ACV Auctions Inc. Q4 FY2025 Earnings Call

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

Good afternoon, and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2025 financial results. With me on the call today are George 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 the ACV team's execution in Q4, delivering revenue at the high end of guidance and adjusted EBITDA above the high end. Our performance was driven by solid execution in our dealer wholesale business despite challenging market conditions as we continue to gain market share, expand our dealer partner network and drive adoption of our value-added dealer solutions. And again, ACV Transport and Capital delivered strong revenue performance. We also executed on our product roadmap to further differentiate ACV's marketplace experience, support our commercial wholesale strategy and expand our total addressable market. Turning to 2026, we are expecting revenue growth in the low double digits and adjusted EBITDA growth of approximately 28%, which includes additional growth investments to support our medium-term financial targets. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of our results on Slide 4. Q4 revenue was $184 million, growth of 15% year-over-year, and we sold 193,000 vehicles. For the full year, we delivered 19% revenue growth and grew units by over 86,000 or 12% year-over-year. And adjusted EBITDA grew by over 100%, demonstrating the scale in our model. Next on Slide 5, we'll again focus our discussion around the three pillars of our strategy to maximize long-term shareholder value: growth, innovation and scale. I'll begin with growth. On Slide 7, we highlight how ACV is leveraging AI to attract new buyers and sellers, increase penetration and wallet share and gain traction with large dealer groups. Let's begin with our marketplace. Our highly accurate condition-adjusted pricing guidance enables sellers to set more informed reserve prices. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions in Q4, dealers increasingly leaned into ACV's technology. For buyers in our marketplace, we tailor their experience across buyer personas and optimize the bidding process by providing AI-enabled recommendations informed by dealer preferences and current market factors. These investments and our leading marketplace experience were key to growing our dealer network in 2025, with 15,000 unique sellers and over 22,000 unique buyers transacting with ACV. Our franchise rooftop penetration achieved a new milestone, reaching 35% during the year. And our major account team delivered impressive results with a 300 basis point increase in rooftop penetration. Next, on Slide 8, I'll provide some highlights on our data services. Market traction for ClearCar remains strong, especially for ClearCar service that enables dealers to seamlessly produce consumer appraisals and offers from their service lanes. ClearCar is also an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. During 2025, existing dealers that launched ClearCar increased their wholesale volumes of ACV by over 50% after going live. We're also seeing early momentum with our strategy to bundle ACV Max with wholesale. A recent cohort of new ACV Max dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within one quarter of launching Max. Our strategy to offer a broader set of value-added solutions is creating another growth lever for ACV. Again, this quarter, we're excited to share feedback from one of our dealer partners, the Hendrick Automotive Group, which is using ACV's full suite of offerings. We posted a video on our IR website, highlighting the significant value they're deriving from ACV solutions. Turning to Slide 9. From a geographic perspective, we continue to drive strong growth within our more established regions, where network effects are driving significant market share. At the same time, our footprint has expanded across the country as highlighted in these four regions, which delivered strong year-over-year unit growth in Q4. As we discussed in our Q3 call, there are certain emerging regions where we are increasing our territory manager and VCI footprint to drive accelerated growth. These efforts began in Q4 and will continue during 2026, and we are confident in the medium-term growth outlook for these markets. Turning to Slide 10. Let's review our marketplace service offering. Beginning with ACV transportation. The transport team had strong execution in Q4 with 20% revenue growth and 110,000 transports delivered. AI optimized pricing continues to drive strong growth and operating efficiency. Revenue margin has already achieved our midterm target in the low 20s. And our off-platform transportation service continues to gain traction from our dealer partners, creating additional growth opportunities. Last, I'll wrap up the growth section on Slide 11 with ACV capital highlights. ACV Capital delivered strong revenue performance, with 48% year-over-year growth in Q4 despite actively lowering our exposure to higher risk customer segments. The ACV Capital team implemented new growth strategies while driving process enhancements to mitigate portfolio risk. As such, we are confident that ACV Capital will remain an important value-added service for our dealers and a long-term growth opportunity. Next on Slide 12. I'll address the second element of our strategy to drive long-term shareholder value innovation. Turning to Slide 13. Let's go deeper into how we are leveraging ACV AI to drive growth and to deliver value to our dealer and commercial partners. Using machine learning, we combine inspection data and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. For example, we are leveraging our pricing platform to offer ACV Guarantee to sellers and deliver no reserve auction to buyers. This offering remains the fastest-growing channel in our marketplace. We are pleased to see ACV Guarantee mix increase to 19% in Q4. As a reminder, our guaranteed sale is a highly differentiated offering that benefits buyers, sellers, and ACV by accelerating bidder engagement, increasing buyer satisfaction, and removing seller market risk while delivering a 100% conversion rate. We're confident our guarantee offering will be another key driver of market share gains. On Slide 14, we highlight how we are further differentiating ACV in the market with AI-driven next-gen products like Viper and Virtual Lift. We are extending our industry-leading inspection technology, vehicle data, and pricing capabilities to dealers looking to unlock consumer vehicle acquisition at scale in their service line. At the recent NADA Industry Conference, we announced the next wave of availability for the Viper Early Access Program, and dealer reception was tremendous. We're excited to kick off the commercial launch of Viper with select dealer partners, providing them with a unique and scalable consumer sourcing platform. It will expand our total addressable market at a rooftop level by tapping into the large peer-to-peer segment and by leveraging pricing models that bundle Viper with wholesale. We're creating a powerful new lever to drive wallet share expansion and unit growth. Wrapping up on innovation. Let's turn to our commercial wholesale strategy on Slide 15. We are pleased to see the initial range of capabilities developed over the past year, powering our first greenfield remarketing center in Houston. Our team has been in active conversations with commercial customers to deepen our understanding of their requirements for the next phase of our software build. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing, and we also look forward to launching an additional greenfield location in Chicago this year. With that, I'll hand over to Bill to take you through our financial results and how we're driving growth at scale.

Thanks, George, and thank you for joining us today. We are pleased with our Q4 financial performance with revenue at the high end of our guidance range and adjusted EBITDA exceeding the range. On Slide 17, let's begin with a brief recap of our fourth quarter results. Revenue of $184 million, grew 15% year-over-year compared to very strong results in Q4 '24. Adjusted EBITDA of $8 million grew 36% year-over-year, reflecting strong expense discipline. Finally, non-GAAP net loss of $1 million was favorable relative to our guidance range. Next, on Slide 18, let's review additional revenue details. Auction assurance revenue was 55% of total revenue and grew 11% year-over-year against a very tough comparison of 40% growth in Q4 '24. This performance reflects 5% unit growth which also faced a tough comparison of 27% growth in Q4 '24. Auction and assurance ARPU of $528 grew 6% year-over-year and 4% quarter-over-quarter. Marketplace Services revenue was 39% of total revenue and grew 23% year-over-year, reflecting continued strong performance for ACV Transport and ACV Capital. Lastly, our SaaS and data services products comprised 5% of total revenue with year-over-year growth accelerating to 8%. Next, I'll review Q4 costs on Slide 19. Non-GAAP cost of revenue as a percentage of revenue increased approximately 400 basis points year-over-year. The increase was primarily driven by higher arbitration costs as expected within a specific cohort of customers. Recall that our Q4 guidance assumed arbitration costs would remain elevated in the quarter, but that trend would normalize in 2026 following mitigation steps we implemented. These steps are already showing positive returns in early 2026. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased approximately 400 basis points year-over-year reflecting operating leverage in our model. Moving to Slide 20, I'll frame our investment strategy as we drive profitable growth. In 2026, we expect OpEx growth of approximately 9%, which is a decline from 12% in 2025. Note that 2026 OpEx includes approximately $11 million in additional go-to-market spending to support regional growth objectives. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 100 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 21. We ended Q4 with $270 million in cash and cash equivalents and $190 million of debt. Note that our cash balance includes $171 million of marketplace flow. In the figure on the right, we highlight our solid operating cash flow, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 22. First quarter revenue is expected to be $200 million to $204 million, growth of 9% to 12%. Adjusted EBITDA is expected to be $14 million to $16 million, reflecting a 7% to 8% margin. 2026 revenue is expected to be $845 million to $855 million, growth of 11% to 13%. Note that full year revenue guidance assumes that our go-to-market investments will drive slightly higher growth in the second half of the year. 2026 adjusted EBITDA is expected to be $73 million to $77 million, growth of approximately 28% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue to grow approximately 9% year-over-year. Now with that, let me turn it back to George.

Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our Q4 execution while navigating through challenging market conditions. We continue addressing these market challenges by enhancing our technology and operating models ultimately making us even more resilient. We are attracting new dealer and commercial partners to our marketplace, and expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product 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 Andrew Boone with Citizens Bank.

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

Yes, Andrew, looking at Q4, we met our revenue expectations and had a strong quarter from that perspective. For the year, our unit sales grew by 12%, which was solid. Comparing to Q4 last year was more challenging, but we're actively working on fostering growth through several initiatives. We're increasing the number of inspectors in the field, which should yield benefits this year. We've also discussed investing in more regions by adding additional territory managers. Additionally, our product differentiation, particularly with MAX, is significant. It's important to note that dealer wholesale is still largely driven by physical auctions, which account for 70% of the business. Our goal remains to shift more of this physical auction business to digital platforms, and we are seeing progress in that area due to our differentiated offerings. Regarding MAX, we are scaling that business and integrating it more with wholesale. For some rooftops, we have introduced an offering that guarantees units, providing not only pricing guidance but also a guarantee. We anticipate scaling MAX further throughout the year.

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

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

Yes, certainly, Rajat. I'll start and then Bill can provide additional insights. We're making at least two key investments, one of which involves bringing in additional inspectors. We're also hiring more territory managers, which adds to our expenses. Bill can elaborate further on this. Additionally, we are starting to invest in the Viper rollout, which is also reflected in our financials. We believe that as we make these investments throughout the year, we will begin to see their impact more noticeably in the latter half of the year, as it takes time to implement these changes. Bill, feel free to add more details.

Yes. So Rajat, just to go through the numbers again. So the incremental spend that we've baked into our guidance for this year in terms of those go-to-market investments is approximately $11 million. If you look at our incrementals, excluding that, they would have actually grown 500 bps year-on-year from 25% to 30%. So that's number one, just to ensure you got the right numbers, right? And as George said, at this point, it's early in the year, we're making these investments, obviously, with the objective of driving more share gains. But we're pretty conservative at this point in terms of what we're going to bake into our guidance until we start to see these investments pay off over time.

Understood. So the market share, essentially implying higher market share acceleration in later in the year, assuming these investments bear some fruit, right?

Yes, we are anticipating a slight increase in the second half of the year compared to the first half. However, we are adopting a more cautious approach at this time until we observe how things develop over time.

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

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

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

Yes, I believe investors should research our work with the largest private automotive company in the country by watching the video we shared about Hendrick Automotive. They should also look into how we support various public automotive groups that praise our services. When you take a closer look, you'll find that we are not just making predictions; we can back them up and guarantee them. While new start-ups may emerge in this space, they would need to raise substantial amounts of money to have the necessary resources and data, which would be challenging. We inspect over 1 million cars each year, giving us detailed knowledge about any imperfections. We have established ourselves as a credible partner within these dealer groups. In contrast to worries in other industries, in this one, we are the disruptor.

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

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

Yes, Ron. Our conversion rate for Q4 improved year-over-year, unlike most of our competitors. The increase in conversion rates can be attributed to our no reserve sale, which we refer to as our guarantee offering. This provides sellers with a guarantee while buyers can participate in no reserve bidding, enhancing both the buying and selling experience. Although Q4 is typically challenging for conversion rates, we are performing well. Our guarantee and no reserve offerings continue to expand, currently representing about 20% of our total units sold, with more customers adopting this product. I believe we are becoming one of the best in the industry regarding conversion rates. To further improve these rates, we have tightened our policies, removing sellers with overpriced cars and ensuring a better buyer experience. We're focusing on quality over quantity and managing the marketplace with stricter rules, which is resulting in higher buyer satisfaction and confidence in conversion rates. Overall, we are seeing positive trends in our conversion figures.

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

Regarding your second question, what did we do differently? In Carolina, we promoted a strong performer from the New York metro area to a regional director role. This individual is skilled in the ACV model and collaborated with local territory managers. We also added another territory manager and hired more inspectors, reinforcing our commitment to strong execution. They effectively present our unique offerings. Although growth in the Carolinas took longer than expected, it is now on the rise, bolstered by talented individuals who are gaining momentum. South Florida presents a similar situation, where our team is excelling by further differentiating the ACV offering, such as the guaranteed sale. They're actively utilizing our inspectors to enhance buying activity, engaging both sellers and buyers in the field. I met with the leader in that region last week, and he is doing an excellent job of developing South Florida. We recognize that there is still work to be done, but I am excited about our progress as we have the right talent and are beginning to gain market share at a healthy pace.

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

I wanted to ask about Viper. You mentioned rolling it out this year and the significant dealer interest at recent shows. Could you clarify when it will be in the field? More importantly, what key metrics are you monitoring during the launch before considering a more extensive rollout?

Yes. Thanks, Bob. Our top priority with Viper during these initial rollouts is to ensure that dealers can utilize our platform to acquire more vehicles. For dealers, optimizing revenue hinges on sourcing more cars. When they can procure additional vehicles, they can effectively decide which cars to retail and which to wholesale. Most of our initial customers are using ACV MAX as their inventory management system, and our goal is to encourage them to purchase more cars. We envision dealers buying 30, 40, 50, or even over 70 cars, primarily from their service drive. A key performance indicator for us is helping them increase their car purchases. Some of the dealers we are speaking with have very ambitious goals. Bill and I met with one dealer last week who expressed a desire to purchase 100 cars, but I don't recall the exact number.

He wants to retail 100 more used cars a month which means he's probably going to buy more like 125 to 130. And retail the ones that he wants to keep.

So here's an example involving a dealer who recently acquired Viper. In simple terms, as they buy more cars, they'll also wholesale more. They'll retain about 60% to 70% of the best cars for retail and wholesale around 30% to 40%. This represents an expansion of our total addressable market at the dealership level. You'll find cars that might have previously gone peer-to-peer or to large companies now being purchased by these dealers. In other words, we believe some of the top-performing dealerships in the country will be those using Viper. If we can help turn that dealership into one of the best in the nation, it gives us even more reason to collaborate with ACV and its portfolio.

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

I believe if we can see our no reserve sales reaching the mid-20 percent range this year, I would be thrilled, possibly even higher. However, we're not expecting every single car to be sold without a reserve. For instance, certain vehicles like frontline cars might only run on our platform for 24 hours. Not every car needs to follow that model. Nonetheless, there is a positive trend for ACV's marketplace, as more cars sold without a reserve are attracting buyers. I previously mentioned that we had 9.8 bidders per car, and we're now seeing over 10 bidders per car, which continues to rise, resulting in strong bid activity. Some segments even have over 20 bidders per vehicle. This robust bidding is enhancing our data science and predictive capabilities. Regarding AI, the ultimate machine learning predictor doesn't just rely on external data but leverages our own data to assess car performance. With our bidirectional integration with DMS, where we can see what dealers are retailing their cars for, we're in a uniquely advantageous position. We are very pleased with our guarantee offering and the opportunities it's creating for no reserve sales for buyers.

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

I just want to understand if I have the math right. Looking at pure auction recognized revenue per unit, it aligns with Q3. On the previous call, you mentioned incentivizing sellers, particularly power sellers, and people trying to provide price guarantees. Should we consider this approach as something that will not be temporary and is more likely to become the new normal as competitive levels in the industry evolve? Or am I misinterpreting something? I would like to hear your perspective on this.

Yes, I think that's a good point, Chris. Revenue per unit in Q4 was healthy. I don't view it as temporary, and I'm not particularly concerned about competition affecting revenue per unit. Bill might be able to provide additional insights here. We wanted to inform investors in the last earnings call that we don't expect analysts to significantly increase ARPU over the next year, which would allow us to reinvest as you've mentioned. However, I don't foresee ARPU decreasing significantly. Bill, perhaps you have more to add on this.

Yes. So Chris, looking at the numbers, in Q3, our auction and insurance ARPU slightly declined from $5.23 in Q2 to $5.08, but then it increased again in Q4 to $5.28. Our modeling going forward includes an assumption that this $5.28 will remain stable or potentially increase modestly in 2026. This is what we have factored into our financials for the year. We'll see how things unfold, but it's likely to perform slightly better than what we projected in our last call.

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

I think ultimately, our focus will be on leading the market. I believe we are still the leading dealer wholesale provider. Last year, we added 86,000 units, and I don’t think anyone else achieved that number in dealer wholesale. Our unique advantage is that we are not only operating within the wholesale space; we are also helping dealers enhance their businesses. I encourage everyone to not only watch our videos but also speak with our end customers, who are satisfied with our wholesale performance. They are saying that ACV is helping them improve their operations. Regarding Rajat’s question about AI transforming industries like automotive, I understand investors' concerns about AI's impact. That concern is valid, and we are actively driving improvements for dealers in this sector. While physical auctions still dominate car sales, we have plenty of room for growth. I also believe that the market may not be a winner-takes-all scenario; there could be multiple players successful in this space. I am confident we will remain a leader with a distinct offering, but there is still potential for others because currently, only about 30 percent of the industry has transitioned to digital.

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

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

Yes, we're actively hiring inspectors. Over the next couple of months, we have about 30 people currently in training. We are focused on hiring and training to reach our inspector numbers by the third quarter, which will help us establish a national presence. Our aim is to continuously execute on this plan to increase our capacity to inspect more cars and expand our footprint across the country. It will take several quarters to complete both hiring and training, but I hope to have most of it in place by the end of Q3. It's an ambitious target, but we are working diligently toward it. Regarding Project Viper, we're currently implementing around 5 to 10 Vipers each month. These early dealers are supporting us in integrating with third-party vendors such as CRM and DMS companies, and they are also helping us finalize additional requirements. Our target is to deploy between 100 to 200 units in the field, with more than 200 dealers expressing interest. While I don't expect to get all of them out this year, we'll see how it progresses. We're focused on ensuring the product meets its primary objectives: enabling dealers to buy more cars, providing quicker retail photos on their websites, and increasing their service revenue. For instance, we have high-confidence predictions regarding tire depth, which allows dealers to upsell tires to customers. We will monitor these three key areas closely. Our plan is to begin scaling this early next year, after we validate that the product is performing as needed. We want to be cautious and avoid committing to a large number of units until we are confident in our approach. Once we are aligned and everything is going well, we will ramp up production and start taking orders throughout the year.

Eric, it's Bill. So just revisiting the numbers, we previously discussed the $11 million additional investment focused on our go-to-market strategy. The added investment in the Viper side will mainly be reflected in our financials as capital expenditures since we capitalize these units and amortize those costs over a subscription period. This also represents another high single-digit net income margin, so we can estimate that the total incremental investment for these two initiatives is approaching $20 million.

And then more to come on the business model on future calls, but think subscription but also tying back to wholesale. And that will be an opportunity for us to both help the dealer achieve their objectives, but also us drive our wholesale, our wallet share and rooftops working with us.

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

So George, maybe just looking back at your commentary in November. I think when you're talking about 2026 back then, you said it's prudent to probably assume that wholesale market stays flat in 2026. And now we are in February 2026, anything that might have changed in terms of your thinking about the market for this year versus maybe about three months ago? So that's my first question. And then the second question is around arbitration expense. And just wondering what are the kind of drivers here to get this thing down. Is this really more of a function of price volatility? And as that comes down, you expect it to come down? Or you did do some cleanups? So I was just trying to understand the drivers there. And any color there would be helpful.

Yes, certainly. Regarding your first question on the market, we are maintaining our view that dealer wholesale will remain flat for the year. In January, dealer wholesale was reported down by 6.5%, indicating that the market started weak. February also experienced weather-related challenges. While it's too early to predict that the decline will continue throughout the year, we believe there are enough positive factors. Tax refunds may provide incentives, and there are advantages to purchasing used cars from a tax standpoint. Additionally, we expect an influx of off-lease vehicles, which will prompt dealers to acquire more of these cars. Although the year began with a decline in dealer wholesale, we still expect it to end up being fairly stable. As for your second question about arbitration, we are pleased with our performance in Q1 and optimistic about the year ahead. We took action in November and December to remove some bad actors from the platform, which has improved our coverage and overall platform health. We're also ensuring that our customers can no longer exploit the system. Although I wish we had initiated these changes sooner, the team has done an excellent job executing in Q4. As we move forward, I'm seeing improvements in buyer satisfaction and accountability among both buyers and sellers. Our technology is advancing as well, including our use of AI to understand seller and buyer dynamics more effectively. Overall, I'm proud of the way the team is handling arbitration.

And one other item I would add to what George indicated is with all the inspectors that we're adding that we've already had and we'll continue this year, we're also going to leverage that increased inspector head count out there to also validate certain arbitration claims. So that will kind of give us another opportunity to ensure that we're paying out when it makes sense to pay out based on validated claims.

Yes, we recently started piloting this initiative, and having more team members is advantageous because we currently send these cars to local dealerships. We have discovered that inspecting the cars ourselves has been very beneficial. As Bill mentioned, this approach will improve our arbitration management and enable us to process claims more quickly. It also creates a better experience for those acting in good faith, as we can send someone to verify the arbitration.

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

I have a series of questions about how we can assist dealers in improving their operations. Firstly, could you provide more details on the early results of using Viper to increase service attachments and upsells in the service lane? Additionally, when you conduct a scan, who owns the data? Do you or the dealer have ownership, or do both parties have access? Lastly, could you elaborate on your private label auctions or intra-dealer auctions that utilize your data?

Yes. We have begun to expand our service drive acquisition, both before and now leveraging Viper. Jeff, we have dealerships purchasing between 4% and as much as 10% of all repair orders coming through their service drive. These are impressive numbers. On a dealership level, this could translate to anywhere between 40 and 100 cars a month. Bill and I recently met with one dealership that was already purchasing, and I believe you mentioned it was 75...

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

We're starting to see progress, but we need to scale up significantly. We aim to increase from dozens of rooftops to thousands. In places where our Annual Contract Value is established and dealers apply our best practices, our performance is exceptional. However, we need more rooftops to adopt this approach. ClearCar requires dealers to quickly determine their interest in vehicles, which should take just a few minutes. My hope is that more dealers will begin to utilize it. Additionally, for some selected rooftops, we are testing a guarantee on the cars. This is useful because we’ve noticed that despite our technology, dealers only place offers on cars they are genuinely interested in, which isn’t beneficial for either party. By offering a guarantee, the dealers feel more secure in buying vehicles they might typically avoid. We're determined to grow this from dozens to hundreds, and eventually thousands of rooftops. Throughout my career, I’ve experienced similar growth trajectories; we disrupted the dealer wholesale market when we sold just a few hundred cars a month at ACV auctions, and people were skeptical then too. Yet, once you achieve success on a smaller scale, it's possible to expand significantly. Regarding the data from dealers, we have the right to utilize it in an aggregated manner. I'd prefer not to delve deeper into that on this call, but we handle their data with respect while also using it for things like pricing predictions. Our senior team has been dedicated to managing these aspects for over a decade, ensuring it benefits both the dealers and us.

Thank you. This concludes today's question and answer session. I would like to turn the conference back over to George Chamoun for any closing remarks.

Thank you, everyone. We appreciate your continued support and look forward to the next call. Have a great day.

Thank you for joining us tonight. We hope to see you on the conference circuit over this next quarter. And again, thank you for your interest in ACV, and everybody, have a great evening.

Thanks so much.

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