Good day, everyone, and welcome to today's ACV Third Quarter 2024 Earnings Conference Call. Please note, this call is being recorded. It is now my pleasure to turn the conference over to Vice President of Investor Relations, Tim Fox. Please go ahead.

Good afternoon, and thank you for joining ACV's conference call to discuss our third quarter 2024 financial results. With me on the call 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 third quarter performance. We delivered another quarter of record revenue and adjusted EBITDA both exceeding the high end of guidance. The ACV team drove strong market share gains in our core dealer wholesale business, along with record performance for ACV transport and capital. Our growing suite of dealer solutions continues to gain market traction, and we progress on our tech roadmap to address the commercial wholesale market. Based on our strong Q3 performance, we are raising full year guidance, reflecting our commitment to drive top line growth, expand margins, and deliver our first year of adjusted EBITDA profitability. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of third quarter results on Slide 4. Revenue of $171 million grew 44% year-over-year. We sold 198,000 vehicles, a year-over-year increase of 32% and reflecting strong listings growth and conversion rates, as well as solid execution across our remarketing centers. GMV increased 17% year-over-year, driven by strong unit growth, which more than offset a 12% decline in GMV per unit. Next on Slide 5. Today's discussion will focus on the three pillars of our strategy to maximize long-term shareholder value: growth, innovation, and scale. I will begin with growth. Turning to Slide 7. I'll start with observations about the automotive market as context for regular wholesale volumes. On the retail front, sales were fairly muted in Q3. New retail sales increased 1% year-over-year, while used retail sales were flat. Importantly, new vehicle inventories have recovered to historical levels, and OEMs are increasing incentives, which should support retail sales returning to more normalized levels in the near future. In terms of used vehicles, inventory has started to recover from the 2023 historical lows, however, they remain 25% below normal exiting the quarter. Used vehicle shortages continue to be a material headwind for the dealer wholesale market as dealers retain a higher percentage of trades for retail. However, we did see another modest uptick in the trade to wholesale mix in Q3, and we expect the mix to normalize over the next few years as used vehicle inventory recovers. As expected, wholesale price depreciation returned to more normalized patterns in Q3. Conversion rates were strong and above historical Q3 averages, driven in part by favorable market conditions and from our innovative marketplace investments driving dealer engagement. On balance, we're encouraged to see pockets of improvements within the broader automotive market. Moving to Slide 8. Let's cover highlights on our value-added services, beginning with ACV Transportation. The transportation team delivered record revenue in Q3 with 108,000 deliveries in the quarter. AI optimized pricing achieved 95% lane coverage again last quarter. By leveraging AI, our team delivered 27% volume growth while driving operating efficiency. Revenue margin of 20% was also a record, expanding 170 basis points year-over-year and exceeding our midterm target of high-teen margins. Lastly, our off-platform transportation service is gaining traction with our dealer partners. We're in early stages but excited to deliver new value-added services that create long-term growth, accelerate network densities, and deepen carrier relationships. Turning to Slide 9. The ACV Capital team again delivered solid growth, while managing risk in an environment that continues to be challenging for independent dealers. As we highlighted last quarter, the capital team is piloting a new offering that provides financing for consumer source vehicles and dealer trade-ins that are sold retail or wholesale on ACV's marketplace. We are uniquely positioned to bundle ClearCar with ACV Capital to support dealer sorting strategies. We look forward to updating you on this new offering in the coming quarters. Next, I'll address the second element of our strategy to drive long-term shareholder value, innovation. Turning to Slide 11. Our investments in marketplace engagement continue to pay dividends. As I mentioned earlier, Q3 conversion rates were strong, along with favorable market conditions. Conversion rates benefited from features like advanced search, vehicle merchandising, AI-enabled pricing, and flexible auction formats, which deliver a best-in-class buying experience on our marketplace. Our commercial tech investments are progressing well. Recall that our initial focus is integrating with AutoIMS and delivering marketplace enhancements to support commercial consigners. Furthermore, these key initiatives will support platform standardization across our remarketing centers. The new ACV MAX suite continues to gain traction in the market, including a recent win of a regional Texas dealer group and a growing pipeline of new prospects. MAX is proving to be a valuable solution to create cross-sell opportunities for ACV's core wholesale offering. We're excited to roll out new bundled offerings that focus on both expanding the ACV MAX footprint while driving additional wholesale market share. Our objective is to align the interest of our dealer partners and ACV. Finally, in the dealer self-inspection category, demand for ACV's vehicle appraisal technology is growing across a number of use cases. Dealers are embracing trades and vehicles sourced through digital channels and making offers to consumers in their service drives. Across these use cases, accurate pricing is a critical success factor. Our appraisal solutions incorporate AI imaging for damage detection and real-time localized pricing conditioned based on millions of inspections in our data model. It's still early days in this category, but we believe self-inspection can unlock a number of long-term growth opportunities, including TAM expansion. Let's turn to Slide 12 to highlight one of our fastest-growing consumer self-inspection solutions, ClearCar. Market traction of ClearCar remains strong, and our team is targeting to have over 1,000 dealers live by year-end. ClearCar provides us with another avenue to grow wholesale wallet share and deepen our strategic partnerships with our retail and wholesale operations. Again, this quarter, we're excited to share feedback from one of our dealer partners, Kearny Mesa, the number one Volkswagen dealership in San Diego, which is using ClearCar and our marketplace. We posted a video on our IR website featuring their team describing the significant value they're driving from ACV solutions. It's another great opportunity to hear directly from a dealer partner. To wrap up on innovation, ACV is delivering industry-leading technology to our dealer partners and to our own operations, driving both growth and scale. We look forward to sharing more progress with you next quarter. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth and scale.

Thanks, George, and thank you for joining us today. We are very pleased with our Q3 financial performance. Along with accelerated revenue growth, we delivered meaningful margin expansion and strong asset EBITDA growth, demonstrating the strength of our business model. On Slide 14, let's begin with a recap of our third quarter results. Revenue of $171 million was well above the high end of our guidance range. Approximately 10% of revenue in the quarter came from acquisitions, which was in line with our expectations. So the overperformance was driven by strong organic growth. Adjusted EBITDA of $11 million was $3 million or 38% above the high end of our guidance range, and adjusted EBITDA margin improved nearly 1,000 basis points versus Q3 '23. The upside was driven by strong high-margin auction and insurance revenues and by operating leverage. Finally, non-GAAP net income was also meaningfully above the high end of guidance, with margin increasing approximately 800 basis points year-over-year. Next on Slide 15, let's review additional revenue details. Auction and assurance revenue was 59% of total revenue and grew 52% year-over-year. This performance reflects 32% year-over-year unit growth and auction and assurance insurance ARPU of $506, which grew 15% year-over-year. Note that approximately 10% of third quarter units came from acquisitions. So we delivered strong organic unit growth, underscoring our share gains in a market that grew in the low single digits. Marketplace services revenue was 37% of total revenue included 39% year-over-year, reflecting record revenue for both ACV transport and capital. Our SaaS and data services products comprised 5% of total revenue with growth once again in positive territory. Next on Slide 16, I'll review costs in the quarter. Q3 cost of revenue as a percentage of revenue decreased approximately 400 basis points year-over-year. The improvement was driven by auction assurance results and by ACV Transport. Non-GAAP operating expenses, excluding cost of revenue, as a percentage of revenue, decreased by 700 basis points year-over-year. These results reflect our focus on expense discipline as we optimize and scale our business. Moving to Slide 17, I'll frame our investment strategy as we drive profitable growth. Our focus on spending discipline and operating efficiency resulted in a decrease in OpEx growth in 2023 and yielded a significant improvement in adjusted EBITDA. In 2024, we continue to expect OpEx growth to increase year-over-year as we execute on our remarketing center strategy and commercial platform investments. Even with these investments, adjusted EBITDA margin is expected to increase by approximately 800 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 18. We ended Q3 with $288 million in cash and cash equivalents and marketable securities and $115 million of debt. Our Q3 cash balance includes $177 million of float in our auction business. The amount of float on our balance sheet fluctuates meaningfully based on business trends in the final two weeks of each quarter, which has a corresponding impact on operating cash flow. In the figure on the right, we highlight our strong year-to-date operating cash flow of $69 million. Note that even when excluding the change in marketplace float, year-to-date operating cash flow increased $34 million year-over-year. This significant improvement reflects our transition to positive adjusted EBITDA and strong margin expansion. Now turning to guidance on Slide 19. For the fourth quarter, we're expecting revenue in the range of $152 million to $156 million, growth of 28% to 32% year-over-year. Adjusted EBITDA is expected to be in the range of $2 million to $4 million consistent with our commitment to achieving positive adjusted EBITDA each quarter going forward. Note that our fourth quarter guidance reflects the impact of the recent hurricanes in our Southeastern regions. We estimate a negative impact of approximately $2 million in revenue and $1 million in adjusted EBITDA. For the full year, we are raising our revenue and adjusted EBITDA guidance. Revenue is now expected to be in the range of $630 million to $634 million, growth of 31% to 32% year-over-year. Note that we expect acquisitions to account for approximately a high single-digit percentage of full year revenue. Adjusted EBITDA is now expected to be in the range of $25 million to $27 million. As it relates to guidance, we are assuming that dealer wholesale volumes will be approximately flat year-over-year for 2024. We expect conversion rates and wholesale price depreciation to follow normal seasonal patterns. We also continue to expect revenue growth to exceed non-GAAP OpEx growth, excluding cost of revenue, and depreciation and amortization by approximately 10 percentage points. And finally, moving to Slide 20. We remain committed to achieving our midterm target model. Our targets are underpinned by sustaining market share gains, penetrating adjacent markets, and expanding margins through revenue mix and scale, all of which we've clearly demonstrated in our performance. Our midterm targets are primarily predicated on the dealer wholesale market recovering to historical volumes over time. But in addition, we are expanding our TAM and consistently taking share, which will drive long-term growth. And with that, let me turn it back to George.

Thanks, Bill. Before we take your questions, I will summarize, we are very pleased with our strong execution in Q3. We are especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace while expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product roadmap to further differentiate ACV and drive operating efficiencies. We are on track to achieve our 2024 adjusted EBITDA target and deliver on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A.

And we will take our first question from Chris Pierce with Needham. Please go ahead.

Hi, good evening, guys. I had a question on the metrics and Bill, you sort of reiterated on the call, the $506 in auction and assurance ARPU. Over time, more of it seems to be coming from auction versus the assurance side on a per vehicle basis. I just want to know the right way to think about that, if that's something intentional or if that's not something we should read into? I just want to kind of better understand that.

Chris, it's Bill. So I wouldn't really read anything into that. Again, think of auction and assurance revenue combined, not segregated because the GAAP accounting can distort some of the trends.

Okay. Perfect. What does your business look like in terms of having your own wholesale side, especially when considering larger players like Carvana? As you run your own wholesale auctions and grow your retail share, what does that look like in the long term?

So Chris, can you repeat that question? George, here. I just want to understand what…

Yes. Like what happens if we talk about independent dealers and consolidation within dealers? What happens if larger players like Carvana as they grow share, what happens? Because at that point, you have these larger players that run their own wholesale auctions. I just kind of want to think about what's the right way to think about your business as that kind of possibility plays out?

Yes, that's all right. So yes, I believe today, Carvana has around 1% market share, if I remember correctly. And when you think about the 16,500 franchise dealer rooftops in incredible locations across the country and then the 30,000-plus independent dealers across the country, all those dealers need to compete. They need solutions to buy cars from consumers. They need appraisal solutions. They will all need machine learning and artificial intelligence to help them drive their businesses. So look, we are building the technology that empowers all these dealers to really compete against the Carvana and the other big box players. So I think that's the way to think about this. It's a really important category. And our dealers have some of the most incredible real estate and incredible brands across the U.S., and we think they could be buying a lot more cars from consumers and selling more used cars, and we're going to help them get that inventory.

Okay, thank you.

Thank you. And we will take our next question from Nick Jones of Citizens JMP. Please go ahead.

Great. Thanks. Hi George. Hi Bill. Could you kind of remind us how you're thinking about just pricing broadly? I know there's some levers if depreciation picks up, you have some room to take price up. But as we kind of look at the industry and we can kind of see competitors seem to be taking price up each year, maybe a little bit ahead of inflation. Philosophically, how do you think about tracking that? Are you at a level that kind of makes sense for you around $500, give or take? Or how should we think about how you may kind of track competitors from a pricing perspective? And then I have a follow-up.

Yes, certainly. We have made significant progress in narrowing the gap on our buy fees, which were previously below market levels. We accomplished this without negatively affecting our market share. We're pleased with our gradual approach and have been careful to do what’s right for our dealer partners while bringing our pricing to a more competitive level. Our team has prepared well for these changes. There may still be some opportunity for further adjustments, but we prefer to keep the focus around the $500 target we've set for the midterm. It's important to remember that our sell-side dealers receive volume-based price discounts, so as volume grows, it will benefit certain sellers, which is already part of our strategy. We ask that you continue to think in the $500 range for now until we provide any updates.

Got it. $500 would be a pretty good deal. As we consider midterm targets, could you discuss the potential debate regarding interest rates after the election? Are there any challenges in reaching a more normalized market if rates remain elevated? Do you believe we are on a path to a normalized market one way or another in the coming years? I would appreciate any insights on the industry following the election and the ongoing discussions about the rate environment.

Yes. We are seeing new cars and starting to notice incentives, along with interest rates affecting how new car dealers are pricing their vehicles. The increasing incentives on new cars will be beneficial. I believe we will see growing incentives for new cars consistently through the end of next year. Considering this, some industry participants are anticipating a slight decline in new car sales next year. Relating this to dealer wholesale, some industry groups like NAAA and Auctionet suggest that dealer wholesale could remain relatively stable. This is because there will still be a shortage of used cars. If I were to predict when we could experience a significant positive shift, I think that wouldn't happen until 2026. However, for next year, I expect the market to be relatively stable. With the possibility of lower interest rates and other factors, we might see more optimism than anticipated. More updates will follow as we continue to discuss next year.

Thanks, George.

Thank you. And we will take our next question from Bob Labick with CJS Securities. Please go ahead.

Good afternoon. Thank you for taking the questions. Great job on the quarter. I noticed a particularly nice increase in volume. It seems that quarterly volume organic growth accelerated compared to the first half. If that’s the case, what are the main drivers? What is the additional organic growth from this quarter relative to an already strong first half?

Bob, it's Bill. So, yes. So the upside was certainly driven by the organic growth of our business. Our remarketing centers were pretty much on track based on what we forecasted. And that was really driven by several factors. So number one, just continued share gains. Number two, we had better-than-expected conversion rates for the quarter. And we had really great performance in terms of our marketplace services offering. So those combined really drove the highest organic growth that we've seen, frankly, in several years. So we're really, really pleased with that performance. And we've seen that continue so far early into Q4. However, we're obviously baking in kind of seasonality for the rest of the quarter in our guidance.

Right. It makes sense for seasonality in Q4 versus Q3, if you just look back for every year. Great. And then just one other for me. Obviously, we just talked about the accelerating organic, which is great. But you also have made these acquisitions to advance in commercial. What have you learned so far? I know you guys are kind of like do learn, observe, tweak it, and then move on. So what have you learned so far? And how does it affect your future acquisitions into commercial or conditioning centers? How should we think about in 2025 and beyond?

Thank you, Bob. To your point, we are gaining valuable insights. We've secured some excellent locations for our commercial consignors, which allow us to collaborate with them and understand the technology they want to implement. We will discuss how we plan to introduce our inspection technologies at these sites early next year. Additionally, we'll outline how we're integrating some of our back-end office systems and other capabilities. The technology we are developing for commercial consignors will assist them in making informed decisions. For instance, when a car arrives, they will be able to determine whether to recondition it and how much to spend on that process. I believe we are on the verge of significant advancements over the next couple of years. However, it is important to note that we are still in the early stages, with just over 5% of our current volume being commercial. So, we must manage expectations for now. We will continue to invest in the necessary products and technologies next year. Looking ahead, commercial could play a significant role in our overall volume in the coming years.

Okay, super. Thanks so much.

Thank you. And we will take our next question from Rajat Gupta with JPMorgan. Please go ahead.

Thanks, George, Bill. Congrats on a good quarter here. I just wanted to ask around the framework around incremental margins. We know you're going through the commercial initiative this year, some acquisitions are coming through. You have a lot of other product initiatives. How long would you expect to be in this kind of incremental EBITDA range 29%, 30%? I mean once you're through the integration phase, should we expect this to inflect next year? Are there more areas that are working on the pipeline that should depress that? Just curious if you could help us understand the near-term framework around that? And I have a quick follow-up.

Yes. Rajat, it's Bill. Yes. So what we've talked about in the past is kind of a normalized organic target in terms of incremental EBITDA of 40%. So our guidance this year implies approximately 30% taking into account the investments that we're making as part of building out our platform to support commercial business. So right now, the thinking in terms of next year is we'll continue to make progress in terms of improving that incremental EBITDA margin. But we'll continue our planned platform expansion to support the commercial rollout similar to what we've done this year. While expanding our EBITDA margin. So we'll continue to move the ball forward, but we wouldn't expect that next year, we would get to fully hit the 40% incremental EBITDA on marginal revenue growth.

Rajat, I want to emphasize that we are focused on demonstrating gains and progress in our EBITDA. We remain committed to that goal. Additionally, as Bill mentioned, we will work on expanding our total addressable market, both commercially and by assisting dealers in sourcing more cars from consumers through our self-inspection capability. We are excited about the prospect of improving our year-over-year EBITDA while also investing in our core dealer wholesale operations and expanding our total addressable market.

Got it. That makes sense. And just as a follow-up. I mean if I heard you correctly, I think Bill, you mentioned that you're not expecting the same kind of market share acceleration that you saw in 3Q in the fourth quarter. Is that correct? And why would that be the case if you could just give us more color there? Thanks.

Yes, I don't think we said market share. I think what we said is there's typically in November and December. Conversion rates typically go down. That's at least what it's done almost every year. So when you look at the seasonality of this business, you heard Bob mention it earlier, every year, conversion rates in November and December tend to come down.

And again, Rajat, I mean we've seen a really strong start to the quarter, kind of a continuation of the same kind of growth rates we saw in Q3 through October. But we're always trying to be prudent in terms of our guidance and taking into account, again, the seasonality factors that George mentioned. So we'll see how things go, obviously, but that was the basis for us to guide what we did.

Understood. Great. Thanks for all the color and good luck.

Thank you.

Thank you. And we will take our next question from Michael Graham with Canaccord. Please go ahead.

Hi, thanks a lot. I don't think you mentioned this yet on the Q&A, if you did, I apologize. But just on the commercial wholesale market, you talked a little bit about your efforts there in the prepared remarks, but just was hoping to get another layer of depth around how that's going and how quickly you think that can become a more significant part of your business?

Yes. Sure, Michael. Yes, one of the things we mentioned, and I'll delve a little bit deeper, is our volume in commercial today is a little over 5% of our overall business. So going well, we're investing in some key areas. So the areas that will help us really differentiate this commercial business be no surprise you all will be inspections, right? That's an area where we've always innovated on the dealer side, bringing that to the commercial side. You'll hear us talk about that some more in Q1. So that will be one area of that I'm really pleased with the team innovating around how we're going to really enhance the way we inspect these cars at the auctions, how we're leveraging AutoIMS, which is how we get the consignments, how we're then integrating with sort of the back office systems, not to get in the weeds here, but all going well so far. I mean we'll be making this investment throughout next year. But at the end of the day, we feel good that the experience we're building will be differentiated, will be great for our commercial consignors, the sellers and buyers. So I think without these, repeating what I said earlier, there are more to come probably in Q1 on this topic, but I'm happy with the build-out we've done so far.

And then just last quick one related to that, maybe a comment on the profitability of those units relative to dealer wholesale?

Yes. At the end of the day, if I look at this as EBITDA dollars per unit, EBITDA dollars per unit are basically the same: slightly higher revenue per unit, slightly higher cost per unit. But if you kind of look at what matters, you basically get into the same EBITDA dollar per unit.

Perfect. Okay. Thank you. Thank you, George.

Thank you.

Thank you. And we will take our next question from Naved Khan with B. Riley Securities. Please go ahead.

Thank you. Thank you very much, guys. On the conversion rate, which you saw did pretty well in the third quarter. I'm curious if the improvement that you saw was a function of the macro in the market? Or are these results of the changes that you are making to the platform? Or just give us your thoughts there?

Yes. Great question. And it was definitely both. So the market conditions helped in Q3, helped us definitely. There was a lot of demand for used cars. So that was definitely a factor. But also, I'm very proud of the technology and product enhancements we continue to add. We've gone through this. We showed you some of it in the slides here, some of the enhancements we've made on conversion. Our engineering team and product team are constantly making sure we're merchandising the cars the right way, so our sellers really get the full amount of money for these cars and buyers know what they're buying. We keep making a bunch of enhancements there. We're making enhancements on how and when to sell these cars, enhancements when the car doesn't sell the first time around, how it could be sold the second time around. So we keep investing in the area of conversion, and it's definitely helping. So the simple answer is both. Both some market benefit and also the enhancement we've made from a technology perspective.

Got it. And then on transportation, the margin improvement in the revenue margin improved year-on-year. Was there any change in this on a sequential basis?

The transport team is making significant progress in utilizing artificial intelligence for pricing lanes. When determining the price for transporting a vehicle, we're beginning to implement bundling strategies. For example, if a truck is already transporting a car from Long Island to Virginia, we can utilize the same truck for additional vehicles. While bundling currently represents a small portion of our operations, we expect it to expand. We're pleased with how we're using technology to ensure that we provide competitive pricing for our dealer partners, which is crucial. Additionally, this technology helps us achieve our margin objectives.

Thanks guys.

Thank you. And we will take our next question from Steven McDermott with Bank of America. Please go ahead.

This is Steven McDermott on for Curtis Nagle. So just wanted to talk about kind of market share gains versus wallet share. How are you thinking about the mix in terms of the growth there? And then I have a follow-up as well. Thank you.

Yes, no, it's a great question. And look at this as more like it's a regional story. It's a local story, and then there's like a national kind of overlay to the whole thing. But there's only a few markets in the country where we have 70, 80-plus percent wallet share from a lot of dealers in one territory, right? And we have a few of those, and we're happy about that. But there's many markets where we can still grow in multiple ways. There's national dealer groups that we study. Their wallet share consistently. And when I see 20% to 30% wallet share, I see a lot of great opportunity to help those dealers show them why our pricing is right and show them why our conversion on our marketplace keeps getting better. So it's both. We will continue to grow the business. And there are some markets where we're still relatively new, and we only have a few sellers, and we don't have a lot of all share yet. So we have a long way to go. And I think that's the great thing about the ACV model is we're still in the early days here. We're very happy with the overall market share. We're ecstatic with all the hard work the team has done, but there's a lot of headroom here for us to keep growing.

Awesome. And then I know this is pretty early, but autonomous vehicles definitely dominated the discussion last quarter for some rideshare names and some OEMs. So still many years away, but just philosophically, what do AVs mean to you guys in the long term? And have you really put much thought behind the strategy there?

Autonomous vehicles are going to transition from new to used. Eventually, they will need to be purchased by someone else, whether in the U.S. or abroad. The initial user, like Uber, will sell that asset at some point. I view the first generation of these vehicles as fitting into a fleet category, similar to commercial vehicles. Once the owner decides they no longer want to keep it, it's an excellent option for auction. It can then go to a franchise or independent dealer who will recondition it as necessary. In short, it's comparable to the rest of the commercial vehicle market.

Awesome. Appreciate the answer and great job this quarter.

Thank you.

Thank you. And we will take our next question from John Healy with Northcoast Research. Please go ahead.

I wanted to ask about the commercial side of the business. When I think about that, I consider rental, repo, and off-lease. Could you share your thoughts on which of those segments you believe the solution will impact first? Now that you have AutoIMS and have been working with it for about six months, is there one segment that you think will be the first to adopt and fully embrace your offerings? I would love to hear your thoughts on this.

Yes, that's a great question. From a volume perspective, most of the commercial activity I mentioned today comes from repos and rentals. These two areas have been where we've been able to gain some market share and strengthen our relationships. In many cases, we've expanded our business from one city to two or three. We aim to continue enhancing our partnerships in these areas. As we progress, we can position ourselves as one of their preferred auction partners depending on annual contract value. Those are our primary focus points right now. Regarding off-lease, we're just beginning to explore that area. I hope to provide more updates on it next year, as we're currently in discussions and working on some initiatives, but there's not much to disclose at this moment.

Got you. I wanted to follow up on a point you mentioned earlier about AV, specifically regarding cars being used domestically or internationally. I'd like to hear your thoughts on international expansion now that you're generating revenue here and experiencing significant growth. What is the status of your global solution?

Yes. I can provide two perspectives on the global front. We're still in the early stages of our strategy development. Firstly, I want to differentiate between supply and demand. Regarding supply, we plan to approach it with a technology-first focus. This includes self-inspection options for both consumers and dealers, as well as appraisal solutions that will lead to the vehicle being listed in a marketplace for sale. The model we implement globally might not match the one we use in the U.S. We envision a light asset approach, with our technology assisting original equipment manufacturers, who may be looking to sell new cars. This could also involve a trade-in function for consumers, with their cars entered into our marketplace. For dealers, they could leverage our artificial intelligence on their lots to upload their cars to our marketplace. This is the direction we’ll be discussing more over the next year. We are still very much in the initial phases of this model. That's a great question.

Thank you guys, and again congrats.

Thanks, John.

Thank you. And we will take our next question from Glenn Shell with Raymond James. Please go ahead.

Thanks. First, on the first on the Manheim market report, showing 11% year-over-year new and used car sales growth in October. Have you seen any of those trends within your own data? I know you said that wholesale should be flattish, but getting some volumes in for that trade to wholesale mix. So then off of that, where is the trade to wholesale mix now and like a more specific number and then versus normalized levels? I know it's a bit later, and I can break that down again if you need.

I think Bill mentioned that October started off well, and one reason for this good start could be the healthy market and strong conversion rates. The wholesale retail mix likely contributed to this, although I haven't reviewed the details for that specific month. Overall, the fourth quarter has begun positively. However, as we discussed, we don't expect conversion rates to remain as high in the coming months since this period is typically challenging. As price depreciation occurs, sellers and buyers may have differing expectations, which usually leads to a decline in conversion rates. We've pointed this out before. If you have another way to ask your question, I'll be happy to try to answer it.

Yes. Well, that's super helpful. But then just on even just 3Q, do you have a more specific trade to wholesale mix number? And where is that versus normalized levels?

Yes, I think our trade to wholesale mix improved slightly in the quarter. However, we won't see significant movement in that mix until the used car supply increases. Currently, most dealers have about 25% fewer used cars on their lots compared to 2019. I recently met with a dealer group in Texas, and the dealer principal mentioned that they currently have 30% fewer cars than they need, which prompted a call to action to purchase more cars from consumers. This reflects the situation in the dealership. While I am pleased with the ACV results, it will take several more months for the market to recover from the dealers having 25% less inventory. Therefore, some time is needed. That said, we did observe a slight improvement, and it was encouraging to see that improvement, even if it was marginal.

Perfect. Thank you.

Thank you. And we will take our next question from John Colantuoni with Jefferies. Please go ahead.

Hi, everyone. Thanks for taking my questions. Wanted to ask a question on market expansion. You've historically been strongest in the Northeast. But curious if you could update us on your progress expanding into new markets particularly those that you rolled out a few years ago. And as part of that, talk a little bit about how long it will take to start reaching a level of density in those newer markets where you'll start getting to the levels of scale where it will start showing through into better profitability across the company. And second part of that, right around the IPO, Canada, I think, was an aspiration for you. Where do those plans stand today? If you could just update us there? Thanks.

Yes, John. We are indeed performing well on the East Coast and are gaining market share there, which is encouraging. In Texas, for example, we've seen some of our highest year-over-year gains in the country, despite it being quite distant from Buffalo. From my initial comments, I'm pleased to share that the ACV brand is growing, and we are collaborating with more dealer groups, which helps us penetrate various markets. Our new products, like ClearCar, are facilitating dealers in acquiring more cars from consumers. Overall, things are progressing positively. Regarding your second question, I would have assumed that our first international market would be Canada, but ironically, we have been drawn into some European markets instead. You can expect to hear more about our international ventures next year, although the numbers will still be small initially. We anticipate that by 2026 and beyond, these efforts will become more significant. Our model operates on a self-inspection basis, utilizing artificial intelligence to assist either consumers or dealers in assessing a vehicle's condition before it enters our marketplace. We're in the early stages of this initiative and are satisfied with our team's advancements, with more updates to come on this subject.

Thanks so much.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.

Thanks, Madison. I'd like to thank everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. And again, thank you for your interest in ACV. Have a great evening.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.