Greetings and welcome to the ACV Third Quarter 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 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 roadmap 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 reflected 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 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 a 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 roadmap 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.

Our first question comes from Chris Pierce with Needham & Company.

Is it fair to ask if you believe the dealer wholesale market has changed structurally and that dealers will hold on to trade-ins at a much higher rate? I'm thinking about this because the last couple of years have been quite tumultuous. How do you see this evolving in the future? I also have a question about the competitive landscape.

Chris, I don't believe we should conclude that there's a long-term structural change. I think the dealer wholesale market is likely to recover. When we consider all the factors, off-lease vehicles have not returned significantly, interest rates have not decreased, and the broader macroeconomic factors have not aligned. So ultimately, it would be premature to claim that the dealer market has undergone a structural change given the current macro conditions.

We've experienced some volatility lately. Given this situation and possibly a true second competitor emerging, have the competitive dynamics shifted in your interactions with dealers? Are dealerships feeling the need for an additional source more than before? I'm interested in hearing if there are any new perspectives from dealers compared to what you were hearing about 18 months ago.

We grew by 8,000 units quarter-over-quarter, which I believe is significantly more than any other competitor experiencing U.S. growth. This is a notable fact that highlights our substantial quarter-over-quarter growth. Furthermore, our share gains reached double digits again in the third quarter. Lastly, according to AuctionNet, even with the market down 3% in September, we achieved mid-teens growth. While it's clear that the market is softer, with the dealer wholesale market being down, this has posed challenges for both the last quarter and the beginning of this quarter. However, despite the competition, which has been present since the start, we still achieved an increase of 8,000 units quarter-over-quarter and maintained our objectives in the mid-teens for that period. We recognize the competition, but we are confident that we offer 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 the second quarter? I appreciate your market share comments. I'm curious 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.

At the end of the day, Rajat, we aim to capture market share. We are adjusting our pricing strategy, particularly in regions where our annual contract value is low, and we are being more aggressive. This addresses part of your question. I also want to express my continued confidence in our midterm pricing model. When assessing our midterm projections, I feel very positive about our average revenue per user for Q4, but we will use pricing strategies in certain areas to gain additional market 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?

I'll begin and Bill can add his insights. I think assuming a flat market is beneficial for everyone, as at this point, analysts are not forecasting an increase in dealer wholesale next year. It’s better to be clear that we shouldn't assume that, given the numerous macroeconomic factors at play. It's prudent for all of us to plan for a flat scenario as we look ahead to next year. Regarding market share, if we examine our performance, we've generally been around the double-digit range in most months and quarters. While last quarter we were in the high single digits, we achieved double digits this past quarter and finished in the mid-teens. If we consider our execution, the true performance has typically hovered in the lower double-digit range, and our goal is to consistently reach the mid-teens, which we still need to demonstrate. That said, I’m proud to note that we outpaced the growth of our competitors last quarter. I believe it’s important to distinguish between our recent growth, which was notably stronger than anyone else in the market.

And in terms of just the incremental, please continue.

I want to add that Q3 of this year was our biggest quarter. Historically, our growth in unit volume followed seasonal patterns where the first half would be strong, Q3 would be weaker, and Q4 would be the weakest. However, last year marked the first time since going public that our Q3 volume and revenue were at their highest for the entire year. This trend repeated itself this year as well. While the growth rate may have differed due to last year's strong quarter, we still achieved record revenue in Q3 and record volume for the entire year, surpassing both Q1 and Q2. This context is important when discussing 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. Recent J.D. Power analysis indicated that the gap between retail prices and wholesale prices has increased from $9,000 to $15,000 over the past five years. This seems to support earlier comments that dealers are retaining more higher-quality cars for retail rather than selling them wholesale. This situation is problematic because there is a lack of off-lease vehicles. So, the question is, what implications does this have for your ARPU moving forward if dealers are keeping the most valuable cars and offloading the less valuable ones? How should we interpret this trend, and when might we see a reversal?

Yes, that's a good question, but it's challenging to answer because it involves predicting macroeconomic conditions. The straightforward approach is to focus on a revenue range and an ARPU range that we are comfortable with. As you've seen from our performance in Q2 and Q3, we're trying to provide some guidance for Q4. However, to manage expectations, I don't foresee a significant increase in ARPU next year or at all. Given the current factors, I prefer to keep ARPU in a moderate range for now. There may be one or two quarters where we see a slight increase, but as we look to next year, it’s best to keep ARPU expectations realistic. In the medium term, over the next one to three years, we might see ARPU rise further, but I don't want to make any assumptions about when that will occur. It may take a bit longer than expected, and I don’t want to speculate that it will happen next year.

No, absolutely fair. I think you just need to start wholesaling better and bring off-lease inventory back so they have more items to sell. Okay, great. You mentioned lower conversion rates for the industry in Q4 due to the accelerated depreciation of values. However, at the same time, you are increasing your guaranteed pricing, which you indicated was up 18% during the quarter, leading to obviously higher conversion rates. So looking into next year, how should we view conversion at auction considering these factors?

I believe that conversion rates are a major focus for next year, and I hope they won't be as erratic. We've experienced significant fluctuations this year, even within a single quarter. Given everything from tariffs to other challenges, dealers have faced a tough year in assessing the value of cars. Factors like value and depreciation have made it particularly difficult. However, I'm hearing from dealers that some of these issues may start to stabilize. If vehicle values return to normal, we can expect to see a more balanced interaction between sellers and buyers, leading to more consistent conversion rates across the industry. Of course, this is contingent on various macroeconomic factors. While it's challenging to predict exactly what will happen with conversion rates next year, I'm encouraged by dealers' sentiments that conditions may improve. Bob, I know this is a complex issue to forecast, but I think there's a consensus that normalization is on the horizon as other factors begin to settle.

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 two more things on that. Even with some caution, we're still going to be executing on attach rates in the high teens. This represents strong execution despite a mitigated risk and being more careful. The midterm model estimated 25% attach rates. The way I view this is that you learn during moments like this, sometimes adding more controls. There are major banks globally that share the same common customer, and this experience will help us become a better company in the midterm. It makes us more resilient. I still have confidence in achieving our 25% attach rate goals in the midterm model. This is just a brief period of time. We have significant demand for ACV Capital, and we have a great product. We executed very well prior to this moment. I believe taking one step back will lead us to take three steps forward. That was all in response to your first question. Your second question was about other cohorts and developments in the business. Can you repeat that for clarity? It has been a while since I answered your first question, and I want to ensure I address your second one correctly.

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?

I will provide some insights on this. We noted during the call that two of the regions traditionally seen as weaker achieved over 20% growth year-over-year, which is very encouraging. When analyzing our largest regions, most of them continue to experience growth. There is one region that, while it did grow, did not grow as significantly as the others. This particular region holds nearly 40% market share. Overall, I remain confident in our midterm model because in regions where we are not yet the dominant player, we are beginning to establish ourselves, and in most regions where we have substantial market share, we are still experiencing growth despite strong numbers. In summary, not much has changed, but we did mention during the call that there are a few areas where we need to improve and grow even more, and we are focusing on that.

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 opportunistic 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 start with the second question. There are various pricing dynamics between hundreds of physical auctions and a few digital ones. Some competitors are consistently raising fees, while others focus on fees primarily to attract supply. Generally, buy fees tend to increase annually across most competitors, contributing significantly to our average revenue per user. Regarding your first question on commercial, we expect our commercial volume to be around 6% to 7% for 2025. I'm proud of our progress, but as I mentioned in previous calls, we are currently establishing a foundation for long-term growth. There are three key initiatives we're focusing on: first, advancing our upstream digital capabilities with AutoIMS; second, launching our first greenfield in Houston, with a second expected early next year; and third, once our software is fully developed, we will revisit the ten legacy locations we acquired. While our current commercial volume is in the 6% to 7% range, even with a significant increase expected next year, it won't represent a large figure. It will contribute to growth, but dealer wholesale will continue to be a much larger part of our total volume. Over the long term, particularly into 2027 and beyond, commercial volume will grow substantially. I'm trying to provide clarity as we are currently in the planning phase and finalizing our objectives.

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 receiving fantastic feedback from dealers. Our goal is to begin taking orders by February, when dealers can start placing orders, and to initiate shipping units in the middle of the year. These are our internal targets. I don't foresee any issues in achieving our goal of starting to take orders by February. Next year will mainly focus on launching to enough dealer groups, gathering feedback, and then scaling the project in the following year. So far, everything is progressing well, and we plan to go live soon.

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.

I have a quick follow-up for either you or Bill regarding the targeted volume pricing on the supply side for the seller. I'm curious because that usually starts at a low price. How does it work in terms of potential savings of $50 or $75? Is this effect short-lived, meaning after the initial savings, will they need more than just pricing incentives? Are the dealers truly motivated by savings of $50 or $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 our customers who we inspect their cars tend to meet our target arbitration and goodwill. However, there are certain customers where issues have increased. Over the past few months, we've been improving some of our dealer management tools to quickly identify what might be going wrong with specific sellers or buyers, and to determine what adjustments we should make, whether that involves training or other best practices. We're starting to implement enhancements in our dealer management model. Overall, most of the time, we don’t encounter issues, but we need to address the situations where problems arise, and we are thoroughly investigating these cases. As I look ahead to early next year, I believe that by the first quarter, we should be in a good position. We’ll continue to mitigate risks and learn from these challenges, which will ultimately improve our dealer management and training when issues occur.

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

Great. Thank you, operator. And 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. 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.