's two. Three, we use our inspectors for auditing ACV capital. That's another function.

Then to your point on VIPER, our last 2 installs for VIPER were done with our ACV inspectors, really proud of that. Nobody for our R&D team had to fly out there from Buffalo. That was a milestone. I know it's simple to other investors who scaled hardware companies, but the box arrived and the box arrived in a way where our local inspectors were able to assemble it, put it and assemble it and have the whole thing running within a few hours. literally, here's the Internet, get the whole thing going. I was just so proud of our inspection team.

Think about we've got an amazing team of colleagues across the country. What we tell them is you're going to be trained in more than one thing. A lot of them were former mechanics. They're very skilled. They're handy. And we're really fortunate to have these great teammates to help us on whatever task they're doing for us that day.

Yes I would add in terms of scaling that workforce, so what we indicated previously was that we were going to add 100 inspectors to the team this year. We're a little more than halfway there in terms of adding folks. But that was more of a onetime upscaling of our team in the field. Don't look at this as kind of a need that we have going forward. That's $11 million that plus the adding some territory managers as well and other resources on the go-to-market side. That's what's baked into our guidance this year. Hopefully, that helps you model it. I think in terms of going forward, obviously, we'll get into next year and the years beyond in terms of what happens to that workforce and scaling as we get closer to 2027.

Specifically on VIPERS, how many VIPERS are deployed so far? How many are you installing per month at this point to get to that huge breakthrough next year? Then how big is the backlog of dealers who are asking for this?

We have about 18 live. We have somewhere around 75 that are waiting for them or more. Then we're going to build whatever that is, another 60, 70 more. We do have a little bit of a backlog we are prioritizing. The way we're doing that is the dealers are raising their hand. We're trying to give each of the large dealer groups a few of them. Think like major dealer group might get 2 or 3 this year, not the 5 or 10 they're asking for. That's the way to like spread the love. Really transparent to those dealers that next year is the scale year and next year, we'll be building several of these a month, but I'm not ready to tell you just yet. So great question.

Next question is coming from Gary Prestopino from Barrington Research.

George, I'm interested, you mentioned something about that you're doing integrations with VIPER into the dealer DMS system. What does the dealer specifically do with that data? I mean, I assume at VIPER at the point of sale, the service technician whomever can see the value of the car and kind of make a pitch to the owner of the car at that point, hey, you can get a good value for this and trade it in and buy something or maybe I'm wrong with that. Is the dealer taking that data and maybe using it for future leads with their current clients?

Yes, Gary, great question. Yes, as you know, there's companies like myKaarma, like Takion, CDK as a service arm and others. These companies, some of them are both a DMS and a service platform. I hate to get into the weeds here. Some, for example, myKaarma are more focused on the service side, not a broader DMS. Whatever the dealer is using to power their service department, to answer your question specifically, car goes through VIPER, we get this incredible data profile, every angle of the vehicle, tire treads and under carriage. There's other IP we're working on going into next year that I'm not yet talking about. But -- so you get this whole profile. You also get the rest of ACV AI, which is predicting the price and condition of that car. You also get the defects we normally see with that vehicle. If it's a Nissan Maxima with 120,000 miles, we know what's typically going to happen next within the next 10,000 miles. Think not only what is that vehicle, but what are the predictions. As you know, having been around the space is step 1 was we accomplished that objective.

Step 2, it needs to be put into the dealer system so they can really just make this a scalable process. That's what we're working on next. Proof one happen. Now we need to get in so it can scale. Then to your point, it's the day of service. High Miss. Consumer, Mr. Consumer, did you know that 2 of your tires are bolved, it's going to cost you $800? By the way, it might be time to buy a new car. Whatever they want to do with that information, it's not only the day of, but what we see is consumers sell their car anywhere at our best-performing dealerships, we're seeing 5 to some are 7 -- 1 of them is 9 out of 100 ROs, repair orders.

That's incredible because as you know, there's over 250 million cars a year going through franchise dealerships. You just do that simple math of 5 out of 100 repair orders to lead to a consumer selling their car, it's massive. It's why you're hearing dealers push us. It's why you're hearing us take that demand going, we got to get going over here because dealers have a hard time scaling this. It takes too many people to do this. By leveraging this hardware, leveraging our AI, it gets put into the dealership. Then it gets put into the CRM, it's created as a lead. Some dealerships are then putting it with what's called their BDC and they're using a sales team. And some have actually hired very specific AI-driven bots that do the follow-up for them. We're about to launch that with one of the major dealer groups.

Each dealership deployment will be different based on the other vendors involved. Either way, our role at ACV sounds very familiar. What's the condition, what's the price. We're going to be the one, we're the ACV, we're the actual cash value.

It sounds like totally disruptive technology and a disruptive product in the market.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Great. Thank you, operator. Everybody, thank you for joining us this evening. We look forward to seeing you on the conference circuit this quarter. Again, thanks for your interest in ACV. Have a great evening.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the ACV Q4 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2025 financial results. With me on the call today are George Simone, 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 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.

And with that, let me turn the call over to George.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us today. We are pleased with the ACV team's execution in Q4, delivering revenue at the high end of guidance and adjusted EBITDA above the high end. Our performance was driven by solid execution in our dealer wholesale business despite challenging market conditions as we continue to gain market share, expand our dealer partner network and drive adoption of our value-added dealer solutions. And again, ACV Transport and Capital delivered strong revenue performance. We also executed on our product road map to further differentiate ACV's marketplace experience, support our commercial wholesale strategy and expand our TAM.

Turning to 2026. We are expecting revenue growth in the low double digits and adjusted EBITDA growth of approximately 28%, which includes additional growth investments to support our medium-term financial targets. 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. Q4 revenue was $184 million, growth of 15% year-over-year, and we sold 193,000 vehicles. For the full year, we delivered 19% revenue growth and grew units by over 86,000 or 12% year-over-year.

And adjusted EBITDA grew by over 100%, demonstrating the scale in our model. Next on Slide 5, we'll 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 is leveraging AI to attract new buyers and sellers, increase penetration and wallet share and gain traction with large dealer groups. Let's begin with our marketplace. Our highly accurate condition-adjusted pricing guidance enables sellers to set more informed reserve prices. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions in Q4, dealers increasingly leaned into ACV's technology.

For buyers in our marketplace, we tailor their experience across buyer personas and optimize the bidding process by providing AI-enabled recommendations informed by dealer preferences and current market factors. These investments and our leading marketplace experience were key to growing our dealer network in 2025, with 15,000 unique sellers and over 22,000 unique buyers transacting with ACV. Our franchise rooftop penetration achieved a new milestone, reaching 35% during the year. And our major account team delivered impressive results with a 300 basis point increase in rooftop penetration. Next, on Slide 8, I'll provide some highlights on our data services. Market traction for ClearCar remains strong, especially for ClearCar service that enables dealers to seamlessly produce consumer appraisals and offers from their service lanes. ClearCar is also an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. During 2025, existing dealers that launched ClearCar increased their wholesale volumes of ACV by over 50% after going live. We're also seeing early momentum with our strategy to bundle ACV Max with wholesale. A recent cohort of new ACV Max dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within 1 quarter of launching Max.

Our strategy to offer a broader set of value-added solutions is creating another growth lever for ACV. Again, this quarter, we're excited to share feedback from one of our dealer partners, the Hendrick Automotive Group, 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. Turning to Slide 9. From a geographic perspective, we continue to drive strong growth within our more established regions, where network effects are driving significant market share.

At the same time, our footprint has expanded across the country as highlighted in these 4 regions, which delivered strong year-over-year unit growth in Q4. As we discussed in our Q3 call, there are certain emerging regions where we are increasing our territory manager and VCI footprint to drive accelerated growth. These efforts began in Q4 and will continue during 2026, and we are confident in the medium-term growth outlook for these markets.

Turning to Slide 10. Let's review our marketplace service offering. Beginning with ATV transportation. The transport team had strong execution in Q4 with 20% revenue growth and 101,000 transports delivered. AI optimized pricing continues to drive strong growth and operating efficiency. Revenue margin has already achieved our midterm target in the low 20s. Our off-platform transportation service continues to gain traction from our dealer partners, creating additional growth opportunities. Last, I'll wrap up the growth section on Slide 11 with ACV capital highlights. ACV Capital delivered strong revenue performance, with 48% year-over-year growth in Q4 despite actively lowering our exposure to higher risk customer segments. The ACV Capital team implemented new growth strategies while driving process enhancements to mitigate portfolio risk. As such, we are confident that ACV Capital will remain an important value-added service for our dealers and a long-term growth opportunity.

Next on Slide 12. I'll address the second element of our strategy to drive long-term shareholder value innovation. Turning to Slide 13. Let's go deeper into how we are leveraging ACV AI to drive growth and to deliver value to our dealer and commercial partners. Using machine learning, we combine inspection data and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. For example, we are leveraging our pricing platform to offer ACV guarantee to sellers and deliver no reserve auction to buyers. This offering remains the fastest-growing channel in our marketplace. We are pleased to see ACV guarantee mix increase to 19% in Q4. As a reminder, our guaranteed sale is highly differentiated offering that benefits buyers sellers and ACV by accelerating bidder engagement, increasing buyer satisfaction, removing seller market risk while delivering 100% conversion rate. We're confident our guarantee offering will be another key driver of market share gains. On Slide 14, we highlight how we are further differentiating ACV in the market with AI-driven next-gen products like Viper and Virtual left. We are extending our industry-leading inspection technology, vehicle data and pricing capabilities to dealers looking to unlock consumer vehicle acquisition at scale in their service line. At the recent NADA Industry Conference, we announced the next wave of availability for the Viper Early Access Program and dealer reception was tremendous. We're excited to kick off the commercial launch of Viper with select dealer partners, providing them with unique and scalable consumer sourcing platform. They will expand our TAM at a rooftop level by tapping into the large peer-to-peer segment and by leveraging pricing models that bundle Viper with wholesale we're creating a powerful new lever to drive wallet share expansion and unit growth. Wrapping up on innovation.

Let's turn to our commercial wholesale strategy on Slide 15. We are pleased to see the initial range of capabilities developed over the past year, powering our first greenfield remarketing center in Houston. Our team has been in active conversations with commercial customers to deepen our understanding of their requirements for the next phase of our software build. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing, and we also look forward to launching an additional greenfield location in Chicago this year.

With that, I'll hand 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 Q4 financial performance with revenue at the high end of our guidance range and adjusted EBITDA exceeding the range. On Slide 17, let's begin with a brief recap of our fourth quarter results. Revenue of $184 million, grew 15% year-over-year compared to very strong results in Q4 '24.

Adjusted EBITDA of $8 million grew 36% year-over-year, reflecting strong expense discipline. Finally, non-GAAP net loss of $1 million was favorable relative to our guidance range. Next, on Slide 18, let's review additional revenue details. Auction assurance revenue was 55% of total revenue and grew 11% year-over-year against a very tough comparison of 40% growth in Q4 '24. This performance reflects 5% unit growth which also faced a tough comparison of 27% growth in Q4 '24. Auction and assurance ARPU of $528 grew 6% year-over-year and 4% quarter-over-quarter.

Marketplace Services revenue was 39% of total revenue and grew 23% year-over-year, reflecting continued strong performance for ACV transport and ACV capital. Lastly, our SaaS and data services products comprised 5% of total revenue with year-over-year growth accelerating to 8%. Next, I'll review Q4 costs on Slide 19. Non-GAAP cost of revenue as a percentage of revenue increased approximately 400 basis points year-over-year. The increase was primarily driven by higher arbitration costs as expected within a specific cohort of customers. Recall that our Q4 guidance assumed arbitration costs would remain elevated in the quarter, but that trend would normalize in 2026 following mitigation steps we implemented. These steps are already showing positive returns in early 2026.

Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased approximately 400 basis points year-over-year reflecting operating leverage in our model. Moving to Slide 20, I'll frame our investment strategy as we drive profitable growth. In 2026, we expect OpEx growth of approximately 9% and which is a decline from 12% in 2025. Note that 2026 OpEx includes approximately $11 million in additional go-to-market spending to support regional growth objectives. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 100 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 21. We ended Q4 with $270 million in cash and cash equivalents and $190 million of debt. Note that our cash balance includes $171 million of marketplace flow. In the figure on the right, we highlight our solid operating cash flow, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 22.

First quarter revenue is expected to be $200 million to $204 million, growth of 9% to 12%. Adjusted EBITDA is expected to be $14 million to $16 million, reflecting a 7% to 8% margin. 2026 revenue is expected to be $845 million to $855 million, growth of 11% to 13%. Note that full year revenue guidance assumes that our go-to-market investments will drive slightly higher growth in the second half of the year. 2026 adjusted EBITDA is expected to be $73 million to $77 million, growth of approximately 28% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue to grow approximately 9% year-over-year.

Now with that, let me turn it back to George. SP1 Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our Q4 execution while navigating through challenging market conditions. We continue addressing these market challenges by enhancing our technology and operating models ultimately making us even more resilient. We are attracting new dealer and commercial partners to our marketplace, and expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map, powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering 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 Instructions] Our first question comes from the line of Andrew Boone with Citizens Bank.

I would love to just double-click in terms of 4Q, 25 units sold. We've seen this deceleration. Can you just help us understand whether that's competitive pressure, the market macro, anything you want to call out in terms of highlighting 4Q results? And then I'd love to ask about MAX. It sounds like you guys are seeing real results in terms of better integrating with dealers to just drive more volume. Can you help us understand what's the road map to drive better MAX adoption more broadly? .

Yes. Andrew, when you look at Q4, first, we delivered, as you can see on our revenue expectations. I think we had a really -- we had a strong quarter from a revenue perspective. For the year, we grew units 12%. So that was solid. And when you look at the Q4 compare, it was a tougher compare. But what we're doing about creating more growth of things we've talked about. We're adding more inspectors out in the field. So we'll start to see that benefit throughout this year. That's one area we're adding. We also talked about investing in a few more of the [indiscernible] you brought up. But I do want to actually bring up the real the backdrop here on on dealer wholesale is growing from the physical auction. Still 70% of the business out there is happening at physical action.

So the broader the broader need is still just to bring more and more business being had at physical auctions over to digital, which between our differentiated offerings is starting to happen more and more. On your second question on MAX, we are really starting to scale that business where it's now being connected more to wholesale. For some of the rooftops, we add an additional offering that puts a guarantee on units. So not only are we providing pricing guidance, but we'll put a guarantee, and we're starting to scale that with additional rooftops. So we look forward to scaling MAX additionally throughout the year.

Our next question comes from the line of Rajat Gupta with JPMorgan.

I had a question just following up on the previous one. It looks like your 2026 guidance, it does not assume much of a change in overall market share growth versus what you saw in recent quarters. despite your incremental margins moving lower versus where you were last year. I'm curious why that would be the case. And if there are like any onetime investments maybe Viper and other initiatives around commercial that might be causing the incremental margin to slow down? I mean, just helping it just seems a little counterintuitive to look at incremental margin driving versus market share not accelerating. If you could clarify that? And then I have a quick follow-up. .

Yes. Sure. Yes. So the -- I'll start and then Bill can chime in. Two of the investments we're making at least to, and Bill can chime in with the additional is what we made with the infield, which are additional inspectors. We're hiring some additional territory managers, as I mentioned a few minutes ago. So that's one area of additional expense and Bill could kind of go live. And second is, yes, we're starting to invest in the Viper rollout. So that's also part of the numbers. So we believe Rajat, as we're making these investments throughout the year, we'll start to see more of an impact towards the back half of the year because obviously it takes a little time to get these things going. But Bill, maybe you can chime in some more of those.

Yes. So we're not just to go through the numbers again. So the incremental spend that we've baked into our guidance for this year in terms of those go-to-market investments is approximately $11 million. If you look at our incrementals, excluding that, they would have actually grown 500 bps year-on-year from 25% to 30%. So that's number one, just ensure you got the right numbers, right? And as George said, at this point, it's early in the year, we're making these investments, obviously, with the with the objective of driving more share gains. But we're pretty conservative at this point in terms of what we're going to bake into our guidance until we start to see these investments pay off over time.

Understood. So the market share, essentially applying higher market share acceleration in the later in the year, assuming these investments in been fruit.

Yes. There's -- we're assuming a slight increase in the second half of the year versus the first half. But again, we're taking a more conservative perspective at this point until we start to see this play out over time.

Understood. And just a quick follow-up, a little more high-level question. Could you maybe comfort investors around just the risk of AI to the business. I mean, clearly, there seems to be a lot of interpretation around. Anything you can help just provide more clarity around that? What differentiates APV, what differentiates our business model. Is there a risk -- is there a benefit from AI? Maybe if you could just dig a little deeper into that and just how you're thinking about that. .

Yes. I mean, the irony, Rajat, is we are the disruptor. We are the AI disruptor in this category. So we are that company that is aiming to change automotive for the better. We're the company who's trying to help a traditional retailer like a franchise dealer, as cars drive through a service drive, take pictures and videos and predict the retail price within a $38 that it's going to sell for and estimate wholesale value was in $100 to a point where we'll guarantee it. we're the ones making predictions on what types of inventory they should be buying and selling. We're adding new capabilities throughout the year that really will help franchisees become more efficient and actually need less people. So we're huge fans of what you can do, they came to be that disruptor. [indiscernible] to be the one that helps really franchise dealers modernize their use of these tools. We're integrating with a lot of different vendors. So it's not like we're picking 1 widget or 1 thing. We're integrating with all the CRMs and all the DMS solutions. And so regardless of what tech stack the dealer chooses.

So yes, we're -- we should be 1 of the beneficiaries of the of the speed that you're hearing from investors is that all industries will change, AI will change every single industry. This will be one of them, and we should benefit from that.

I guess, I guess the interpretation is that there might be a stormy that that can do what you're doing in a much easier fashion, maybe providing the inspection capability to the dealers directly or the pricing capabilities. Is there anything you can do to protect your position? Or do you even see that as something realistic or practical? .

Yes. I think listen, I think investors should do their homework. They should -- you should watch the video we posted regarding what we do for the largest private automotive company in the country post in our Hendrick Automotive watch that video, see what we're doing. They should do the research we're doing for some of the public automotive groups who speak very highly about the way ACV is doing for them. I think when you do your homework, you'll see we're not just predicting numbers. We're predicting them to the point where we can back them and guarantee that. So yes, there could be start-ups that emerge in this category, but I think they'd have to raise hundreds of millions of dollars, if not billions. So then have the balance sheet and the data which would be very difficult to do. We've inspected over 1 million cars a year that we know all these scratches, all these dens. We've now earned the credibility to be part of the workflow for all these dealer groups. So I could see why in other industries that they would be concerned. But in this one, Bae are that disruptor.

Our next question comes from the line of Ron Josey with Citi. .

George, I wanted to ask about conversion rates. I'm just wondering if they return back to normal seasonality in the quarter after some sort of ups and downs last year and then thoughts on conversion rates in the '26. And then maybe bigger picture, when we look at the unit growth improvements across the Carolinas, South Florida, South California to East Texas, remind us what led to the outsized growth here and sort of what this means going forward?

Yes. On the first point, our conversion rate for Q4 was up year-over-year, where most of our competitors were flagged out. So we did see a year-over-year improvement in conversion rate. And we saw that, I think the overall improvement or no reserve sale is doing this, what we refer to our investors the guarantee offering we give the guarantee to the seller, the buyer gets a no reserve offering where they can bid without a reserve. It's really helping not only differentiate ACV by delivering a better buying experience, a better seller experience. So we did see a conversion rate. Obviously, Q4 is always tougher on conversion rates, but we're executing well. And we actually do see our overall, our guarantee and no reserve offering continue to grow.

This quarter, it started out we're already in the the 20% range of our total oil units now selling, and we're seeing more and more of our customers start to adopt the product. So one, I would say conversion rate, I believe, we're starting to become some of the best in the industry. And we did also to help on conversion rates. We were harder on sellers who are giving us overpriced cars. We did get rid of a few sellers. We implemented more policies to make sure it's a better buyer experience. So we're being more and more prudent on not just chasing units, but making sure we're building the best experience. So we started to really sort of manage the marketplace with stricter rules. And that's really coming out. I think we're seeing higher buyer NPS as it relates to the sell-through at rate conversion rate, probably than I've seen in several years. So we're seeing some confidence from buyers coming back on conversion rate. So that was a long-dated conversion.

Yes. And then, Ron, just to put a finer point on the numbers. So sell-through in Q4 was up 150 bps year-on-year. which, for us, as we think about our business and kind of the trends that we can hopefully drive going forward, that can, over time, become more and more material.

And then on your second question, what did we do differently? We brought -- I'd like to give you an example of Carolina is we took a very strong performer of ours that was in the New York metro area, who is a territory manager, we promoted him to a regional director down to Carolina. So we brought somebody that really do the ACV model. He then worked with the local territory managers. We also, I believe, added an additional territory manager in this region. We hired additional inspectors. And we really just doubled down. Strong execution they really know how to present our differentiated offering. So yes, I would say that market, Carolinas took us a little bit longer than we would like to grow.

But now it's growing. And we've got strong talent there. They've got great momentum, and we feel really good about it. The same story with South Florida. Our team down there is just a great team. they keep differentiating the ACV offering, whether it be the guaranteed sale. We -- they're also 1 of the ones that are starting to leverage our inspector teammates to go out and help on the buying activity on the demand side, so of leveraging our inspector base not only listings, but just getting out into the field more, both sellers and buyers. So that leader down there, I met with him last week, is doing a fantastic job of just building out South Florida.

So yes, we're really showing that region by region, we got more work to do over here, but I'm really, really excited to see where we've got the right talent. We've got the right folks out there, we're starting to take share at healthy rates.

Our next question comes from the line of Bob Labick with CJS Securities.

I wanted to ask Viper, you talked about rolling out this year. You talked about a lot of dealer interest at recent shows and stuff. Have you said -- I guess, when will it be in the field? But more importantly, what are the keys you're watching for in your launch once you get it out there before you decide to do maybe a more widespread rollout.

Yes. Thanks, so we are -- our #1 priority with Viper in these initial rods is really to help ensure the dealers going to be able to leverage us to acquire more vehicles. We think about dealers optimizing their revenue is all about the top of the funnel, sourcing more cars. If they can source more cars, then they can optimize and decide which cars should they be retailing, which car should they be with the wholesale. So these initial customers primarily have ACV MAX as their inventory management system. Our goal is to get them to buy more cars. So think a dealer buying 30, 40, 50, 70 plus cars, they call off the curve or [indiscernible] primarily from their service drive. So that's a key KPI is helping them buy more cars. Some of the dealers we're talking to have very large goals. Bill and I actually met with 1 of them last week, and the General Manager of that store was a dealer who said he'd like to buy 100 in number. He wants to retail 100 more used cars a month which means he's probably going to buy more like $125 million to $130 million.

Yes. And retail the ones that he wants to keep.

So that's the example, Bob, of here's a dealer who just got Viper, and those are the words of a specific dealer. And -- so [indiscernible] site because here's a simple math, they buy more cars, they're going to wholesale more. The more they buy, they're going to keep the best 60% to 70% for retail. And then they'll end up wholesaling somewhere around 30% to 40% of these starts. And so think about it as TAM expansion for us at a rooftop level. So you'll see cars that either would want peer-to-peer or cars that would have went to 1 of the large big-box type companies will now get purchased by that dealership. So Said another way, we think some of the best-run dealerships in the country are going to be dealers that have Viper. And if we could turn that rooftop into 1 of the best run dealerships in the country, right? Then there's a bigger -- even a bigger reason to be working with ACV in the ECB portfolio.

Okay. That's exciting. So I can't wait to watch that as it rolls out. And then you gave us a few stats on ACV price guarantee of 19% in the quarter and ticking up already for no reserve auctions and percent of volume. Is there a natural level or a goal for that or a level that it can't go above? Or how do you think about the progression in the no reserve auctions in the percent of volume that could be? .

I think if we could see our no reserve sales being -- that won't -- I don't know what it will hit this year, but I think if it could hit mid-20-ish percent range this year, I'd be ecstatic, maybe higher, who knows. But it's really we're not saying every single car should run no reserve, right? If you look at some vehicles, like a frontline vehicle, a dealer just running it for 24 hours on our platform.

We're not seeing every single car needs to run that way. But there is a halo that's happening on ACV's marketplace right now because the more cars that are running now reserve, buyers are showing up. We're still now -- I think I mentioned in a prior call that we've got in bidders per car, I think we're now at over 10 bidders per car. So that keeps climbing, where we've got tremendous bid activity. That's on average because there are some parts that might have 20 or more bidders per vehicle. So we've got great bid activity. It's allowing us to have our data science and predictions are getting better and better. at asked the question earlier about AI. I mean when you think about the ultimate sort of machine learning, AI predictor is not just using third-party data out there in the Internet. But this is our data where we can put a number on a car, measure it of how well we execute. And then to have the bidirectional integration with the DMS, where we know what dealers are retailing the cars for. We're in a really unique spot. So we're really pleased with where we're at today. with our guarantee offering and how it's producing these sort of no reserve opportunities for buyers.

Our next question comes from the line of Chris Pierce with Needham & Company.

Just to -- I just want to under sand -- I may not have the math right, but if I look at just pure auction recognized revenue per unit, it's in line with Q3. And on the prior call, you talked about incentivizing sellers, power sellers and people to try to price guarantee, should we -- and I know that incentivizing power cells has sort of been a longstanding industry dynamic. Should we think about that for you guys as something that's not temporary and that's sort of going to be sort of like the new normal as industry competitive levels change? Or like if I reading into something? I just want to get you on that. .

Yes. I think that's a good point. We're Revenue per unit in Q4 was healthy to your point. And I don't think you should think of it as temporary. We're not that worried about competition, where we think revenue per unit is going to like fall. Bill might be able to add little more color here. But I think that's a really good point. We're -- we did want to bring up to investors in the last earnings call that we didn't want our investors. I'm an analysts like significantly increase ARPU over the next year to give us that ability, as you said, to reinvest.

But having said that, you -- but I don't anticipate ARPU to go down meaningfully. But Bill, maybe there's more you can chime in here.

Yes. So Chris, just to look at the numbers. So in Q3, our auction and insurance ARPU declined slightly from $5.23 in Q2 to $5.08. and then it bounced back up in Q4 to $5.28. So what's baked into our modeling going forward and incorporate into our guidance is an assumption that, that $528 pretty much is flat to maybe up very modestly in Q4 -- I'm sorry, in 2026. So that's kind of the modeling that we've baked into our financials in terms of what we're giving you guys for the year. So we'll see how it goes, but it's going to hold up probably slightly better than we previously were modeling on our last call.

Okay. And then just on competitive dynamics broadly, I can't speak for all investors, but I feel like there was a school of thought that if we look back 2 years ago, wholesale was going digital, and it was going to be a winner take most market. Would you push back that on maybe investor sentiment changing or the industry sentiment changing that wholesale is could go digital, but it will be a duopoly type market, and that will naturally be buffers for each other's growth and comps play a role and things like that? Like I guess, when you look at the industry 3 to 5 years from now, do you have a different project than you did maybe 18 months ago? .

So I think at the end of the day, we're going to focus on being the leader. I believe we are still the dealer wholesale leader. We put on -- how many units I said in the call, 86,000 units. I don't believe anybody else put on 86,000 dealer wholesale units last year. And that -- and when you think about our differentiator, we're at -- we're not only in the wholesale category. We're helping dealers create their business better. I really recommend as folks are thinking about this like not only watching the video, but talking to our end customers. People were working with are happy with our wholesale loss. What they're really saying is ACV is helping us run our business better.

Go back to Rajat's question about AI changing histories like automotive. And I think investors should be worried that AI will change industries. I think that is a legitimate worry. We're doing that in this industry, helping dealers execute better. Now is there still a way to go where physical auctions are still the majority of the cars sold, yes. And we will continue to grow. Now is there also some I would say, credit to also -- it may not winner take all. It could be a -- there could be a couple of winners in this category. I think there's truth of that too. So I think we're going to be the leader I believe we're going to have the most differentiated offering. I believe there's also room for others because at the end of the day, there's only 30-ish percent of the industry right now that's moved to [indiscernible]

Our next question comes from the line of Eric Sheridan with Goldman Sachs.

Maybe two, if I could. Given some of the moves you made to expand footprint through 2025, how should we be thinking about investments to deepen that reach in 2026 as a driver of growth? And how that fits in broader strategic priorities? That would be number one. And any update on Project Viper. I don't think I saw anything in the prepared remarks or anything on the call so far. I just wanted to get a quick update on the technology side from Project Viper and how to think about that rollout as we get into '26 as well. .

Yes, certainly, Eric. So we are hiring away on the inspectors. I think between the next couple of months, we've got between this month, next month, I think we've got like 30 people in training right now. So we're hiring, we're training. We will hit our inspector numbers [indiscernible] I'm hoping by Q3, which incorporates both the hiring and training to really get the national footprint I'd like in place right now. So you will see us just continually executing in that regard to increase our opportunity of going out and inspecting our and growing our footprint across the country. So it will take us several quarters to both get the hiring in trend place. But I'd like to get this national footprint, the way I would like it to be talent and inspecting more cars a day. My goal is to get most of this in place by the end of Q3. It's sort of my goal. It's an aggressive goal, but we're working hard.

So that's on the -- like how to think about the talent and hiring and training because obviously, it's not just hiring, but it's also training and getting all the in the right places. And then second, your question on Viper, we are -- we're just -- we're -- we've done 2 things. One is we're starting to implement somewhere around -- it's about 5 to 10 a month right now. We're in the early days, Eric, we're out putting somewhere, I think, around 5 to 10 a month over the next -- throughout the year.

I think of these as the early dealers that are our dealers who are helping us not only integrate with the other third-party vendors, those things about like CRM companies, DMS, like the various vendors, but also helping us nail down a few of the other requirements. So our goal is to put somewhere north of 100 of these out in the field, maybe as close as 200 ml, so things like 100 to 200 of these. We've got at least 200 hand-raisers, probably more than that. People are saying they want it right now. I don't think we'll get them all out this year. We'll see.

So that will be getting them all live, making sure the product is accomplishing objective number one, which is helping them buy [indiscernible]. Objective number two, helping them have retail photos faster on their websites, which helps them retire faster and objective #3, which is on their service revenue, helping them dealers, for example, we're predicting tire depth at a pretty incredible. Like my team is saying 90% confidence, higher than 90% confidence on tire debts. So think about cars going through and the dealer can now upsell tires to consumers as they're coming through. And it's also a way to help value the vehicle. So whether it's selling more cars, buying more cars or their service revenue going [indiscernible] which are the 3 key things we're watching. Our goal is start scaling this early next year, where once we've proved our -- we feel really, really good. We just don't want to go build us a month right now or some significant number. And then we find out we wanted to speak something, we just wanted to change something. And so the thought is be prudent. As you know, we do move fast, but we are pretty prudent over here make sure we feel like everything is going in the right direction.

And then early in the year really start to scale this thing where throughout the year, we'll also start taking orders.

Eric, it's Bill. So just again, just going through the math. So we already talked about the $11 million incremental investment on the go market side. So the incremental investment on the Viper side that's primarily going to flow through our financials as CapEx since we capitalize these units and then amortize those costs over a subscription period. That's also another high single-digit NIMs. So call it approaching $20 million of incremental investment for those 2 initiatives combined. And then more to come on the business model on future calls, but think subscription but also tying back to wholesale. And that will be an opportunity for us to both help the dealer achieve their objectives, but also us drive our wholesale, our wallet share and rooftops working with us.

Our next question comes from the line of Naved Khan with B. Riley Securities.

So George, maybe just looking back at your commentary in November. I think when you talk -- thinking about 2026 back then, you said it's prudent to probably assume that wholesale market stays flat in 2026. And now we are in Fab 2026, anything that might have changed into your thinking about the market for this year versus maybe about 3 months ago.

So that's my first question. And then the second question is around arbitration expense. And just wondering what are the kind of drivers here to get this thing down. Is this really what of function price volatility as that comes down, you expect it to come down? Or you did do some cleanups. So I was just trying to understand the drivers there. And any color there would be helpful.

Yes, certainly. Your first question on market. As of right now, we're not changing our perspective of dealer wholesale being flat for the year. But obviously, a very good question. In January, according to dealer wholesale was down by 6.5%. So you saw January was -- the market was down. Obviously, there was a lot of weather February, there was also -- there's been some weather, obviously. So I think too early to say it will be down for the whole year.

And I think there's enough things going on in the industry between what can happen with the tax refunds and look at when you generally think about the benefits right now of buying a used car from a tax perspective, there's benefit. There's going to be enough benefits on the used car side. There's going to be supply benefits of off-lease coming and dealers are going to buy a lot of these cars. So as of right now, even though I would say the year started out with dealer wholesale being down, I would -- we are still thinking that it will be a flattish year. And your second question arbitration, a very good question. We feel really good about where our arbitration is in Q1 and where we're going into the year.

We did really moved out some bad actors on the platform in this November and December of last year. And we started to really just covering the platform better. And that's really playing out well. I think it's also the ACV brand of we're not letting folks take advantage of this anymore, starting to get out there. And I wish I would have just done the sooner, but I think as leaders, you just -- you kind of -- as you're growing these businesses, you sometimes are just chasing a little bit.

And I'm really proud of the team, really, really proud of the team. We executed extremely well in Q4. We are going into the year seeing MPS, I'm seeing buyer satisfaction I'm seeing on the seller side and the buyer side, more and more accountability. So yes -- and plus our technology is getting better. Another thing, Rajat mentioned about like using AI. We're starting to use AI to figure out what's going on with sellers and buyers and other types of things. So all in all, I'm proud of how the team is executing on arbitration. And one other item I would add to what George indicated is with all the inspectors that we're adding that we've already had and we'll continue this year, also going to deleverage that increased inspector head count out there to also validate certain arbitration claims.

So that will kind of give us another opportunity to ensure that we're paying out when it makes sense to pay out based on validated claims. Yes. This is something we recently started piloting and having the additional head count really helps because we right now send these cars to some type of local dealership. And we found really, it's been very helpful to go put our own eyes on the car.

So yes, as Bill mentioned, it will be another positive way of us managing arbitration and allows us to handle these claims faster. It's not only having -- it becomes for the good actors, a better process because now we can send our person out there to validate the arbitration.

Our next question comes from the line of Jeff Lick Stephens.

I got kind of a series of questions around helping dealers run their business better. They're all kind of related. Firstly, could you maybe talk a little -- dig a little deeper on the usage, the earlier turns on using Viper to boost service attachment and upsell in the service lane.

And then along with that, if you guys do a scan, do you own the data? Or does the dealer own the data? Or did you guys both have access to it? And then I was wondering if you also elaborate into -- I know you guys are doing some kind of the label auctions or dealer auctions with different groups using your data? Just kind of wondering if you could talk about those things.

Yes. We've been starting to scale our service drive acquisition, both pre-Viper and now starting to leverage Viper as well. But we're -- Jeff, we've got roof taps buying, I would say, anywhere between for and 1 is high. It's 10% of all ROs [indiscernible] service orders coming through their service drive. So these are unbelievable numbers. So I think on a rooftop basis, this could be anywhere between 40 and 100 cars a month. Bill, I met with 1 other day that was already buying, what did you say 75...

No, he's already you're already buying over 150...

A month. So we're seeing some -- we're already starting to see, Jeff. Now we've got to sell it. I think like we got to go from like dozens of rooftops, like thousands, but where ACV is in place and where the dealer takes our best practices, our numbers are like off the chart. But we've got to get more rooftops doing it. And so ClearCar by itself meant the dealers left go around, they got to the yes, no question, which, by the way, only takes a few minutes. So I would like to see more and more of them think it. And we now in parallel for a few rooftops, again, early stage, we'll actually put a guarantee on the cars. That's not helpful because one of the negatives we're finding is even with all of our tech, they still only go put offers on the ones they really want to buy, which is not good for them or us.

So now that we -- and our some pilots actually put a guarantee. Now they don't feel like they're taking a risk buying a car, they had no business buying. And so that's also being helpful. So we got to take this from dozens of rooftops to hundreds to thousands of rooftops. But great thing what I found in my entire career, I remember when we were selling a few hundred cars a month at ACV audience, and we told the world we're going to go out there and disrupt dealer wholesale. Probably a lot of people thought we're crazy. And I'm sure those folks who are saying, you're going to do all this with AI, it sounds a little crazy. But once you could do it with dozens, you can do it with hundreds, you could do it with thousands.

And I've seen that throughout my entire -- so that was your question one. Your question two on data at the dealers' data at the end of the day, and then we have the right to use the data in an aggregated methodology. I don't really want to speak any more to that on a public colleague this, but it's a win-win on how we were respectful about their data, but then how we could use the data for doing the things we're talking about, like we're talking about today, pricing predictions, things like that. So we have a very senior team from a legal and data perspective here. and doing it for 10 years. And so we've been able to do this in a way that's both positive for the dealers at us?

Do you see eventually the ability to charge kind of non-volume contingent recurring revenue, maybe charge more for helping the dealer run their business better and not necessarily tying that to auction volume? .

They will be both. So the way the model works -- and I try not to talk about the models today, that's really for middle of this year. But at a really high level, the way it will work is -- the dealer will pay several thousand bucks a month. I won't say the numbers just yet, just in oven's modeling it yet. And then there'll be a rebate. So if we don't get the whole volume that we'd like to get, then they'll just pay us a healthy number. Because by the way, that's still a win-win. So if they end up just being a high, high SaaS revenue account for us, and that's what they decide. Let us say [indiscernible] happens to own a physical auction as an example, right? There's a couple of dealers here that across pet own physical auctions. So look, we have a great model.

Well, we're going to charge them is still fantastic, but it would be a more significant subscription revenue. So yes, it will be a win-win, whether we get the wholesale volumes, which we think the wholesale volumes per rooftop. We'll be -- could add TAM expansion that could be 20%, 30%, maybe more than the typical rooftop. So we're pretty excited about it.

And our next question comes from the line of Gary Prestopino with Barrington Research. .

George, I had a couple. I got a question on guarantees and I had a question on Viper. So with the guarantee, once it hits the reserve, do you start to see an influx of increased bidding. Does it kind of work like some of these classic car meta auctions where once the reserve comes off, the price goes up precipitously. .

Yes, Gary. That's exactly the way this world operates. Dealers that are sitting on cars want to know a cars for sale. And when they know a car for sell, they'll invest at the time. They don't want to go bid on car after car and waste their time. And we believe the ACV no-reserve sale, look, percents its own auction, the rest of ACV doesn't exist. As the rest of the industry doesn't even exist. While our no reserve sales going on, we believe we have the highest bid activity in the industry. And so Gary, yes, you're seeing exactly that because dealers are willing to test their time as they know the top bidder is going to get the car.

Okay. And then on Viper, I realize it's real early in the gains there. But what does your system do? Or how are the dealers getting over the reticence of the individual that owns the car to really trust the data to trust what's being spit out by the dealership. There's always an inherent conflict of interest there, right? .

Yes. Good point, Gary. I think you're really bringing up that between AI and machine learning, we need the customers who appreciate in trust, right, the system. The good news is we've been out showing the end results of our data profile. And when you look at the last few months, and real to the last few quarters, our retail prediction with a card and sell for in the next 30 days. Most recent results was within $38. So that's not me to saying, "Hey, this should work someday. This is saying, our prediction of what the car is going to sell. We're not -- won't always -- even within $100, even within $200, that's incredible. So Gary, we're not just we didn't just build a hardware unit here and say, okay, go learn. We've been learning through AC Max. We've been learning through ACV auctions. Our wholesale predictions are within $100. So when you have this ability to walk in there with hardware that you've already been learning, you've already been proving. It allows us to have more credibility to do what you're asking, which is how do we change their process to trust it because we are walking in. Now will there still be a transitory process to get trust, of course.

But at least we're walking in to this opportunity with a lot of credibility.

[indiscernible], I think we're at the end of the call. So from here, I'll just say thank you for joining us tonight. We hope to see you on the conference circuit over this next quarter. And again, thank you for your interest in ACV, and everybody, have a great evening. .

Thanks so much.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Greetings and welcome to the ACV Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining ACV's conference call to discuss our third quarter 2025 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 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. And with that, let me turn the call over to George.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us today. We are pleased with our team delivering record revenue despite challenging market conditions during the quarter. Our performance was driven by solid execution in our dealer wholesale business as we continue to gain market share, expand our dealer partner network, and leverage our value-added dealer solutions. And again, this quarter, ACV Transport and Capital delivered record revenue performance.

We also executed on our product road map to further differentiate ACV's marketplace experience, support our commercial wholesale strategy, and expand our TAM. As Bill will detail later, we have updated our 2025 guidance to reflect continuing crosscurrents in the broader macro environment, while still expecting to deliver strong top line growth of 19% year-over-year. Furthermore, we expect to deliver strong adjusted EBITDA growth of over 100% 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. Q3 revenue was $200 million and grew 16% year-over-year, against a tough comparison in Q3 2024 with 44% growth. We sold 218,000 vehicles, which was 10% year-over-year growth despite the sustained market deceleration during 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 will begin with growth. On Slide 7, we highlight how ACV is leveraging AI across our suite of solutions to attract new buyers and sellers, increase penetration and wallet share, and gain traction with large dealer groups.

Let's begin with our marketplace. For sellers, we provide highly accurate, condition-adjusted pricing guidance, enabling them to set better informed reserve prices, increasing buyer engagement. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions, with vehicle price depreciation above normal seasonal patterns, dealers are increasingly leaning into ACV's technology. The buying experience on ACV is tailored across buyer personas, and we optimize the bidding experience by providing AI-enabled recommendations informed by dealer preferences and current market factors.

Our differentiated marketplace experience is showing up in the numbers. In Q3, we achieved new quarterly milestones with over 10,000 sellers and 14,000 buyers transacting in our marketplace. Our franchise rooftop penetration also achieved a new milestone, reaching 35% in the quarter. And our major account team delivered impressive results with rooftop penetration within the segment increasing 300 basis points year-over-year. Lastly, from a geographic perspective, we delivered solid growth in our more established regions, where ACV has built significant market share. We also delivered accelerating growth in several emerging regions, like in Southern California and the Midwest, where unit growth exceeded 20% in Q3. While we are very pleased with this performance, there are certain emerging regions where we are enhancing our field engagement model to accelerate growth. These efforts will continue in 2026, and we are confident in the medium-term growth outlook for these emerging regions.

Next on Slide 8 I'll provide some highlights on our data services. Market traction for ClearCar remains strong. Dealers are leveraging ClearCar service to generate consumer appraisals and offers in their service lanes, creating a valuable sourcing channel in the current supply-constrained environment. While this is great for our dealer partners, ClearCar is also becoming an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. Dealers that recently launched ClearCar increased their wholesale volume by over 30% after going live. And 50% of recent ClearCar customers also became new sellers on our marketplace.

ACV MAX is gaining further traction in the industry with dealers now using AI to accurately price retail and wholesale inventory. And we're seeing the same cross-sell dynamic when bundling ACV MAX with wholesale. A recent cohort of new ACV MAX dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within 1 quarter of launching MAX. We're excited to see that our strategy to offer a broader set of solutions is creating another long-term growth lever for ACV.

Turning to Slide 9. Let's review our marketplace service offerings, beginning with ACV Transportation. The Transportation team had strong execution in Q3, again, setting records for both quarterly revenue and transports delivered. AI-optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 200 basis points year-over-year in Q3 and was in line with our medium-term target in the low 20s. And our off-platform transportation service continues to gain traction from our dealer partners, creating additional long-term growth opportunities.

Lastly, I'll wrap up the growth section on Slide 10 with ACV Capital highlights. ACV Capital team delivered strong revenue performance with 70% growth in Q3, which was the fourth quarter in a row of accelerated growth. In terms of managing risk and in light of the bankruptcy of a former customer, Tricolor, we conducted a review of our loan portfolio. Based on our review and current macro factors, we're lowering our exposure to higher-risk customer segments and reducing our Q4 ACV Capital revenue forecast. Overall, we are confident that ACV Capital will remain an important value-added service for our dealers and long-term growth opportunity.

Next on Slide 11 I will 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're leveraging ACV AI to drive growth and deliver value to our dealer and commercial partners. Using machine learning, we've used inspection and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. Last quarter, we highlighted how we're leveraging our pricing platform to offer ACV Guarantee to sellers and deliver a no-reserve auction format to buyers. This offering is the fastest-growing channel in our marketplace. We were pleased to see ACV Guarantee increase from 11% units sold in Q2 to 18% in Q3. As a reminder, our Guarantee sale is a win-win-win for buyers, sellers and ACV. This offering accelerates bidder engagement, increases buyer satisfaction, and delivers 100% conversion rate while removing seller market risk. We're confident this highly differentiated offering will be another key driver of continued market share gains.

On Slide 13, we highlight how we're expanding our competitive edge with AI-driven next-generation products like Project Viper and Virtual Lift 2.0. Since launching our first few pilots in Q2, we added new dealers and our own remarketing centers to the pilot program. To date, over 60,000 vehicles have been inspected by Viper and Virtual Lift, and our team is leveraging this data to fine-tune the product. We are receiving tremendous feedback from dealer and commercial partners as our imaging and AI models are maturing and identifying key inspection data. We are looking forward to the commercial launch of Project Viper and Virtual Lift 2.0 in 2026.

Wrapping up on innovation, let's turn to our commercial wholesale strategy on Slide 14. Our first greenfield remarketing center in Houston successfully completed its soft launch and volumes are beginning to ramp. Our team has deployed a range of capabilities developed over the past year, including vehicle assignments from AutoIMS, commercial inspection applications, work order and repair estimates, and integration with ACV's wholesale marketplace. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing. We also look forward to launching additional greenfield locations to expand our footprint.

With that, I'll 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 Q3 financial performance. Along with record revenue, we continue to deliver strong adjusted EBITDA margin expansion and growth, demonstrating the strength of our business model.

On Slide 16, let's begin with a recap of our third quarter results. Revenue of $200 million grew 16% year-over-year and was at the midpoint of our guidance range, despite market headwinds in the last 2 months of the quarter. Adjusted EBITDA of $19 million was at the midpoint of guidance, with margins improving 280 basis points year-over-year. Note that adjusted EBITDA benefited from a $7.6 million class action lawsuit settlement against a data services vendor. However, this benefit was almost entirely offset by approximately $7 million in ACV Capital reserves. As George discussed earlier, during our quarterly review of capital loss reserves, we factored in current macro conditions and exposure to higher-risk customer segments, which yielded a higher level of reserves booked in Q3. Adjusted EBITDA also excludes $18.7 million of operating expenses related to the Tricolor bankruptcy. Finally, non-GAAP net income of $11 million was also at the midpoint of guidance. Non-GAAP net income includes the net impact from the legal settlement and ACV Capital reserves and excludes the $18.7 million bankruptcy-related reserves.

Next on Slide 17, let's review additional revenue details. Auction and assurance revenue was 56% of total revenue and grew 10% year-over-year against a very tough comparison of 52% growth in Q3 '24. This performance reflects 10% unit growth and Auction & Assurance ARPU of $508, which grew modestly year-over-year but declined 3% quarter-over-quarter. The sequential decline resulted from targeted volume pricing and ACV Guarantee promotions we implemented to support our seller acquisition strategies. We were pleased to see the promotional activity deliver early returns, with unit growth accelerating in September to 13%, reflecting 16% market share gains. Note that we're expecting Auction & Assurance ARPU to increase sequentially in Q4. Marketplace Services revenue was 40% of total revenue and grew 28% year-over-year, reflecting record revenue for ACV Transport and ACV Capital. Lastly, our SaaS & Data Services products comprised 4% of total revenue and grew 2% year-over-year.

Next I'll review Q3 costs on Slide 18. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 100 basis points year-over-year. Note that cost of revenue benefited from a $7.6 million credit related to the class action lawsuit settlement. Excluding the credit, cost of revenue as a percentage of revenue would have increased approximately 300 basis points. The increased cost of revenue was primarily driven by increased arbitration costs within a specific cohort of customers. Given the pressure dealers are facing in the current market environment, we expect arbitration costs to remain elevated in Q4, but are taking steps to mitigate the impact and expect trends to normalize in 2026. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue, decreased approximately 100 basis points year-over-year. Note that Q3 non-GAAP operating expenses included the increase in ACV Capital reserves resulting from our loan portfolio review.

Moving to Slide 19, I'll frame our investment strategy as we drive profitable growth. In 2025, we expect OpEx growth of approximately 12% to support our remarketing center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 400 basis points year-over-year.

Next, I will highlight our strong capital structure on Slide 20. We ended Q3 with $316 million in cash and cash equivalents and marketable securities and $220 million of debt. Note that our cash balance includes $200 million of marketplace float. In the figure on the right, we highlight our strong year-to-date operating cash flow, which reflects adjusted EBITDA growth and margin expansion.

Now turning to guidance on Slide 21. Following 2 months of year-over-year declines in the dealer wholesale market in August and September, market conditions continued to weaken in October. Dealer wholesale price depreciation has been tracking above normal seasonal patterns, which has pressured industry conversion rates. As such, we're expecting the dealer wholesale market to decline in the mid-single digits in Q4, which is more than previously anticipated. Our updated guidance factors in this more challenging market environment and a $2 million reduction in projected ACV Capital revenue, reflecting a more cautious approach in Q4 as we prepare to further scale in 2026. We are now expecting fourth quarter revenue in the range of $180 million to $184 million, growth of 13% to 15%. Fourth quarter adjusted EBITDA is now expected to be in the range of $5 million to $7 million, reflecting the impact of the market conditions on dealer wholesale volumes plus higher expected arbitration costs discussed earlier.

Based on the revised Q4 outlook, 2025 revenue is now expected to be $756 million to $760 million, growth of 19% year-over-year. Adjusted EBITDA is now expected to be $56 million to $58 million, growth of approximately 100% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue, to grow approximately 12% year-over-year, resulting in a 24% incremental adjusted EBITDA margin at the midpoint of guidance.

Before handing it back to George, I would like to share some initial planning assumptions for 2026. First, based on an uncertain backdrop for automotive retail and elevated trade retention rates, we believe it's prudent to assume that the dealer wholesale market is flat in 2026. Second, as George discussed earlier, we are enhancing our field engagement model in certain emerging regions and rolling out a host of new innovations next year, which will be key factors in reaccelerating market share gains over time. And third, we expect to balance margin expansion while investing for growth.

And with that, let me turn it back to George.

Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our record revenue performance in Q3 and accelerated market share gains, all while navigating through challenging market conditions. We are quickly overcoming these market challenges by continuing to enhance our technology and operating models, ultimately making us even more resilient. We continue to attract new dealer and commercial partners to our marketplace and expand our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering 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 Instructions] Our first question comes from the line of Chris Pierce with Needham & Company.

Is it fair to ask, do you guys think it's possible the wholesale market -- the dealer wholesale market has changed structurally and dealers are just going to hold on to trade-ins at a much higher rate? Or I just want to think about because it's been a choppy couple of years. Just how you guys think about this going forward? And then I just had one on competitive landscape as well.

Chris, I don't think we should assume that there's a long-term structural change. I think the dealer wholesale market is still -- should recover. I think when you look at all the factors, off-lease really hasn't come back in a significant way, where we haven't seen interest rates come down, you haven't seen all the macro factors play in. So I think at the end of the day, it'd be way too early to say with all the macro events that the dealer market has structurally changed.

So we've got this choppiness right now. And against this backdrop, and maybe a [ truer ] #2 competitor emerging, have competitive dynamics changed on the ground when you go to market to talk to dealers? Are dealers thinking they need to have a second source more? I'm just curious if you're hearing anything different from dealers that you were hearing maybe 18 months ago.

Chris, we'll be very specific. Quarter-over-quarter, we grew by 8,000 units. If you look at 8,000 units quarter-over-quarter, I believe that was significantly more than any other competitor that had U.S. growth. So that will be, I think, fact number one. So that shows pretty significant quarter-over-quarter growth.

In addition, when you look at it, we went from -- our share gains became double digits again in Q3 for the whole quarter. And then last but not least, in September, according to AuctionNet, with the market being down 3%, we would, therefore, have had 16%, therefore, mid-teens growth. So the way I look at it is, yes, the market is softer, and with the market ending 3% down -- dealer wholesale market being down, obviously made the quarter challenging and the start of this quarter more challenging. But when you look at the fact that we've always had competitors from day 1, and we grew 8,000 units quarter-over-quarter and had end of the month -- end of the quarter right around those mid-teens objectives for that month, Chris, I would say we've always had competitors, we still have competitors, and we believe we have the best solution.

Our next question comes from the line of Rajat Gupta with J.P. Morgan.

Just have a couple. Could you unpack a little bit on the third quarter auction ARPU moderation from second quarter? I appreciate your market share comments. I'm curious that if there were any price actions that were being taken to maintain that? Is that a change in strategy? I know you talked about putting more boots on the ground. So curious if you could talk about that a little bit. And I have a quick follow-up.

Yes, I'll start and then Bill can chime in, Rajat. We, I think, mentioned in the call that we have targeted regional pricing campaigns where we are being a bit more aggressive. Think about that more on the supply side. So where we're still new and we're still emerging, we are attacking the market and it is helping us win share. I think. Bill, also mentioned in the call that we expect Q4 for ARPU. How did you...

Yes. So what I mentioned on the call was that we expect Q4 ARPU to actually go back up. So it went down 3% in Q3, but that's more just a result of some of the activities in that quarter.

So at the end of the day, Rajat, we're going to go out and win share. We are using pricing, especially where ACV has low volume in certain regions, we are being a bit more aggressive. So I think that that's definitely one part of your question. And the other part is I'm still very confident in our midterm model we've given you guys for pricing. So look at those as -- when you look at our midterm model and where we've been hovering, and I think I feel very confident in ARPU for Q4, but we will use pricing in certain regions to gain more share.

And you briefly touched upon the 2026 wholesale market outlook. I'm curious if there's any more color you want to maybe provide some soft guidance. Should investors still expect the same kind of share trajectory? Or should we expect some acceleration given you're putting more boots on the ground? Maybe if you could give us some sense of market share expectations going forward? And also what incremental margins is reasonable to assume at this point as you attack more share?

Yes. So again, I'll start and Bill will chime in. As you mentioned, I think assuming flat helps us all, so that -- basically just to be very open, we don't have analysts assuming right now dealer wholesale goes up next year. I just think we'd rather just put it out there. Let's not assume that. There's too many macro factors going on. I think better for all of us just assume flat. None of us really know. But if we just assume that, I think that would be prudent for all of us as we start to think about next year.

Two, I would look at share gains and how we've operated. In most of our months and quarters, we've been hovering right around the double digits. You've seen us range -- granted last quarter, we were high single digits. This past quarter, we were double digits. We ended the quarter in that mid-teens. So when you look at that range of our execution, just to be fair, I would say our range has been on execution has been -- in that lower double-digit range has probably been our true execution. Our objective is to get back to mid-teens, but I would say we need to go out there and prove that. And that would be a way to maybe restate what Bill said. Maybe just -- I think I basically said the same thing he said a few minutes ago. But it's a way to think about we need to more consistently hit that mid-teens, which we haven't yet proved we can do each and every month. But having said all that, I'm really proud that if you look at the quarter-over-quarter, we grew more than anyone else last quarter. So I would separate those 2 things of how we grew last quarter was better than anyone else in the market.

And in terms of just the incremental -- sorry, go ahead.

No, I was going to say just -- Rajat, one other thing I would just add, again, Q3 of this year was our biggest quarter of the year. And if you remember, historically, at least prior to last year, typically, our growth in unit volume would follow seasonal patterns. The first half would be relatively strong and then Q3 would be a bit weaker and then Q4 would be the weakest quarter. So last year, for the first time since we went public, our Q3 volume and revenue was actually the highest it was the entire year. And the same thing occurred this year. So the growth rate might have been a bit different since we came off of a very, very strong quarter last year. But again, we had record revenue in Q3 and record volume for the full year, bigger than Q1 or Q2. So I guess that's the other context to just give you in terms of our Q3 performance.

I just wanted to follow up on leverage. Given some pricing actions or the low double-digit share, should we assume lower than 30% for now as reasonable before you get back to the 40s on incremental margins? Just curious if that has been a bit of a change in the operations as well.

Yes. I don't think we're ready to comment on that at this point, Rajat. we're in the middle of obviously putting our planning together for next year. You can assume some marginal improvement. But beyond that, there's nothing else for me to comment on at this point until we have our plans finalized.

Our next question comes from the line of Bob Lubick with CJS Securities.

I wanted to ask a question about ARPU is where I'm going to get to. Hopefully, I can make this make sense. Recent J.D. Power's analysis showed the spread between retail prices and wholesale prices has widened from $9,000 to $15,000 over the last 5 years. And this seems to confirm earlier points you guys were saying that dealers are keeping more cars and better cars and retailing those versus wholesaling them. That's part of the problem now because there's no off-lease to have, et cetera, et cetera. So the question is, what does this mean for your ARPU going forward if retailers -- I'm sorry, if dealers are going to keep the highest value cars and wholesale lower ones, how should we think about this trend? And when does it start to reverse itself?

Yes. Bob, I think it's a great question. Difficult one to answer because you're predicting obviously, macro with everything else. I think the simple thing to do is just to look at a revenue range, an ARPU range that you're hearing us be comfortable with a certain ARPU range. And you saw our execution in Q2, Q3 a bit later. We're trying to give you guys a little bit of an indication on Q4. But I think for right now, just to keep everyone's expectations in line, I would just not have ARPU going up materially next year or at all.

Because to your point, with all these factors going on, I would rather just put it out there that keep ARPU in this moderate area for now. There will be 1 quarter or 2 that it might bump up. And you may see a little bit of that. But I think we'll go into next year, and I think better to keep the expectations of ARPU in a reasonable area for analysts, never want to think about the year. And then to your point, in a more medium-term outlook, there probably is some ARPU that maybe in the next 1 to 3 years, whenever that happens, Bob, to your point, we could start to see ARPU bump up even more. And I just don't want to be wrong at this point, right, and put too much out there. So I just think let's take this correction and say, I think you're right, there will be a correction, and it would mean we'd have a higher ARPU. I just don't want to think -- I don't want to guess it's going to happen next year. If it happens, it takes a little bit longer.

No, absolutely fair. I think you just need [ deals ] to start wholesaling better as well, and therefore, off-lease to come back so that they have other things to sell, et cetera. Okay. Great. And then you talked about lower conversion rate for the industry in Q4 based on the accelerated depreciation of values. But at the same time, you guys are increasing your guaranteed pricing. I think you said it was 18% during the quarter, and that's higher conversion, obviously. So looking into next year, how should we think about conversion at auction with those little factors?

I think conversion rates, my biggest goal for next year is it's just not as crazy. We've seen some ups and downs this year, even within a quarter, that's pretty significant. And when you think about this year with everything from tariffs and everything else going on, we've really had a challenging year for dealers to absorb the value of a car. And then what is that value, what is that depreciation, all these factors, it's been a very difficult year for dealers.

I hear sentiment from dealers saying some of this will normalize. I mean, that's what I'm hearing. I believe that's what many of you and others are hearing, which the normal -- having the value of these vehicles normalize would mean that we'd see the bid and the ask between sellers and buyers also start to normalize, and we won't have this up and down on conversion rates that we've seen. So I think next year, conversion rates would -- we'd see a bit more consistency in conversion rates across the industry. Obviously, it all depends upon all the macro factors. But I think some of the stuff starts to work itself out. I don't know, Bill, if you have any more on that topic. But it's a hard one, Bob, as you know, for us to predict next year as it relates to conversion rates. But I think you and others have also heard dealers saying things should start to normalize as some of these other factors start to take place.

Our next question comes from the line of Andrew Boone with Citizens.

I wanted to ask about ACV Capital and just the return to normalization of lending. Can you guys just help us understand the guardrails outside of macro of what you guys need to do to be able to return that business? And then again, going just back to top of funnel demand. Can you guys talk about cohorts, and is there anything you're seeing within the cohorts as we think about just the change in dynamic of macro and what you guys are seeing? Or is this just widespread?

This is Bill. So I'll start with ACV Capital, and then I'll turn it over to George. So maybe first, a little bit of context in terms of ACV Capital. So as part of our planning, we have historically planned an historical loss rate that's slightly higher than some of the bigger players out there. Typically, we model a 3% loss rate based on the fact that we're in a high-growth phase for the business, and we're certainly not as mature as some of the bigger players out there. So that's what's been baked into our financial models for ACV Capital historically. So despite what occurred in Q3, and I'll get into that in a minute, our view of that loss ratio hasn't changed in terms of our modeling going forward into next year.

That said, as I mentioned on the call, as a result of this large bankruptcy that occurred in which we've reserved basically over $18 million for that bankruptcy, not sure what the ultimate outcome will be in terms of recovery, we did do a very thorough portfolio review. And as a result, we've looked at our internal controls, our processes, and we're in the process of making a number of improvements going forward so that we can scale with comfort next year in terms of the confidence that we're going to stay within our planned target in terms of those loss ratios. But as a result of that, there were certain higher risk credits that we had outstanding that we concluded it was prudent to book some reserves in Q3, which is what flowed through the quarter, and that was approximately $7 million.

In terms of the go-forward plan, there's still a lot of upside opportunity for us. This is very synergistic, obviously, with our auction business. So it's very strategic. And you can expect this business to continue to grow next year at a good clip, albeit maybe at somewhat of a slower rate than we experienced this year. And we are taking our ACV Capital revenue down a couple of million for Q4, as I mentioned, just to ensure that before we start to scale next year, we've got the right processes and controls in place. So hopefully, that gives you a little bit of color in terms of ACV Capital.

And maybe just 2 more things on that. Even with that bit of caution, we're still going to be executing on attach rates in the high teens. So look at this as it's still very strong execution, even with having this mitigated risk and being a bit more careful. The midterm model assumed 25% attach rates. So when you just -- the way I look at this is, listen, you learn on moments this, you sometimes just add some more controls. You take moments this. Obviously, there's other major banks in the world that had the same common customer. This will make us even a better company in the midterm. And you really become, I think, a more durable company in moments that when you have a situation this like this Tricolor. But I would say, I have the same confidence in getting back to the 25% attach rate goals in the midterm model. This is a small period of time. We have a lot of demand for ACV Capital. We've got a great product. You saw us execute really well up until that moment. And I would say one step backwards, I think we'll then take 3 steps forward. So that was all on your first question.

Your second question, I believe, was about other cohorts and other things going on the business. Can you repeat that one, just to make sure because it was so long ago, it took us a while -- such a long time to answer your question that I remember your first one, but I want to make sure -- your second one, but I want to make sure I got it right.

It was a great first answer. So let me try the second one again. If I think about macro just overlaying in terms of results, is there anything you want to call out in terms of specific cohorts or geographies that may help us better understand what's going on across the industry?

Yes, I'll try to give a little color on this. We mentioned on the call that 2 of the regions that we were probably known to be weaker in had 20%-plus growth year-over-year, and we were really excited about that. If you look at our largest regions from a cohort perspective, most of our large regions are still growing. And there's only one, and the one that -- it still grew. It grew, but it didn't grow as much. It was one where we've got nearly 40% market share. And so when you look at overall the cohorts, I still -- the reason why I remain confident in the midterm model is because in the regions where we don't yet have the brand and support of being the dominant player in that region, we're emerging. And in the areas -- in most of the areas where we have very significant market share, and that's significant against physical and digital, all in, we're still growing in the majority of those regions even with big numbers. So long-winded way of saying, I think not a lot has changed. But we did mention on the call, there's a few reasons where we need to step it up and grow even more, and we're on it.

Our next question comes from the line of Naved Khan with B. Riley Securities.

Maybe just touching on commercial. How should we be thinking about the volume through the AutoIMS relationship ramping exiting this year and into next year? What trajectory should we assume there as we not only just map out Q4, but also look at 2026. And then, George, you spoke about being opportunistically with respect to discounting in certain markets where the penetration is low. What do you see from your competitors in terms of price promotions? Do you see any price increases occur in recent quarters? Or are we in an environment where pricing is not necessarily going to be a lever for any of the players, including yourself?

I'll go to the second one first. I think pricing between the hundreds of physical auctions and a few digital, there's a lot of different pricing things going on. To your point, some people continue to increase fees and some are using fees primarily on the supply side to get the attention. But generally speaking, buy fees typically go up every year with most of the competitors, which is the majority of the ARPU. And your first question on commercial, we're going to be hovering somewhere in the mid-to-higher single digits, I think somewhere 6%, 7% of our volume in commercial for 2025, somewhere in that range for commercial. So I'm very proud of what we're doing. But as I've said in many other calls that we are -- we're really laying out the foundation right now for many years to come.

I'll just remind you of the 3 things we're doing there. One is the upstream digital like you said, with AutoIMS upstream digital. That's one. Two is the greenfields, like Houston being our first. And then we'll have a second greenfield that we launch sometime early next year. And then third is once our software is hardened and we're ready to go, we'll take it back to the 10 legacy locations that we acquired. So that will take us some time. So look at it as if you're -- right now, our total commercial is in that 6% to 7-ish-percent range of our total volume. And even if that increased pretty materially for next year, it won't be a big number. I just want to be fair to that. It will help. It all helps. And it will grow. But dealer wholesale will remain next year being a far significant piece of our overall volume. But then commercial, when you think about going into out years, into '27 and beyond, it starts to really add up. So hopefully, that gives you a lot of color, because we're really not yet talking about next year. Obviously, a lot of these questions are about next year, but trying to give you enough color. But we're going through that planning cycle right now to nail down our objectives. But maybe that gives you a little bit of color based on the base.

Our next question comes from the line of Glenn Shell with Raymond James.

Just following up with what Naved said on commercial wholesale. Will we see that broken out so we can parse out dealer wholesale versus commercial wholesale? And then I just got a quick follow-up after that.

At this time, we don't know yet. We really didn't come into today's call with that answer, I would say, ready to go, but appreciate the question. But I would say we're not sure yet.

And then on Project Viper, is that still on track for a first half of '26 launch? Or is that more just generally '26? And then what have you been seeing from initial demand contribute to performance next year?

Yes. Project Viper is getting incredible feedback from dealers. Our goal -- and we need to still go out and hit this goal, I just speak to be open, but our goal is to start taking orders by an [ MADA ]. That's when we start actually taking orders by dealers, which will be in February and start shipping units in that middle of the year. Those are the internal goals. So I don't have any reason why we're not going to hit those goals of starting to take orders by [ MADA ]. I think next year will be primarily launching to enough dealer groups, get the feedback, and you then start scaling it the following year. But I would say so far, so good, getting great feedback, plan to go live, and we'll go from there.

Our next question comes from the line of Jeff Lick with Stephens Inc.

George, I was wondering if you could talk about you guys obviously have a pretty robust and novel set of services and features, ClearCar, ACV MAX, Data Services, obviously, Viper I guess up and coming. If you just look at the places that you're winning that are disproportionately doing better than the average, could you talk about just where you're really getting traction, and the dealer just looks at you to say, hey, look, this is a great partnership and where you clearly have an advantage and you're winning?

Yes, certainly. I'll try to give you a little bit of color without mentioning the dealers' names just to get a little closer to this. But yes, we mentioned on the call that dealers that have recently launched ClearCar and MAX, where we've won a higher proportion of the wholesale volume than our average across the board. And if you get to the why, you're now a strategic partner to that dealership group. And if they're using us for ClearCar and/or MAX, ACV MAX, and soon, hopefully, Viper, then they're using us to price their inventory. We're predicting the retail price, we're predicting the wholesale price, we're helping them make better decisions. And so we were the one to predict the trade value before they even bought the car. So you're not going to sit here and make the wrong decision on having wholesale values that are too high because you actually bought the car right way upfront during the trade.

So when you think about what AI can do for this entire industry is take all these manual decisions that a lot of these dealers are working hard. These are people across the country who just don't have the right tools today, who got prices going down. And here we are, we're predicting the retail price of what the car is going to sell for in the next 30 days within a few hundred bucks. We're predicting the wholesale price on average within $100. That's really significant because now as you're sourcing and you're deciding what reconditioning you need to do, it's a big deal. So some of the data we mentioned during the call about dealers now selling more wholesale with ACV, they happen to have ClearCar and happen to have MAX. It's partially because they're actually making better decisions. And by the way, they're retailing more cars and typically having better margin versus our competitor or SaaS equivalent companies that we compete against. Hopefully, that gives you what you're looking for.

And then a quick follow-up for either you or Bill. As it relates to what you guys referred to as targeted volume pricing on the supply side or for the seller, I was just curious because usually that's a pretty low price to begin with. How does that work in terms of -- we're probably talking you're saving $50, $75. Is it short-lived in terms of, hey, okay, I'll give you this. It would seem you're going to eventually have to provide a little more for them than just pricing. Are the dealers really motivated by $50, $75?

First of all, I agree with your question. $50 or $75 or $100 shouldn't matter. We're a better solution. And we're helping them sell the car for more money. But when you do give one of these sell-side promotions, you're getting their attention, you're getting them to try it, you're getting them into the family. And some of these guys have been using these legacy auctions for a very long time. So look at it as you're just trying to get their attention. And then what you do is you start to say, hey, this is good for so long, x period of time or y amount of volume. So you do start to set some parameters about it. And none of those parameters make me worry about our midterm model.

Our next question comes from the line of Gary Prestopino with Barrington Research.

Last quarter, there was a big delta between listings and cars sold. Did you still see pretty good listings, but the conversion rate was just so much lower than expectations?

Yes, Gary. We continue to drive listings, which is listings obviously represents the opportunity to get in front of that car and sell it. But yes, so we've continued to see listings grow.

And then just a question. Bill had mentioned there was an increase in arbitration expense. With all the technology that you've put on your inspections, what is actually causing that to happen? Is it just that you're getting a car that might be a little bit lower quality?

So Gary, most of the customers that we inspect their car and then we go out and we look at the arbitration results, the far majority of the customers, we hit our target arbitration and goodwill. There are subsets of customers where it's become elevated. And what we've been doing is over the last couple of months is we're enhancing some of our dealer management tools to identify faster on what is going wrong with this one seller and/or buyer, what should we be doing differently, where it could be training or other best practices, and we're starting to build privileges and other aspects to our dealer management model.

So it's really into the details of -- look at it as the far majority of the time, you really -- you don't have an issue, but you've got to get into those times where things become elevated, and we're diving in it. Again, when I look at this from a going into early next year, I think even by Q1, we're probably fine. I think just you go in there and you mitigate and you really learn through some of these things that crept in, and then we'll -- our dealer management and internal training when these things go wrong will be even better on top of that.

Thank you. And we have reached the end of the question-and-answer session. I would to turn the floor back to Tim Fox for closing remarks.

Great. Thank you, operator. And I'd to thank everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. We'll be at a couple of conferences in November and in December. And finally, thank you for your interest in ACV, and have a great evening.

Thank you.

And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

All right. I think we're on the clock. So, welcome, everyone. Thanks for joining. I'm Ron Josey. I cover the Internet sector here at Citi. And I'm always happy to share the stage with George Chamoun, ACV's CEO; and Bill Zerella, ACVA's CFO. Lot to talk about. A lot going on. Welcome.

Thank you. Thanks for having us.

So I think most people know what ACVA is now. It's been a few years. We've gone through a few Analyst Days. But maybe, George, because we just had our Analyst Day back in March, we've had 2 quarters post that. Just level set us on sort of ACV's product and tech strategy because in our view, that is a key differentiator that what ACV offers to the market. So level set us on just product tech, maybe higher level, and then we'll dive a little deeper.

Yes, certainly. So when you look at the customer base we're going after, franchise dealers being a key customer base for supply in our wholesale platform, independent dealers, a key for demand in our platform. We've been able to broaden our products for both. On the supply, we've been able to broaden from not only helping them auction their cars faster, and we believe for more money, getting a national audience for buying these vehicles.

But we brought out pricing tools. We brought out tools that help the franchise dealer and independent dealers buy cars from consumers. So a broader product set. In a way, we're helping every franchise dealer and every independent dealer compete against CarMax and Carvana. So that as the path for winning the consumer heightens with ACV, they can compete. And with that, we believe we'll win more and more wholesale at the end of the day as part of that journey.

And then in addition to investing, which we can go deeper into on this product suite for franchise and independent dealers, we -- our value-added services like ACV Transportation, ACV Capital are really helping dealers buy vehicles, have them move, being confident in these moves, helping them fight against things like fraud with transportation. These are big important categories that help dealers feel more comfortable.

And then in parallel to that, we are in the early days of going after commercial customers. So we've invested in software and technology, where you're still leverage -- we'll be leveraging the same AC Auctions platform. But in addition, it will allow us to have capabilities such as let's say, for example, if a bank needs to recondition these assets, we now can take an assignment, we can potentially recondition the assets. So it's still leveraging the same demand engine and capabilities, AC Auction, Transport, Capital, all those great things.

But it's helping on the supply side because we're adding value-added services we didn't have before. So we can go deeper in any one of those, but we're definitely adding more value, whether it's on the supply or demand side.

Well, let's talk about the core wholesale market today and the core auction market because I think offering these new products and services just strengthens the overall opportunity set. And so talk to us about -- I would love to hear your thoughts on the broader market today, a, but then b, the go-to-market strategy. So when you're going to meet with the franchise dealers, we start with auctions, but now we have ClearCar. Now we have these other products that can help them compete with others in the market. So go-to-market strategy, but then maybe just broadly the wholesale market today.

Yes. The go-to-market strategy is both working dealers on a per store basis, there's a used car manager, there's a general manager who's responsible for making wholesale decisions. And then we also have a team going after the major accounts where you're dealing with, let's say, regional presidents and other sort of C-level type executives, and we have a team bringing our value proposition to the major groups at more of a corporate level.

So we're approaching it sort of both at a store level and group level. The value proposition -- the core initial value proposition remains, which is instead of just selling your cars at physical auctions and getting a local buyer base we're going to bring larger demand for your vehicles. We're going to bring buyers outside your market. But that value-add moat has increased quite substantially to your point.

Now we're helping them with new products like our no reserve guarantee auction. We're helping them get, in most cases, 3x more bidders per car. That's a big deal. And that's something we're out there offering to sellers where if they want the largest audience for their car, if they want to make the most money, you're not going to have more bid activity anywhere else in the country, any other auction, except for ACV, if you run at no reserve on our auction. So that's a new value add.

The other value add you're mentioning -- actually, let me stay on that value add. The other great thing about that value add is the buyers love it. So now on Tuesdays, Wednesdays, Thursdays and Saturdays, buyers are lining up at noon till evening and bidding on these cars because they know they're for sale. It's not -- they're not wasting time with sellers who are asking for too much money. And so we've got 3x the bid activity. So that value add will -- that's sort of one of these value add, will be a gift that will keep giving for us.

We'll take that pricing engine that pricing engine, this investment we made allows us to price cars to a consumer, helps the dealer win more cars. We're pricing the cars in a way where we know what they're going to sell for in our auction. So now the dealer can lean in and buy more cars out of their service drive. They can lean in and buy a higher percentage of the trades coming in. They can compete against the CarMax and Carvanas of the world effectively because they have the right pricing to do that. So as the local dealer buys more cars, then they can optimize their inventory.

And they don't have to keep -- they don't have to start to retail some of these cars, they should be wholesaling. So that's a way to at least as quick as I can tell you this pricing engine we've built. It's helped us build ClearCar. It's helped us build this no reserve auction. Our next product, Project Viper, which we'll talk about a little bit today, it's helping us build that product. So this pricing engine is our single largest investment within our product and tech suite and it's sort of the heartbeat to all the other products.

And what -- tell us what goes into the pricing engine that allows you to do that heartbeat?

Yes. So it's quite complicated. I'll simplify it. The 1 million cars here we're inspecting. It's all that condition data, scratches, dense, engine sounds, all that data. Then the dealers we provide ACV Max for, which is somewhere around 6% or 7% of all retail data. We have all their retail data, what they took in for trades. We have all the recon data. And so that sample gives us what cars are retailing for and also what dealers are taking as trades.

So that's a pure data set to know both how much a dealer paid for the car, how much they recon and how much they sold the car for. Then, of course, we license data from third parties, and we have others who scrape data. So when you look at that total data set, it's quite compelling. So -- and it's unique because you've got condition adjusted pricing plus all this other market data. We're now predicting price within $300 of what a car sells for retail within 30 days. Last month, we were even better than that.

We're now predicting price within $300.

So a car comes in, dealer decides I want a retail it or wholesale it. I've been saying within $300. Actually, last month, we were with $150. We were within $150 of what a car retailed for in the next 30 days, which is just incredible. And we're within $100 of what the car wholesales. So if you're a franchise dealer, and you want to compete, a simple way to look at this is CarMax and Carvana has nothing on a franchise dealer that partners with ACV. And that's a bold statement to say, like, there's no competitive edge.

Now they still need to get in front of the consumer. They still need to market to the consumer. They need to get that consumer to show up, whether it's their service drive, whether it's the front of the store. But that's pretty compelling. And we now have 3 out of top 10 groups in the U.S. using this product one way or another, whether it's an API on their website, whether it's their service drive.

So ACV in time could become the standard of how dealers use data to price cars. And that could be a really big deal. And then to your point, how this helps in wholesale, as we also not only provide the data, we start to backstop these cars. Then we're pricing the cars upstream. We're backstopping it. We ask for a certain percentage that it has to go to our wholesale channel, and it should help us grow more over the next few years.

So let's then talk about Project Viper. And I'm coming -- I'm trying to get this product set together because the product set is where everything else flows, right? Because end of the day, we want more rooftops. We want more adoption, which I think we did a good job at the Analyst Day highlighting. But when we hear about these products and the $150 or $100 on wholesale, that's pretty...

It's incredible prediction.

Yes. And so we have all this data. We're using it and leveraging it on the pricing. Talk to us about Project Viper what it is. And...

Project Viper has an exceptional opportunity to help us both on our dealer business and commercial business. So the great thing is it's one investment that will help us in both growth engines. And for franchise dealers, for those of you who don't know Project Viper, is it's these 2 towers that don't take up a lot of real estate and that underneath it is Virtual Lift 2.0, which is a scanning device. It takes us within a few hours of showing up at a dealership to have this set up.

All we need to do is literally, it's all in a way, preassembled. It comes in a few boxes. We have it assembled within a few hours. That includes getting on the dealer's WiFi network, boom, you're up and running. So you drive through, it's got over 20 high-definition video cameras and also other technology over the years we've invented like listening to an engine and other capabilities that our inspectors have been using.

So it's got multiple different ways to read signals from a car beyond just the video technology. Basically, you're driving through, we see scratches, dense. We see undercarriage. We see rust. We see all these things. And car literally driving several miles per hour, we can then predict the price for retail and wholesale, just having the car drive through. So number one is appraisal, helping the dealers buy more cars.

And we're already piloting with a handful of dealers in upstate New York right now. And it feels like we're really honing in as appraisal capability. Second is this condition report will help the dealer upsell to their fixed ops group. So whether if a consumer has mismatch tires or tire alignment, other needs, where this having the standardized condition report will help the dealer upsell fixed ops in the dealer world, that's a big deal because over 1/3 of their revenues today are fixed ops.

So that's a really important division. And then third is this can also act as a quick way to get retail photos online instead of just paying a local photographer or somebody like $15 to $25 a car, which their biggest issue is how quick they get these photos online. Within Project Viper just driving through, you can immediately get your shots. You can still have somebody come back and backfill interior and whatnot, but dealers can go get their pictures online. Okay.

So those are 3 big things that the dealer will get out of this. What we can get out of this as well is Project Viper will help expedite and create more efficiency on our wholesale inspections. And so we're -- so having these towers in this undercarriage scan on a per location basis could really help us not only ask for more share, win more share, but it also can make us all more efficient.

We'll still need our inspectors to help us get this go green inspection, which ACV has been known for. But our inspectors are going to be able to do more cars. And then for red light cars, we'll also be able to use a lot less of their time. So it will be a slightly different use case. And for those that don't know what greenlight is, it's when we go on the hook for assurance for the buyer. And -- but if the typical inspection today takes, let's say, 20, 25 minutes, with Project Viper, we could probably get our typical inspection in 5 minutes.

So as Viper '26 potential, '27 what are the -- like what's...

I think '26 we do hundreds of these. I don't want to put a number around how many hundreds yet. And I think we don't get ahead of our skis until we know we've got distribution and manufacturing support. We just -- we don't -- I think we can have a great year next year with or without Project Viper. So I feel really good that we've got -- if you look at how we're doing with no reserve right now, how we're doing these other products, we're growing well. We feel really good about it.

This will be additive. And then in addition, we're launching Project Viper in our remarketing centers. So if you -- when you go to -- we're opening up this new one in Houston, where you show up, cars go in, they're going to go through Project Viper. It's going to allow us to have this condition report back to the commercial consignors faster. They can make their decisions faster. It's going to help us be more efficient at these locations to create our condition report.

So I feel really good that we'll start using Project Viper at our locations next year at our remarketing centers. We'll get, I think, Project Viper out to hundreds of rooftops next year. And that will start to make a difference. And then we'll kind of go into the next year thinking, could we now do thousands? Hopefully, it's faster than what I'm saying today. But I'd rather set the expectations here until we prove it. But that's at least how we've been thinking about thus far.

That's -- I think that sets the stage for everything that ACV sort of stands for, which is data, product, improving dealer use cases. Let's talk about dealer adoption. So I think about 1/3 of franchise rooftops are transacting on the platform, 10-ish percent share of retail dealer wholesale market, I believe, are the numbers that I remember going through. So -- what I would love to hear, and we talked a little bit about this upfront.

But with all these new products, how is the -- you talked about the go-to-market. How has it evolved over time? So we're not just talking to the wholesale guy. We're not talking to the service bay or the service team. We're talking to others. So I would love to know just as these product launches -- as these products launch, how the go-to-market has really sort of evolved?

Yes. We're -- I mean we've got share in some parts of the Northeast, where we're already like 30% market share, right? So we've been in a market for 9-ish years. We've built that brand. You can trust the ACV. And we've got markets out there, we've got low single digits total market share. So look at what these products will help us do is both take even more share in these markets where we've got 30-plus percent of the total dealer wholesale in that market, but it's also going to help us differentiate and break through some of the noise.

I'll give you a couple of examples. There's a larger group that I can't say their name that wasn't doing a lot of wholesale with ACV. They had these 2 key auctions, physical auctions they worked with. They didn't have signed exclusivity, but it's basically an understood exclusivity. Now the cars coming in from their consumer acquisition are primarily going to go to us. And they wanted beta, Project Viper and what they've all said is anything that comes through this channel, we'll send to you.

So it's allowed us to slice and dice the dealers who are still feeling some loyalty to the physical auctions, whether it's because they've been doing business for 50-plus years or whatever the reason is, it's allowed us to come in and take share even if it's only 10% or 20% of the share of that dealer's wallet share, it's helped us break in. And another thing is you're usually coming in with these products at either the owner or C-level or you're coming in through a different angle.

Historically, we sold in through a used car manager. If some of you knew us during our IPO story, I would answer the question very simply. I would have said, it's usually the used car manager. Dealer principles tend to not get involved with wholesale. This just wasn't even a conversation for the owners. But now that you're coming in and solving bigger problems for the dealership than wholesale?

Meaning pricing.

Pricing, buying cars from consumers being more efficient. We're now at an ownership and C-level decision-making with these groups, and that's a big deal. So we're invited to their offsites. Where I mean, one next week. I don't want to say which one of them met next week, but I'm at one of these next week. They have a golf outing, they have this whole thing.

It sounds exciting.

Yes. And so you're now in the room participating on where how is digital helping automotive, not just helping wholesale. And we're getting the mind share. And then with that, we'll continue to take share away from the legacy auctions.

George, has this mix shift into the C-level ownership levels, et cetera? Has this happened this year, '25? Or this was a building '24 and then these new products are coming on and now at '25 or help us understand how quickly these conversations have shifted.

Yes. I mean I would say it's been building meaning last year, those conversations might have led to -- and I'm going to make up a number, 10% of our share gains last year of our share gain, right? And now it might be 30% of our overall share gains. So I would say we're still winning at some -- many rooftops across the country, let's call it, our traditional way, which is going to local used car manager and trying to convince that person, you shouldn't be selling all your cars at the local physical auction.

But year-over-year, I mean we must be 3x to 5x of our growth coming from these other relationships. I need to track that a little better. So I can just say a number. And there's actually somebody in the audience who actually always asked me a similar question. But I don't have it on hand. I don't have what percentage is actually coming from these other services or else, I would just tell you.

We'll say that for next year or maybe 3Q.

Yes.

I don't know. Let's -- I want to -- we'll come back to this, but I do want to touch on -- I hear about it all the time, just the broader macro environment.

Sure.

And 2Q had some noise because in April, I think we saw conversion rates pull forward a little bit. Maybe they went down a little bit as the quarter went on. So maybe, Bill, I'll turn it to you. I think we saw -- was it 500 basis points unit growth headwind in 2Q? Maybe you can help unpack that a little bit more? And then what are we -- how has that sort of stabilized since then?

Yes. Sure. So what happened in Q2, and I think many people are aware of this, there was a large amount of consumer demand that was pulled early into the quarter. So consumers were trying to avoid tariff increases. So what we saw was really strong conversion rates, really strong unit growth. for us in the month of April. And then those conversion rates declined through the rest of the quarter, not just for us but for the industry.

And what we talked about on our last earnings call was that we saw about a 300 bps increase or improvement going into July of this quarter. So the dynamic was in terms of what we saw in terms of our actual performance. We had assumed going into our Q2 -- Q1 earnings call in terms of Q2 guidance, we'd assumed that conversion rates were going to be stronger than they actually ended up being, which is why we landed at a place where based on that difference in conversion rates in terms of what we assumed in our model versus what the actuals were, we ended up being at the lower end of our guidance scale for the quarter in terms of revenue.

So that was the dynamic that occurred in Q2. So it's kind of a very unusual quarter in terms of since we've gone public. We never saw such a big pull-through of demand early into the quarter and a pretty significant drop off through the balance of the quarter. The good news is we've seen a nice bounce back in terms of conversion rates on our platform in July.

Bounce back, meaning back to somewhat of a normalization on seasonality and things along those lines.

Correct. Correct.

I would say consistent with the message we left on our last earnings call that we felt good that conversion rates bounced back and now feel like we're at this typical seasonality. We feel really good about conversion rates. And also keep in mind that you never want to hope the market goes the wrong way. But I feel like if the market was to soften some more, we do -- it could be that our no reserve and other auctions as they grow, it could make us look stronger than the competitor.

Right.

But I would say overall conversion rates with us and the industry have stayed pretty strong. But this is an area where if we ever do see weakness again, the stronger we get in this category, the better.

It's funny. I was just -- we were talking with the team a year ago. I think we're sitting on stage, it was with Vikas. But we talked about auction windows increasing from like 20 minutes to 2 to 4 hours for more expensive vehicles. And now we have no reserve expanding to like 4 days a week, if I'm not mistaken. And so it brings up sort of how the evolution has been going from 20 minutes to 4 hours to now 4 days. So...

And just those -- the cars only run typically for 20 minutes to 2 hours. So the 4 days are -- those are 4 the days of the week where we're going at risk.

Tuesday, Wednesday, got it.

So the car -- if the car runs at 12:00, there's a buyer of that car by 2:00. And so the buyers don't have to waste their time. We have other competitors out there where you're wasting your time for 2, 3, 4 days. I'm not a believer of that.

Okay.

And I think if you can do an NPS study on this, buyers hate that. they don't want to be on a hook forever. Like they -- the buyers want is the shortest amount of time, right? So there's 20 minutes to, let's call it, a few hours, you're not in a hook forever, okay? We're putting some of our capital technically at risk, obviously, with our data, it's not material risk.

And we're saying we're going to launch this car no reserve, and it's going to be sold the highest bidder within a few hours of it launching. So I would say with what and Vikas talked about last year, this is not a change to that. This is just more fuel to it, right, because we now have more data to support this car is selling, and we know how to predict what the car is going to sell for.

That's an important distinction. So that's key. I want to maybe switch topics a little bit, commercial wholesale.

Sure.

So for us Internet guys, it's a little bit of a newer market for us to learn exactly what it is. But we're getting close to launch, I think, in Houston, and you talked about it before with Project Viper. So just would love to understand more, dive a little bit deeper on the opportunity on what commercial wholesale is, the strategy behind it. And some of the feedback we get from clients is, are we going from an asset-light model to a different sort of balance sheet risk model here. So...

Sure. So it's still asset-light, meaning you're not buying and selling assets, okay? So there's -- and then as far as real estate, we're not buying real estate. We're just renting a few acres of land and right now, 11 locations, soon 12 and eventually 40. And when you look at renting a few acres of land, this is really not a big deal.

Look at it as if you just look at traditional unit economics, you're adding, let's say, on average, 60 to -- I'll give a huge range, $60 to $90 of cost per unit of land of -- for snow plow or landscaping or taxes, [indiscernible] all in cost. Our efficiency for our inspectors will probably be 2x to 5x what they are at a physical auction.

Got it.

And so our inspectors will be more efficient. We're getting cars that we -- like, for example, with repos, we can't get these cars unless we have a place to park the car. So you got a higher ARPU because you're charging with a little bit of margin in some of these other value-added services like Recon. So you basically have a slightly higher ARPU, slightly higher cost, getting to a very similar EBITDA dollar per unit.

But yet you're opening up to your first question, it's a TAM of somewhere around 8 million units that addressable through the strategy for us I think our addressable TAM is somewhere in the 4 million to 6 million units. So you're adding 4 million to 6 million addressable market to us. That's a big deal. And we -- the largest in the category, Manheim sells about 2 million cars a year commercial and somewhere around 1.8 million to 2 million in dealer. So they sell more commercial than they do dealer. They're the largest in the category by far.

There's independent auctions who are throughout the country also selling these commercial cars. We've got -- we believe we have the best demand engine. Our buyers want to buy these cars. We don't really have to go out there and build a demand engine. We just need to get the supply. And by adding supply, this will just help us not only get stronger in certain geos, right? You're just selling more cars, you're diversifying your supply, the buyers love it. So it's not as asset heavy as other industries you're probably thinking where you've got massive costs. We're not talking about 500 locations. This is not Chipotle, right? This is a very easy strategy to go deliver on, 40-ish locations to get to 85% of the TAM, really not a big deal.

Very helpful. Very helpful. We've got about 5 minutes left come to questions in a little bit. So queue them up, I guess. I do have a few more I want to get through, one on margins. But before we get to margins, Bill, George, I got to ask about Amazon. So ACV is, I think, Amazon's data and technology partner for Amazon Autos, particularly for the consumer trade-in experience, I think. So would love to hear more about this partnership, how it came up and how and where it can evolve to, particularly as Amazon scales up its autos vertical.

Yes. Amazon, like others, who want to get to the point and be able to retail cars to consumers where you can just buy a car online, you can't get to that sort of -- you can't get to this ideal state of retailing cars online without being able to get to the right trade-in amount. And the trade-in is tricky. What's the condition of that car. The same make a model, same mileage, you could have a trade that could be $8,000 or $12,000. So you can't use averages.

You have to have a condition adjusted value, which is at the core of what we talked about earlier in the conversation here about where we've spent our resources building the tech. So they did a global search. I believe it was dozens of companies who were involved in their RFI, RFP type process where they went through and looked at who should they partner with.

And they selected ACV because we had the ability to get to this price where based on the way that the consumer describes their vehicle, we're going to give a very fair value for that consumer. So it started out, as you know, their first distribution partner with Hyundai, their second was Hertz. They're working on a third, fourth, fifth. They're going to grow this. There will be multiple partners for Amazon.

And as they expand the types of cars they're retailing, their retail partners, they've got ACV pricing engine, which is an API. So while you're literally inside the Amazon app, you're basically getting the ACV price as you're trading in your vehicle. And then if the local dealers decide not to keep that car, let say, Hertz doesn't want to keep the car, then ACV wholesales that. And so we have without getting into specifics, we have a fee side of the model, which kind of more like hits our data services side. And then we have a wholesale opportunity where if they don't keep the car, we wholesale it.

So it's really how they're using our API is not too dissimilar to how 3 of the top dealer groups in the country are using our API or are they starting to use our API. Amazon maybe is a little bit further on going all the way to e-commerce. But we're -- it's a need of Amazon. It's a need for all the dealer groups. Whether or not they say it yet, you've got to launch your e-commerce strategy with it with a firm trade-in.

Do they all have to do it this year or no? I mean consumers are going in this direction. But in time, you'll see selling cars online just become kind of like, yes, some percentage of consumers just want to buy it online. But whether that transaction happens on Amazon, whether it happens on the dealer's website, we're willing to partner with DMS companies. We're willing to partner with like consumer marketplace companies.

We're willing to -- we're here to power the industry. What's the actual cash value? What's the ACV, right? They should have an API into us, and we're helping to determine the price of that car.

I can plug for ACV, by the way.

And that's really what the core of ACV becomes is we bring certainty on what to do with this vehicle. So...

That's great. That's super helpful. We have about a minute or so left, but I want to see if there is any questions from the audience.

Just a basic question. Given how much you guys are now doing the industry you alluded to before -- given how much you are doing for the industry now? One more time. Given how much you're doing for the industry, you guys are sort of the data platform. What's the thought about rebranding the company from ACV auctions to maybe just ACV and bringing more attention to the value you provide. It's not just an auction company, it's much more.

Yes. And we're -- it's a great question. We're debating that. I think what we've started to do slowly is on our -- a lot of our marketing. You'll just see it, say, ACV. It doesn't all say ACV auctions anymore. We own the acvauto.com URL. We're starting to use that a little bit more. But I think your question obviously isn't just about branding, it's broader. It's really the recognition. I think we've got some more work to do. I think I get reminded every day.

I talk to dealers every single week, whether I talk to 3 or 5 or 10 dealers in a week, I still find many of them don't yet know that ACV can do more for them. So we've got more work to do. I mean we've got all of these capabilities you're hearing me talking about. But to your point, if I did a poll right now, probably only 7 out of 10 dealers really even know what we do on the auction side and probably only 2 out of 10 know what we do with these other value-added services.

So on the commercial side, our colleagues were with one of the big OEMs last week. They had no idea what we could do on pricing. No idea. And this is like a top 5 OEM. So I think your question is really to the heart of we've got more work to do, whether it's branding, marketing, product marketing. We've got all these great capabilities and not enough people yet really know about it.

But no, it's top of mind. I'm not sugar coating that there's still more of a, I would say, awareness. But as we get out there, the good news is once we get in front of them, we're doing a great job but we've got more work to do to get this awareness that ACV can do more.

That's great. Well, with that, Bill, anything to say on margins very quickly? Otherwise, we turn over to...

They're growing fast.

All right. Good answer. Well, thank you very much, George, Bill very much appreciate it.

Thank you.

Thank you.

Greetings, and welcome to the ACV Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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's conference call to discuss our second quarter 2025 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 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.

And with that, let me turn the call over to George.

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 3 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. And third, we further executed on an exciting product road map 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 to 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% year-over-year growth despite the sharp 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 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 transportation. The transportation team had another quarter of strong execution, setting records for both quarterly revenue and transports delivery.

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, increased transport network densities and create additional long-term growth vectors.

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 lane is particularly attractive in the current supply-constrained market. One proof point is our success with a top 5 dealer group that has deployed clearCar service at over 150 rooftops with plans 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 Guaranty, one of the fastest-growing channels in 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 5 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 marketing sector, 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 consignor 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.

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 & 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 & 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 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 and cash equivalents and marketable securities and $187 million of debt. Note that our cash balance includes $198 million of marketplace flow. In the figure on the right, we highlight our strong operating cash flow for the first half, 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 million 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 million 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 are expecting revenue in the range of $198 million to $203 million, growth of 16% to 18% year-over-year against a tough comparison in Q3 '24, which had revenue growth of 44%. Adjusted EBITDA is expected to be in the range of $18 million to $20 million, reflecting growth of approximately 70% year-over-year.

And 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 road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. 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. 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 Instructions] Our first question is from Chris Pierce with Needham & Company.

Could you just kind of parse out from Bill's comments, the 500 bps unit growth headwind despite listings being in line with expectations. Does that mean dealers opted -- well, it does mean -- I'm assuming dealers are opted to keep these vehicles because they weren't getting the price we wanted. Is that what you mean by higher retention rates? Or is higher retention rates or something else? And this is -- there are 2 different things. I just want to confirm to kind of parse that a little bit?

Chris, yes, 2 separate things. Semi-related, but let's call them 2 separate things. One is dealers, when you survey and you talk to dealers right now, they're keeping the higher percentage of partners, 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 units gap. So that broad industry challenge has been going on. 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 [indiscernible] platform versus what it was. But yes, these 2 things aren't directly related. Bill, I don't know if you want to add [indiscernible].

Yes. I think just to take you through the math, Chris, just want to understand what we're referencing with the 500 basis point headwind. So again, so 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. But that's the math behind the unit growth versus what our expectation was.

But your question of combining the 2 makes sense, meaning like if you're going to keep someone versus wholesaling them, some percentage of those lower conversion that they just kept the vehicle, it's not the whole story. But Chris, that is part of the story.

Okay. And then just lastly for me. Can you talk about any competitive dynamics or competitive changes in the marketplace you're seeing? Or should we think of this as 80-20 macro versus competitive or whatever kind of ratio you might want to put on that. I'd love to hear your thoughts there. .

I think the things we saw in the quarter was pretty much in line with what the industry saw. We get data from NAAA [ AuctionNet ] and other data and conversion rates came down in the quarter pretty consistently. I would say, for us and the competitors. So I would say we probably all saw similar trends where you saw the pull forward, you saw a lot of activity in the beginning of the quarter.

We saw few different macro headwinds all happening. And so I would say the slight dip in conversion rate made sense. I say that also confidently that conversion rates did come back up to start this quarter. I'll 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. But Chris, we did see the quarter start out stronger from a conversion rate perspective and actually see pretty healthy conversion rate. So all good right now.

Our next question is from Bob Labick with CJS Securities.

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

Yes, 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%. And when we -- when you think about that progress, it's we're really proud of the progress where 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 can be $5,000, $10,000, $20,000, whatever the vehicle is. In our data set that we've trained, condition-adjusted data set we train 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 2 data sets gives us a tremendous competitive edge. So we think our sale, what you hear us refer to as a guarantee to the seller. It's no reserve to the buyer. We think the 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.

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

And what's next after the price guarantee in terms of new tech and data products?

Yes, we have 3 of the top 5 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 ourselves with the market's key the market's key focus. [indiscernible] dealers are here to buy cars from consumers or the [indiscernible], We're really aligns on wholesale. We will move to retail as well. We have in beta today, predicting the price of retail, which is also really incredible with our data set. And with the same data science team, we can predict not only with the cars in sell from wholesale, but we were -- within the last month, $360 prediction within 30 days, what a vehicle is sold for, which is really incredible.

So think about this data set, it's a way for us to launch new products like No Reserve. I mean the No Reserve this guarantee it's going to be a big part of the company. But 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 of automatically in these vehicles and in other capabilities that we'll be launching. So yes, we're really proud of the efforts thus far.

Our next question is from Eric Sheridan with Goldman.

Maybe 2, 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. I'm not sure how much you're willing to say you're able to say about how to think about the embedded assumptions about what that looks like over the next couple of years?

And then when 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 sort of the travel from point A to point B and thinking about some of the contributions to growth in the coming years.

Yes, certainly. I'll try to tackle both of those questions, Eric. So first, the the contributions will come as we roll out these solutions. This year, [indiscernible] 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 in these sales.

What we're doing with Amazon, we can't predict what they're going to do. So 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.

But right now, we're obviously spending the resources. So it's in our R&D budget. It's in our spend. but we're not expecting a material contribution this year. But I think these are incredible medium- to long-term benefits that should flow through. So I don't think I can really talk much more about like direct partnerships, whether it be about the name you mentioned or others. But I'm not sure if there's any out that we can share.

Yes. I would just say this year, frankly, Eric, it's more 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 Viper. With Amazon, we've built that platform, so it's capable of processing trade-ins at scale. So the opportunity is really for growth down the road. .

But Viper especially, we're investing in this year, and that's baked into our current modeling in terms of our OpEx spend. So really, the opportunity on Viper is really going to materialize next year in terms of revenue and kind of opportunities to sell this overall solution that kind of plays into the guarantee offerings that we have as well. .

Our next question is from John Colantuoni with Jefferies .

Yes. This is Vince on for John at Jefferies. So after consistently delivering roughly mid-teens outperformance of industry unit volumes for the last couple of years. It looks like growth relative to the broader dealer dealer industry, may have slowed down a bit in the quarter, but then you expect a return to mid-teens gains going forward. So maybe just help us think about the drivers of 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?

Yes. I'll start and then Bill can chime in. So 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 when you look at year-over-year on an absolute basis. But we're -- I think when you look at it on an annual basis, it really shows a better picture of -- and we did that last year, we did the year before.

We plan on doing that this year, too. So I think there's -- 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. So the numbers are bigger. So our absolute number does need to grow more, and we're not shy about that. But we're 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 this new product suite. We do think we've got additional growth ahead. And so really, we're not changing our perspective. Bill, any more on that before I go to [indiscernible] question.

No, I would just say again, to put things in context. So a few things for the second half of the year. So -- so 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. So 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 currents that are out there, right?

And hopefully, things are better and will perform better. But right now, that's our baseline assumption. And then that sort of gets us back to kind of the mid-teens in terms of the math, right? So 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 in 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 you covered it. Any other questions asked for commercial contribution.

Commercial contribution...

Oh, commercial. Thanks, Tim. On commercial, we're still very -- we're early. I mean we -- our wins of the quarter is we just got our software done for our new platform. We did sell our first car. So it is -- it's something to celebrate. And that's something to go in the earnings script per se.

But we sold our first car at our greenfield location at Houston, which was like a practice run. It worked, everything worked, reconditioning and everything went back and forth. We also sold our first CAR and our new software that didn't require a greenfield -- so both trials went in place during the quarter. We're ready to go live very soon. The team is working on live dates for both Houston and the ability to start taking a vehicle that's not at one of our locations and still do the -- whether [ recon ] estimate to decide whether or not where the rig remarketing channel for it or not, I think more like an upstream commercial.

So really proud what we achieved in the quarter, it was more software than anything else, but 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.

Our next question is from Rajat Gupta with JPMorgan. .

Great. George Bill, I had a little bit of a philosophical question. You've obviously done a tremendous job 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 the software development, all gaining traction.

I'm curious, is this like a resource allocation decision every quarter where it looks like your 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 would you consider like investing more on like boots on the ground, sales and marketing to maybe accelerate share even if you could come up to loss of some EBITDA in the near term. Just curious like how you're thinking about this -- or is the focus [indiscernible] managing like to your guidance on the dollars on EBITDA? I have a quick follow-up. .

Yes. I think in a way, your summary also was a good representation of how we're thinking about. Like first and foremost, we always protect in our annual budget a pretty significant product and technology spend. So think about that like [ core ] because at the end of the day, obviously, we got to get through these quarter-by-quarter calls but 5 years from now, 10 years from now, we're going to talk about ACV being the global way cars are priced and sold.

We're going to talk about ACV sort of like how we think about Kleenex today, right? Like what's the ACV on a vehicle? What's the actual cash value? Like that's how we're going to think about the brand. We'll never get there. if we don't invest in the product intact. So look at it as we approach our budget, we never sight of of sight of. At the end of the day, we're going to -- we're building the tech stack here. That's going to create less friction in the marketplace, wherever the vehicle is, upstream the consumers drive way, add a greenfield location for a bank, wherever the vehicle is, first and foremost in the U.S., eventually globally. So that part of the budget, it's -- we're spending at lease ac -- and then we kind of have, hey, if we do well, we might even spend a little more, like we have like our first order of bit from an R&D perspective.

And the next part is inspectors. We never ever will allow our budgeting or EBITDA quarter-by-quarter effect of hiring inspectors because [indiscernible] 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 one location, a little less than another mutation, but the team won't hold back.

Soon as we need more, we need actually right now about 30 more inspectors across the country. It was my last readout I saw. -- that -- those 30 inspectors we need are in the process of being hired wherever they are in that process, and it just happens. It's like the kind of -- we don't really look at it as it relates to EBITDA, like it's there. But it's its own machine. And I would say, generally, broadly sales. We have a lot of sales teams. So I don't think we need boots on the ground for sales, selling any more than we have today. We've got well over 100. I think it's where around 150-ish team mates out in the field, and we have another team of like 20 or at our majors and strategics, and we have another team. So we've got a really healthy sized sales team that's already kind of built into the budget. So hopefully, that kind of gives you how we think about prioritization.

Yes. And then I would just add, Rajat, look, we're still a relatively young company. And we're still maturing a lot internally and operationally. And we know that over time, in order to hit our financial targets, we need to continue to just optimize operationally. And that's kind of a daily and weekly process. So 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 and 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 -- so what you're seeing is just the continual effort to continue to do that.

But to George'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 is product and technology and how do we leverage and invest in order to drive more value for our customers and continue to drive growth.

Understood. And just on your market outlook commentary, it looks like July was another decent decent month for the industry. So it does imply like a pretty material slowing in the remaining 5 months. Curious like is it just primarily days related to and the impact it might have on just new car sales. Is there some assumption around worsening wholesale to trade ratio? I'm just curious what's what's guiding that outlook or material worsening in outlook here for the remainder of the year? .

Yes, as you know, July was strong. It was strong from retail, it was strong from wholesale. 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 1 strong month and then you kind of have a few months after that, that aren't as strong. So I'll answer saying this one. We've been reading your reports and you don't seem so bullish -- in past periods, half joking. You do have a lot of data on this, and yes, we read it all. But there's quite a few analysts out there and when you spoke -- speak to the dealers themselves, you're not hearing the most bullish back of the year and then also 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, do you want to add to that?

I think what I would add is, as you know, kind of trade retention rates are pretty key in terms of the wholesale market -- and what we did see is data that support the fact that in Q2, trade retention rates increased about 300 bps year-on-year earlier in the year versus early in the year out.

So the potential trend, and we'll have to wait and see how this plays out is dealers could be keeping more traits 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 and therefore, potentially there could be more demand and potentially higher pricing for used cars. So 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.

So -- to George's point, you've probably been studying this more than we have. And again, 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.

Our next question is from Ron Josey with Citigroup.

Jamesmichael on 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 upsell of offerings like ACV Max? And then second, on ClearCar specifically, with 1,600 active roofs, -- can you update us on the go-to-market and the success you're seeing in supply-constrained markets.

Yes, certainly. We mentioned in the prepared remarks that we had 1 of our best bookings yet AC 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, but more of our focus is on long-term differentiation on the wholesale side. .

So we tend to approach these products as a partnership where we're giving MAX and clear car 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.

So yes, record bookings for MAX, clear cars 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 who 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, kind of look at this in phases. It's like a Phase I, Phase II, Phase I, they already have consumers coming, they're there to change their oil there to rotate their tires. And we have some dealers buying 3 to 5 cars a day right out of the service drive.

Now trade retention-wise, they're keeping a higher percentage of those, a lot o 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 ratio. So, 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 Clear Car and MAX in but we are just about to launch that.

So think about that's probably more like Q4, Q1, it's technically in beta right now. So 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?

Next question is from Alex Potter with Piper Sandler.

Perfect. So I hate to beat on this revenue guidance, I think 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 the reassessment of the way the market is functioning. Is that correct? .

Alex, yes, it is. So -- 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, it 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, but that's what we assumed based on just some of the trends that we were seeing, especially exiting Q2. we're -- again, there's all these crosscurrents 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. So we kind of plug all that in, and our conclusion was 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 is kind of meeting our commitment to investors. So 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, watching our first greenfield, which as George mentioned, we're testing the software so far so good. So there's 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. And 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. And then maybe 1 other question. I think earlier, Rajat, I think, you 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 the fees that you're charging for auctions what's the outlook there? What's the recent trends and any ability to -- or intention, I guess, to take price at all in the coming several months or quarters?

Yes. Listen, we're always looking at this. 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. So I think we've been doing that since 2016. Give us more cars, we charge you less. So it's pretty simple.

On the buy side, we've got an array of features. The opportunity here isn't just by 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 [indiscernible] these newer offerings. So we're always dialing in here and trying to find that right balance of the right product mix and the right assurance. So we do have some more room. Our fees are still a bit lower than the traditional physical auctions. But we're we're always looking at it, but we don't have any timing expectations to talk about today.

And that's not baked into our guidance. Now there is going to be call it, 5% or 6% increase in ARPU just based on the buy fee increase that we passed through earlier this year. But on that, we didn't assume any other fee increases per se in our modeling for [indiscernible] .

On the [ take up ] of some of these Assurance products and other things that we're seeing. .

Right. But that's -- yes.

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

Just last year, you did a couple of -- a bit more than a couple, but I think a few tuck-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? 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

So I'll handle the first part, I don't if you want to comment on the second [indiscernible]. But yes, we did an acquisition last year. It was a location that was primarily a commercial location in Indiana. And if we look at the impact on the dealer unit growth, it added about 1% to the dealer unit growth in the quarter. So that was from that acquisition. But all the other acquisitions were prior to Q2 of last year. So that was the only one that affected organic versus inorganic growth.

And then your second question, we're always here to talk to the owners of the current options. And so we're always willing to get into an active engagement. But our focus has been a little bit more on these greenfields. We're really excited about this. Our first 1 going live in Houston. We'll have our second 1 go live early next year some time, we'll come back and tell you the location of that one. we're ready at the contracting phase for that one.

So we're feeling really good about the strategy. I'm not ready to give you a ramping of that yet. So when you think about our 40 locations we said we'd like to have, we haven't yet given you how many of that will be M&A versus greenfields. But 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.

So we will have multiple growth lever opportunities here. In addition, we can also look at M&A in certain geos. There are some great [indiscernible] out there, and we'd love for them to be part of the ACV family at the right price. So we shall see. But at the end of the day, we're going to really bank on the greenfields is our core strategy. And if we happen to have some M&A opportunities come on the way, great, but more of a focus on greenfields.

Well, just a reminder, with greenfield, so we would have some OpEx upfront but the total capital consumption obviously would be dramatically lower for those cases where we can launch a greenfield instead of acquiring an auction.

So as George said, we're kind of open to both but greenfield certainly potentially offer a much more efficient way to grow our business. And we'll see how the first 1 goes. So -- and we have, I think, we already publicly said that we have a scoping field that we'll be launching in Q1 of next year with the location to be announced.

Out next question is from Josh Beck with Raymond James.

This is a little bit more of a go-forward look. So it's early. So I totally appreciate the caveats and the like. But it seems like for '25, the visibility has probably gone down a little bit with -- despite kind of reduction in the market growth from flat to flat to down. It sounds very conversion and retention, not really listed oriented. But it also seems like things are just kind of somewhat hot and cool by the month because of the macro. So I guess when you start to think about '26, it's obviously too early for that. But what are going to be some of the key, I guess, milestones that you're looking for as we close out this year to help kind of better inform maybe what '26 can look like from a market point of view.

I think at the end of the day, obviously, we all want consistency. But I think we've -- 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. .

So I think at the end of the day, what we all want to see is you want to see new cars continue to develop, kind of get through the sort of pretty significant pull forward and then drag type like situations we've seen get through that. Meanwhile, what we'll see is off-lease will start to come back in '26, used car inventory will start to come back in '26. So it does feel like '26 should be a much healthier time for us for the whole industry, not just the ACV, but the whole industry. Bill, do you want to...

Yes. I would say there's 2 other variables for us to think about, right? Hopefully, by the time we get into '26, 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. So that would certainly provide a lot of stability.

And then 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. So I think it's -- hopefully, it's a safe bet that the tariffs will be behind us by that -- I think certainly, it seems that way. That's going in the right direction at least. And 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, but at least if they start reducing rates further, it will move us in the right direction.

okay. That's super helpful. And then I think, Bill, maybe going back to some of your earlier comments about you being a relatively young company and there's still opportunities to unlock operational efficiency. It certainly seems like that's an area you're excited about. Is there a -- 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 luster that in? Just any other talking points there that we should be considering?

Yes. I mean I can't give you anything specific. I mean it's just -- I would just say, in general, we're always looking across the company for operational efficiencies in everything that we do. So 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. So Yes, I don't want to be specific at this point. As things kind of play out over time, and we can talk specifics, we will in the future.

I would say no different than any other larger-scale company, we're using data to help us understand 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 a faster way to get back. We're looking at it across the whole business. .

We're looking at ways for dealers to be -- they want to move forward and have 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. But it's more built into our DNA, built into how we're capturing our data, built into how we really look at the entire business.

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. .

Thank you, Paul. We appreciate everybody joining us this afternoon and evening of the call and look forward to hopefully seeing you on the conference circuit this quarter. Again, thank you for your interest in ACV, and I hope everyone has a great evening. Bye. .

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