Good day and thank you for standing by. Welcome to the ACV Fourth Quarter and Full-Year Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker for today, Tim Fox. Please go ahead.

Good afternoon and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2023 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 pleased with our fourth quarter performance, which capped off another strong year of execution by the ACV team. We delivered 21% revenue growth in Q4, and adjusted EBITDA have once again exceeded our guidance. For the full year, revenue grew 14%. We gained market share and exited the year with over 28,000 dealer partners buying and selling on our marketplace. We launched new innovations that expanded our competitive moat and drove operating efficiencies, resulting in approximately 70% year-over-year improvement in adjusted EBITDA. Along with our continued momentum in dealer wholesale, we expanded our TAM with the launch of ACV's consumer sourcing solution, ClearCar, and by building the foundation for our commercial wholesale strategy. We are pleased to announce that our expansion into commercial wholesale will benefit from securing access to the AutoIMS software platform and also by growing our remarketing center footprint. More on our commercial efforts later in the call. As we turn to 2024, ACV is focused on accelerating top line growth, continued margin expansion, and achieving an important milestone with adjusted EBITDA profitability in 2024. We're confident that executing on this profitable growth strategy will result in creating long-term shareholder value. With that, let's turn to a brief recap of fourth quarter and full year 2023 results on slide four. Fourth quarter revenue of $118 million was in line with guidance and grew 21% year-over-year. GMV increased 6% year-over-year despite a 9% decrease in GMV per unit as wholesale prices continued to normalize. We sold 144,000 vehicles on our marketplace, growth of 15% year-over-year, reflecting solid listings growth and improved conversion rates. For the full year, revenue of $481 million increased 14% as unit growth rebounded year-over-year, along with strong attach rates for ACV Transport and ACV Capital. GMV for the year declined modestly to $8.8 billion due to a 10% decrease in GMV per unit, largely offset by a 10% increase in unit growth to just under 600,000 units. On slide five, I will again frame the rest of today's discussion around the three pillars of our strategy to maximize long-term shareholder value; growth, innovation, and scale. I'll begin with growth. Turning to slide seven, I'll share our observations about automotive market trends as context for dealer wholesale volumes in 2023. New retail sales increased 8% year-over-year, recovering from a 10-year low in 2022. While volumes continue to lag 2019 levels, inventories improved and OEM incentives increased. These are key factors in supporting a recovery in retail sales, trades, and therefore dealer wholesale supply. The used retail environment was a different story. Units declined 1% year-over-year in 2023, down from what was also a 10-year low in 2022 as affordability issues continued to pressure consumer demand. In terms of vehicle sourcing, dealers continued to retain a higher-than-normal percentage of trades for retail inventory, creating a headwind for dealer wholesale supply. The trade-to-wholesale mix is expected to normalize over time as new and used inventory recovers from depressed levels, which are currently about 30% below normal. While the supply picture remains muted, on a positive note, price depreciation and conversion rates across the industry recovered in 2023 following very challenging operating conditions in 2022. On balance, we believe that end markets are showing early signs of improvement, and while the shape of the dealer wholesale recovery is difficult to predict at this stage in the cycle, we do believe the market will post modest growth in 2024. Moving to slide eight. After declining 20% in 2022, we estimate that the dealer wholesale market declined 7% in 2023. As new retail sales recovered from depressed levels year-over-year, given our 10% unit growth, this implies 17% market share growth for ACV, which is in line with our midterm target model. As I mentioned earlier, while there are cross currents still impacting the broader automotive market, we continue to believe that 2023 will be the trough for the dealer wholesale market. Next, I would like to provide highlights on our value-added services. First on slide nine, the ACV Transportation team delivered very strong results in 2023. Attach rates for the year were in the mid-50% range, in line with our midterm target model and our carrier network delivered over 325,000 vehicles. Our tech investments yielded a greater than 20% improvement in cycle times, which is a key element of ACV's value proposition for our dealer partners. AI-optimized pricing, which we introduced in early 2023, expanded significantly during the year and we achieved 90% lane coverage in Q4. By leveraging AI, our Transport team drove growth and operating efficiency, resulting in a 900 basis point year-over-year increase in revenue margin, reaching the high-teens. As a reminder, our midterm target model assumes Transport revenue margins in the high-teens. While margins may fluctuate modestly over time, the fact that we already achieved our target speaks to the value we're delivering to our dealer partners and our strong execution. Turning to slide 10, our ACV Capital team also delivered very strong results in 2023. Attach rates in the low double digits resulted in 50% loan volume growth year-over-year, and combined with strong ARPU expansion, resulted in over 80% revenue growth year-over-year. We are continuing to invest in new ACV Capital capabilities, including bundled offerings with ClearCar, and we remain confident that ACV Capital will be an important long-term growth and profit driver. Next, I would like to wrap up the growth section by updating our progress on penetrating adjacent markets to provide ACV with additional growth levers. On slide 11, I'll begin with ClearCar, ACV's consumer sourcing solution that leverages AI and real-time market data to deliver highly accurate condition-based pricing. As a reminder, the consumer peer-to-peer market is large, with about 10 million vehicles transacting each year outside the dealership ecosystem. Given ongoing inventory challenges facing our dealer partners, the peer-to-peer market is an attractive vehicle sourcing opportunity. ACV is addressing this challenge with ClearCar. Adoption has been impressive, with about 600 dealer rooftops live today, and we have a robust pipeline of new prospects. Based on dealer feedback, lead generation and conversion rates are significantly higher than competitive sourcing tools. This speaks to the power of ClearCar in driving qualified leads and ultimately increasing overall dealer supply. We are excited about the momentum for this value-added solution, which adds another growth lever to our business. Next on slide 12, I am pleased to highlight some exciting news related to our commercial wholesale strategy. At our Analyst Day last June, we shared our rationale for expanding into commercial wholesale. While we believe ACV is well-positioned to capture commercial market share and the investments required to service commercial consignors, it turns out our timing could not have been better. Commercial volumes in the rental, repo, and fleet categories are recovering at a strong pace. While off-lease will take a few years to normalize, the overall commercial opportunity is very attractive. We believe that ACV is uniquely positioned to address this market with our deep data moat and vibrant marketplaces, along with a growing nationwide buyer base looking to secure commercial inventory. And we've expanded our remarketing center footprint with a recent acquisition of a Texas-based auction group that provides additional locations for vehicle storage and light reconditioning to service commercial vehicles. Lastly, we are thrilled to announce that ACV has secured licensing to AutoIMS. This technology platform connects wholesale auctions to nearly all 1,300 commercial consignors in the U.S. Our agreement enables ACV to deploy AutoIMS in a way that supports our remarketing centers and our digital-focused business model, which will be an industry's first capability. To wrap up on growth, we continue to execute on our playbook to capture dealer wholesale market share. Our Transport and Capital offerings are gaining significant traction, and we are well-positioned to expand our TAM by executing on our consumer sourcing and commercial market expansion. Turning to the second element of our strategy to drive long-term shareholder value, innovation. On slide 14, I will first recap some of our growth-oriented product innovation. Let me begin with the dealer buying experience. We leaned in with tech to increase conversion rates by launching new auction formats, an improved user interface, better inventory notifications, and enhanced pricing data. Our private marketplace solutions experienced strong traction with some of the largest dealer groups in the country, enabling dealers to both easily auction inventory within their network and leverage ACV's open marketplace. We launched new capabilities in our advanced buyer solution, S.A.M., which enhances the buying experience through intelligent notifications and auto-bidding capabilities. And as I discussed earlier, our ClearCar solution is gaining significant market traction, and our Transport team is leveraging AI to drive growth and operating efficiency. On slide 15, we highlight examples of tech investments that extend into our operations, delivering customer success while reducing costs. One of the key drivers is inspection accuracy. Just as a reminder, each vehicle is unique with its own imperfections. We believe AI and our structured data is a massive competitive advantage. Our field team is equipped with technology such as CoPilot, ArbGuard, Apex, and our AI-powered imaging apps to deliver high-quality inspections. CoPilot and ArbGuard leverage machine learning, predictive analytics, and sensor data to inform our VCIs on vehicle-specific issues before and after conducting an inspection. This is an industry-first. Apex delivers significant transparency into vehicle operating conditions while also increasing the inspection productivity of our VCI team. Dealers often observe that you can't smell a car over the internet. This is no longer true thanks to Apex, with smell being one of the many sensors it enables, and we continue to expand our AI imaging capabilities to identify specific important conditions like the presence of damage and rust. Together, these innovations contributed to a 10% reduction in customer assurance costs in 2023, incredible performance in the current market. Next, I'd like to share some of the key focus areas of our tech roadmap for 2024 on slide 16. First, we plan to continue driving increased conversion rates by further tailoring the dealer experience on our marketplace. What was MAX Digital is now ACV MAX. This is more than a name change. We integrated ACV's proprietary data moat from our million annual inspections to enable dealers to make smarter sourcing decisions. We introduced cutting-edge recon alerts by leveraging ArbGuard and built a seamless integration with ClearCar to help dealers source more vehicles from consumers. Dealers now have a way to elevate their brand by becoming more consistent at all their stores, ultimately enabling them to source more inventory and drive gross profits. Given the strong adoption of ACV Transport in our marketplace, we are extending these services to vehicles transacted off-platform, enabling our dealer partners to further leverage our best-in-class Transport services. We recently implemented a loan management system to support our growing ACV Capital business, which enables us to offer a broader set of finance offerings and drive scale across the platform. For example, expanding our finance to dealers looking to source consumer vehicles. To accelerate our commercial strategy, we'll be focused on integrating our remarketing centers with ACV's digital marketplace to create a range of cross-sell and upsell opportunities. We are well underway selling vehicles from our remarketing centers on ACV's marketplace. Lastly, we are planning to leverage our industry-leading inspection technology to create dealer self-inspection solutions for two use cases, private marketplaces and live appraisal. These are examples of dealers directly using ACV's inspection and auction capabilities. To wrap up on innovation, ACV remains committed to delivering industry-leading technology to our dealer partners and to our own operations, driving both growth and scale. And we look forward to sharing more details with you next quarter. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth at scale.

Thanks, George. And thank you everyone for joining us today. We are very pleased with our Q4 and 2023 financial performance. Along with delivering accelerating revenue growth in the back half of the year, we had meaningful revenue margin and adjusted EBITDA margin expansion, which demonstrated the strength of our business model. Turning to slide 18, I'll begin with a recap of our fourth quarter results. Revenue of $118 million was at the midpoint of our guidance range and grew 21% year-over-year. Adjusted EBITDA loss of $5 million beat our guidance range, and adjusted EBITDA margin improved approximately 800 basis points versus Q4 '22. This demonstrates both the operating leverage in our model and continued strong OpEx management. Next on slide 19, I will cover additional revenue details. Auction and assurance revenue, which was 56% of total revenue, increased 19% year-over-year. This performance reflects 15% year-over-year unit growth and auction and assurance ARPU of $456, which grew 3% year-over-year. Note that ARPU increased year-over-year despite a 9% decline in GMV per unit, reflecting our Q3 price increase, and we believe we will still have pricing headroom going forward. Marketplace services revenue, which was 38% of total revenue, grew 29% year-over-year. Results were driven by strong ACV Transport performance and another record revenue quarter for ACV Capital. Our SaaS and data services products comprised 7% of total revenue, and revenue was flat year-over-year. While ACV MAX revenue grew modestly year-over-year, recall that we have been taking a measured approach to customer acquisition while making significant improvements to the ACV MAX platform. As George discussed earlier, we recently launched the upgraded ACV MAX suite, and we're confident these improvements will drive long-term growth. Turning now to slide 20, I will cover costs in the quarter. Q4 cost of revenue as a percentage of revenue decreased approximately 300 basis points year-over-year. The improvement was driven by strong auction and assurance results and by ACV Transport. As George mentioned, we delivered high-teens Transport revenue margins, which is in line with our midterm target model. We continue to focus on expense discipline as we optimize and scale our business. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased 4% year-over-year in Q4. This reflects a more metered approach to growing OpEx relative to our revenue as we march towards profitability. Moving to slide 21, let me frame our investment strategy and path to profitability. Our focus on spending discipline and operating efficiency resulted in a material decrease in OpEx growth in 2023, resulting in adjusted EBITDA losses declining by approximately 70% year-over-year. And as you've seen reflected in our Q4 results, we delivered margin expansion while preserving our go-to-market and technology investments to ensure ACV is in a strong position as market conditions improve. On slide 22, I would like to provide an update to regional profitability that we shared at our Analyst Day last June, demonstrating why we're confident in our midterm target of achieving 25% adjusted EBITDA margins. In 2023, 35% of our regions, comprising about 50 territories, achieved adjusted breakeven or better. Of those regions, three were in the 15% to 25% adjusted EBITDA range. Additionally, we had three territories exceeding 25% adjusted EBITDA margins. We believe that this performance demonstrates the inherent leverage and scale of our business model as we continue to drive top line growth. Next, I will highlight our strong capital structure on slide 23. We ended Q4 with $411 million in cash and equivalents and marketable securities and $115 million of debt on our revolver. Note that our cash balance includes $134 million of float in our auction business. The amount of float on our balance sheet will continue to fluctuate meaningfully based on business trends in the final two weeks of each quarter, which has a corresponding impact on operating cash flow. Cash flow from operations in 2023 improved significantly year-over-year, a 75% reduction in burn, reflecting the strong margin improvements and OpEx management we delivered and the leverage in our business model. Now, I'll turn to guidance on slide 24. For the first quarter of 2024, we're expecting revenue in the range of $141 million to $146 million. Adjusted EBITDA is expected to be in the range of $2 million to $4 million, consistent with our commitment to achieve a full quarter of profitability in Q1. For the full year 2024, we are expecting revenue in the range of $610 million to $625 million, representing growth of 27% to 30% year-over-year. Adjusted EBITDA is expected to be in the range of $20 million to $25 million, reflecting operating improvements in our core business and integration investments in our remarketing centers. As it relates to our guidance, we are assuming that the dealer wholesale market grows modestly in 2024 and conversion rates and wholesale price depreciation follow normal seasonal patterns. We're expecting the Texas-based auction group acquisition to contribute approximately 5% of annual revenue in 2024 and be accretive to full-year adjusted EBITDA. Revenue growth is expected to outpace non-GAAP OpEx growth, excluding cost of revenue, and depreciation and amortization by approximately 10 percentage points. And finally, moving to slide 25, we remain committed to achieving our midterm target model, which is underpinned by sustaining market share gains, penetrating adjacent markets, and expanding margins through revenue mix and scale, all of which we've clearly demonstrated in our performance. Our midterm targets are primarily predicated on the dealer wholesale market recovering to historical volumes over time. But in addition, we are expanding our TAM and consistently taking share, which will drive long-term growth.

And with that, let me turn it back to Bill. Thanks, Bill. Before we take your questions, I will summarize. We are very pleased with our strong execution in 2023. We are especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace. We are expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product roadmap to further differentiate ACV and drive operating efficiencies. We are on track to achieve our near-term adjusted EBITDA targets and deliver on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals.

Thank you. Our first question today will be coming from Michael Graham of Canaccord. Your line is open.

Hey, thanks a lot for all the detail and congrats on the quarter. Just wanted to ask on the 2024 guide, you know, we understand that it includes about $30 million from the acquisition. And I know you mentioned, you know, expecting some recovery in the wholesale market underpinning that guidance, but just wonder if you could go into a little more depth about what you're seeing, you know, on the macro and you know, how you handicap sort of, you know, whether the market might perform, you know, better or worse than what's embedded in your guidance.

Hey, Michael. It's George. I'll start first, and then Bill can always add in. So, yes, thank you. Thanks for your comments on the quarter. Yes, it was another strong quarter and great execution as a team. I appreciate you saying that. We had some comments earlier that we discussed that we believe '23 would be the trough on overall dealer wholesale supply. When you look at the broad trends, we obviously saw even in Q4 another sort of year-over-year decline in overall wholesale supply, right. We do think things will marginally be better this year. Obviously, we didn't give much more details than that, but it's not like we're expecting this year to be the market to improve, you know, significantly. So when we said marginally earlier on the call, we're speaking to, you know, new car supply is coming back nicely. Used car, year-over-year, retail is still a little lower. Obviously, with interest rates and everything, we're still seeing an environment still tough on used retail. Overall, cars on dealers' lots are about 30% lower than 2019. So when you look at overall supply on a dealer's lot, we're still seeing it's still going to take some time for the market to kind of get back to normal. But we're thinking, you know, this year, things will marginally improve. Bill, I'm not sure if there's anything more to, you know, communicate.

Yes, I'll just say the only other thing I would add, Michael, is that, you know, if you subtract out this Texas-based acquisition, right, at the midpoint, results in about 22% revenue growth versus 14% for last year. So think of that as a combination of both an improvement in ARPU and then some modest improvement in the market, along with share gains. So just to frame out the math for you.

All right. That makes sense. Thank you, guys.

Thank you, Mike.

Welcome.

Thank you. One moment for our next question. Our next question will be coming from Chris Pierce of Needham & Company. Your line is open.

Hey, can I ask about the recent decrease in average selling prices on the platform? Is this a deliberate strategy to target a different segment of the market, or is it simply a result of the overall market and wholesale prices consistently declining? Should we expect this to lead to lower retail prices, or is that not something you're currently considering?

Hey, Chris. As we anticipated, the average selling price has fallen, aligning with the decline in used car values. We've observed a consistent drop in overall used car prices over the past two years. However, as you pointed out, our revenue per unit has increased. We have effectively managed the situation, facing a decrease in average selling price while maintaining strong revenue per unit. We're in a solid position. Indeed, last year we forecasted that used car values would keep declining, and we also predicted that our revenue per unit would hold steady. Both of those forecasts turned out to be accurate.

Okay. Okay. And then on the call, you framed a million auctions per year and you did 600,000 units. I mean, is it right to think about that conversion rate at 60%? Because that's roughly 1,000 basis points ahead of industry sources. So is that sort of part of the go-to-market or do I kind of have the math wrong?

Conversion rates are somewhat below that figure. There are a few auctions for dealers and retail cars, totaling a few thousand units per month. Additionally, we're looking at a few commercial cars, but the conversion rate is a bit lower than the 60% range. However, it's still close to that figure.

Yes, Chris, we're basically in the mid-50s, which is pretty consistent with historical trends.

With your historical trends or industry historical trends, if you could go in a little bit more detail?

I would say both, both our historical and industry.

Okay. okay. Perfect. Thank you.

Yes. Thank you.

Thank you. One moment for the next question. Our next question will be coming from Bob Labick of CJS Securities. Your line is open.

Yes. Hi. Thank you. It's Pete Lukas for Bob. You guys covered a lot in the prepared remarks. Thank you for that. I guess just one for me in terms of innovation. You guys have introduced a lot of cool tech over the years and you discussed innovation. What has you the most excited from that? And where do you see the biggest impact coming from in 2024 in terms of the new stuff?

Thank you for the question, Pete. We're experiencing significant changes due to artificial intelligence, which is affecting how we operate. Although the full impact won't be felt this year, we're investing in capabilities that will allow us to inspect cars more quickly and accurately. This was not feasible in previous years, but with our focus on AI and recent acquisitions like Monk, along with innovations from our R&D team such as ArbGuard, we're enhancing our understanding of vehicle issues. We believe our investments this year will reduce inspection times and improve accuracy, ultimately increasing our efficiency. We're very excited about these advancements. If I had to highlight one area, it would be the considerable improvement in our inspection capabilities due to artificial intelligence.

Great. Thank you. I'll jump back in the queue.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Eric Sheridan of Goldman Sachs. Your line is open.

Thank you so much for taking the question. Can you reflect a little bit on the key investments you see necessary to make that are putting some pressure on margins in 2024 and how to bridge that to sort of what you've talked about at prior Analyst Days in terms of the exit velocity of 2024 against your more medium-term EBITDA margin guidance? That'd be super helpful. Thank you.

Why don't you start and then I'll add in?

Sure, thanks. If I mention a few areas where we are on track, I previously discussed our ability to inspect vehicles, which enhances buyer satisfaction and supports our medium-term arbitration goals. We're performing exceptionally well in that regard. Regarding conversion rates on our platform, despite the challenging market conditions that our peers are facing, our conversion rates have remained strong due to the improvements we've made to our marketplace. Concerning Trasport, we are meeting our attached rates and margin expectations. The capital take rate is progressing well, and we are aligned with our plans for ACV Capital, which will also enhance our overall margin. Additionally, growth is crucial, as gaining market share in various regions will drive our success, and Bill has shared some relevant data on our regional performance. Bill, would you like to elaborate on that?

Yes, I think maybe first, I'll just take a step back, Eric, at a high level. So, you know, based on the modeling we've done for this year, if we look at revenue margin dollar growth year-on-year, we're going to take about 45% of that down to adjusted EBITDA, right. So we will be growing OpEx this year, but we feel pretty good about the amount of margin that we're going to take down to the bottom line. So first, just, again, just taking a step back, I would just add to everything that George said. We're also going to be making platform investments to further our commercial strategy, and that's baked into our guidance and our OpEx envelope as well. So it's kind of all of everything that George described, specifically driving the commercial strategy. And then outside of that, it's just really scaling the business, you know, as we continue to grow. So hopefully that gives you a little more context.

That's helpful for context. Thanks, guys.

Thank you, Eric.

Thank you. One moment for the next question. Our next question will be coming from Ron Josey of Citigroup. Your line is open.

Great. Thanks for taking the question. Hey, George. Hey, Bill. Wanted to ask about ClearCar and then maybe another crack at the EBITDA long-term guidance, Bill. On ClearCar, George, you talked about 600 dealer rooftops and higher conversion rates relative to the market. Talk to us about just the tie between ClearCar and the core auction marketplace and how that's helping to improve, call it, dealer integration, if you will. And then just on EBITDA, and I know, to Eric's question, we talked about maybe how we get there, but Bill, really helpful to see the regional breakout, again, an update on that post Analyst Day today. So talk to us just about the expected ramp and regional profitability at 35% now of ACV's, call it, 20 regions and just want to understand how we sort of ramp to that number over time, given we're at mid-single EBITDA margins at a company today. Thank you.

Thank you, Ron. I'll address the ClearCar topic. Looking at the situation, even though we had an excellent quarter and a strong growth year in 2023, dealers are still facing challenges in obtaining the right inventory. ClearCar is designed to help dealers tackle this key issue. With around 10 million cars sold annually via peer-to-peer transactions, if we assume that dealers could buy over 50% of those cars—whether it's 50% or 60%—that represents a significant opportunity for dealers to expand their total addressable market by acquiring cars from consumers. Many of these vehicles fit the profile that dealers prefer to sell. Addressing this crucial problem is essential. I mentioned earlier that there is still 30% of inventory remaining on dealers' websites. However, not all inventory is equally valuable. Dealers should focus on retailing the right vehicles and wholesaling those that don’t fit their inventory needs. Many franchise dealers are currently retailing cars that don’t match their desired mix, which is causing some dissatisfaction among them. We're here not just to point out these issues but to help them resolve them. We present two business models: dealers can either pay us a monthly subscription or, preferably, share a portion of their wholesale sales with us. This offers a partnership or fee model. Most of our partners are opting for the wholesale model, utilizing ClearCar on their websites and other channels, creating dedicated landing pages, and advertising through billboards. For example, when a consumer comes in for an oil change, they might see a message about selling their car. Now, dealers have an effective tool to facilitate this. ClearCar acts as a co-brand, and we are assisting them with this crucial issue. We are really excited about leveraging our technology, machine learning, and extensive data over the next few years to help dealers acquire more cars from consumers, trade vehicles more efficiently online, and ultimately ensure they have the right inventory on their lots. This will enable them to return to the wholesale rates they enjoyed in 2019 and before. Bill, would you like to cover the next topic?

Sure, let me address the second question, Ron. To recap the territory data we recently shared, we have around 50 territories, which is a little more than a third of the country, that are already at breakeven or better. More than 20 of those territories have double-digit adjusted EBITDA margins, with several exceeding 25%. To reach our midterm targets, we have two key strategies. First, we aim to grow our margins from around 50% to 60%, and you can anticipate some progress reflected in our 2024 guidance as part of that plan. The second strategy involves leveraging our operating expenses in engineering, sales and marketing, and general and administrative costs. From our Analyst Day materials last June, about 75% to 80% of those costs are largely fixed rather than variable. Therefore, our focus is on continuing to scale, capture market share, and increase unit volume, while achieving leverage in our model. That is how we plan to get there. Importantly, we already have some territories achieving double-digit margins even under the current cost structure, which reassures us that we can reach our goals as we continue to scale the remaining territories.

Thank you, George. Thank you, Bill.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Rajat Gupta of JPMorgan Chase. Your line is open.

Great. Thanks for taking the question and congrats on a good quarter here. Just a couple of questions on the 2024 guidance methodology. Firstly, are there any meaningful assumptions baked in from, you know, the commercial business or any assumptions in the revenue from, you know, the off-platform Transportation product? So just that clarification and I have just a quick follow-up. Thanks.

Yes, thank you for your comments, Rajat. It was indeed a strong quarter, and we appreciate your recognition. I’ll begin, and then Bill can add on. For this year’s commercial efforts, we are not expecting a significant ramp-up right away. We anticipate starting to secure some new business, but to set the right expectations, we just finalized the integration with AutoIMS in the last 24 hours. This integration may take a few quarters to fully implement. Additionally, while we are currently at eight locations, we need about 40 locations to cover 80% of the population. We are optimistic about some wins this year, although we do not foresee a large ramp-up immediately, as we want to keep our expectations realistic. Our investments now are aimed at solid growth over the next few years, and we are excited about the potential market expansion. We expect significant growth in the total addressable market, which will benefit both commercial accounts that require land and those that do not. We are committed to supporting our clients, and overcoming the initial challenges with AutoIMS was a major step forward.

Yes, and then on the Transport side, Rajat, so yes, look, we're really pleased with the progress the team is making, that's ramping really nicely, but the numbers are still relatively small, so it's not going to materially change, you know, our expected results in terms of Transport revenue. We're still assuming that attach rates are, you know, in the mid-50s, so there'll be some incremental revenue there, but it's really not going to move the needle yet. You know, potentially, as we go into next year, it might be more meaningful, but we'll cross that bridge when we get to it.

Got it. And a quick follow-up, you mentioned in your prepared remarks and the slide deck how 2023 and prior years were impacted by a very low trade to wholesale ratio. I'm curious about your expectation of the modest recovery in dealer wholesale this year. What's included in terms of the trade to wholesale mix in that guidance? Are you expecting a significant change in behavior, or are there other factors that give you confidence in that modest growth outlook? Thanks.

Yes, Rajat, we're seeing modest improvement over, you know, really kind of coming into this quarter, and we are starting to see dealers. Obviously, the overall supply hasn't improved materially yet, but we are seeing some signs that dealers are a little bit more willing to wholesale. So very small, and I would say our assumptions of this year is just continued small improvements. We're not assuming, you know, a significant improvement. You know, but just I would say, consistent with the trends where we've already been observing. So I think we're being very reasonable. But obviously, the majority of the growth comes from taking market share, so that's where the majority is coming from, and which we've been doing very consistently. And then like I said, very small additional gains in commercial, but you know, I would say the overall market improvements, we're assuming very modest improvements.

Got it. Got it. Great. Thanks for the color. I'll jump back in queue.

Yes. Thank you, Rajat.

Thank you. One moment for the next question. Next question will be coming from Gary Prestopino of Barrington Research. Your line is open.

Good afternoon. I have a couple of questions regarding AutoIMS. First, as you prepare to utilize this license, what steps do you need to take? Do you need to convince the consignors about your services, or can the dealers who already have your product simply integrate it and use it to purchase the cars offered by AutoIMS?

Thank you for the question, Gary. Let me clarify. AutoIMS serves as a middleware in the industry among commercial consignors such as banks with repossessed vehicles and fleet accounts, which include company-owned cars and government vehicles. There are about 1,300 commercial consignors that use AutoIMS; they enter the platform to assign a vehicle to a physical auction, a role it has fulfilled for many years without interacting with dealers. Many of these commercial accounts rely exclusively on AutoIMS as their means of vehicle provision. They designate specific vehicles for specific auctions, and the auction company then manages the sale of those vehicles to dealers. Previously, we only had limited access to AutoIMS in a few locations, about three or four nationwide, restricted to where we operated. Now that the lawsuit is resolved, we plan to integrate with AutoIMS, allowing commercial consignors, like banks and fleet companies, to assign vehicles either to our locations or others. The first option, assigning vehicles to auctions, is already in practice. The second option, which aligns better with our digital model, is new to them. I'm uncertain whether this integration will take three, six, or nine months, but we are committed to advancing this digital capability, enabling consignors to assign vehicles to us irrespective of their location. In summary, this middleware will facilitate consignors sending vehicles to our sites today, and hopefully, by the end of this year, it will support our digital model.

Okay. But it does open up a market of a couple of million vehicles a year to you eventually, right?

Yes, at least a few million, to your point. It's a pretty significant TAM expansion.

Thank you. One moment for the next question. And our next question will be coming from Naved Khan of B. Riley Securities.

We can't hear anything.

Yes, I'm waiting for his line to open up. Is he still there? One moment, please. Okay. I would like to just turn the call back over to Tim Fox for closing remarks. Thank you.

Great. Thank you. And thanks, Lisa, and thanks for everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. And again, thank you for your interest in ACV, and have a great evening.

This concludes today's conference call. You may all disconnect.