Earnings Call Transcript - ACVA Q1 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to the ACV First Quarter 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Fox, Vice President of Investor Relations. Please go ahead.

Tim Fox, Vice President of Investor Relations

Good afternoon, everyone, and thank you for joining ACV's conference call to discuss our first quarter 2021 financial results. 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 avenues for long-term growth and total addressable market expansion, our financial guidance for the second quarter of 2021 in the full year 2021 and opportunities for margin expansion. 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 these risks and uncertainties is contained in our final prospectus filed with the SEC on March 24, 2021, and our quarterly report on Form 10-Q for the 3 months ended March 31, 2021, that will be filed with the SEC following this earnings call, and our remarks during today's discussion should be considered to incorporate this information by reference. Also, during this call, we may present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short time ago. The earnings release is available on the Investor Relations page of our website and is included as an exhibit in the Form 8-K furnished to the SEC. Lastly, we will be referencing our earnings presentation today, which you can find posted on our IR website. And with that, let me turn the call over to George.

George Chamoun, CEO

Thanks, Tim. Good afternoon, everyone, and thank you for joining us on our first earnings call. It's great to talk to all of you again now as a public company. ACV's IPO was a significant step in our journey to build the most trusted and efficient digital marketplace for used vehicles, and we accomplished this through a lot of hard work by many people. I want to thank my ACV teammates for achieving this milestone. We are very proud of how far we've come since ACV was launched in 2015, and we look forward to building on our success in the years ahead. For our call today, let me begin by providing some context on the ACV story by briefly recapping our 2020 results then touch on first quarter highlights, and finally, discuss our strategy to deliver long-term shareholder value. In 2020, we transacted over $3 billion of GMV and nearly 400,000 vehicles on our digital marketplace. This produced over $200 million in revenue, a 95% year-over-year growth. As you can see, our momentum continued in the first quarter of 2021, where we transacted over $1.3 billion of GMV and nearly 130,000 vehicles on our digital marketplace. And we delivered strong revenue of $69 million, which generated 64% year-over-year growth. Our performance in the quarter was driven by continued adoption of our platform as we attracted new dealers into our ecosystem and gained wallet share within our existing dealership customers. We also saw continued adoption of our suite of solutions that further enable a seamless experience for our dealers. Similar to other companies in the used vehicle sector, we benefited from favorable market conditions, which drove strong customer engagement on our marketplace and favorable unit pricing. We have been able to drive significant growth despite the supply headwind that our franchise dealers face, selling fewer new vehicles and having less used vehicle supply. Turning now to our strategy to drive long-term shareholder value, let me frame this by focusing on the three top-level elements of our strategy: marketplace growth, total addressable market (TAM) and product expansion, and operating scale. Marketplace growth is all about leading the digital transformation of the dealer wholesale market with our robust data-driven platform. We serve a large and complex addressable market. And as Bill will discuss later, we are ramping our investments to continue capturing market share and further differentiating our digital platform. Next, we're expanding our total addressable market and creating exciting new growth vectors for ACV. This includes delivering an expanding suite of innovative products and services into the dealer wholesale market and, over time, entering new domestic and international markets that we believe can significantly expand our TAM. The last element of our strategy is continuing to deliver operating scale. ACV has a proven business model that is delivering growth at scale with very attractive unit economics with structural operating leverage that we believe can yield significant margin expansion over time. Before turning it over to Bill to discuss financial details on the quarter and guidance, I'd like to provide a background on ACV for those who are newer to our company. Since this is our first call together, we have many listeners who are just getting to know ACV. I will spend a bit more time on the company overview. With that, let me begin with ACV's mission. Our mission at ACV is to build and enable the most trusted and efficient digital marketplace for buying and selling used vehicles with transparency and comprehensive data that was previously not possible without our investment in technology and people. Some of you have previously heard my diamond analogy. Basically, imagine buying a diamond on the Internet without knowing the 4 Cs of color, cut, clarity and carat weight. Used vehicles are also extremely complex, and the value of a used vehicle depends fundamentally on the condition. ACV has fundamentally changed the used vehicle industry forever because of our investment in technology and people. Exiting 2020, our digital marketplace had over 16,000 active participants operating in 125 territories across the U.S. As I mentioned earlier, we are aggressively investing in growth, and we made great progress in the first quarter towards achieving our goal of 160 active territories by year-end. Turning now to automotive, the market we operate in today which is extremely complex and fragmented. Our flagship product, ACV Auctions, targets the wholesale market, which accounts for over 20 million units sold annually. This includes 14 million units from dealer wholesale and 8 million units from commercial wholesale. Our True360 data product is positioned to serve the nearly 30 million retail units that dealers sell to consumers. And given the unparalleled transparency that True360 offers retail buyers, we see significant opportunity to expand this offering. In addition, our True360 offering serves the 8 million vehicles that commercial accounts sell to dealers. Now let's put some numbers behind the market opportunity. We view our addressable market in terms of our near-term and long-term opportunities. Today, we focus primarily on the U.S. wholesale market, which has significant runway. At an average fee of around $500 per unit, we estimate the TAM to be approximately $10 billion in fees for our core marketplace. This would include transportation and other value-added services we offer. The $200 million we earned in 2020 represents a small fraction of the opportunity. The majority of our current transactions come from the dealer wholesale segment, and we are just now investing in the commercial wholesale opportunity, a multi-year commitment. Additionally, our data services, such as True360, have the opportunity to address transparency on approximately 40 million vehicles, including dealer-to-consumer and commercial-to-dealer transactions. Longer-term, we believe our platform approach will resonate outside of the U.S., and we also plan to continue developing products to help dealers purchase and trade in vehicles from consumers. And over the long term, we see the opportunity to expand beyond used vehicles. Bottom line, we believe we have a significant untapped opportunity for growth. Now let's dig into ACV's auction experience. Our team of over 750 vehicle condition inspectors go to vehicles wherever they may be, at dealerships or a consumer's driveway. We inspect vehicles with our proprietary tool then launch them into a 20-minute auction. The reason we can sell a vehicle so quickly is because we have our buyers' profile informed by their favorite searches, including any customization to their filters, which enables us to send notifications to dealers when vehicles match their needs. The notifications include a link to view the vehicle's condition and ACV's market report to get pricing guidance from similar vehicles. Dealers then conveniently finalize their transaction where they can purchase our value-added services, like ACV Transportation and ACV Capital. Every step of the transaction journey in our platform is powered by data and technology, which drives trust, transparency and efficiency. Turning now to our technology. Our platform leverages data and technology to power our digital marketplace and data services, enabling our dealers and commercial partners to buy, sell and value vehicles with confidence and efficiency. ACV's platform is comprised of our digital marketplace products and our data service products, which are underpinned by the ACV technology and data platform. Additionally, our back-end technology leverages machine learning to reduce manual efforts and post-transaction processing, which continues to enable greater operational efficiency. So how does this all translate into our marketplace offering? We deliver a comprehensive suite of products to help create a seamless experience and remove the challenge our dealers face during the traditional wholesale process. This includes our flagship product, ACV Auctions, which facilitates instant transactions of wholesale vehicles. Thousands of dealers transact in our digital marketplace every day. Live Appraisal is used by dealers prior to owning a vehicle to quickly assess the value of a consumer's vehicle without taking any risk. Within 20 minutes, a dealer can auction a consumer's vehicle while the consumer is in the dealer showroom, bringing efficiency and trust to the transaction. We've pioneered GO GREEN, which is a wholesale market's first seller assurance service. GO GREEN provides a seller's guarantee against claims of defects and vehicles that are not disclosed in our condition report. With ACV Transportation, we help our customers manage the entire transaction journey by delivering vehicles to the front door of the buying dealer. And finally, with ACV Capital, we are becoming an integral partner for independent dealers by providing a credit facility, which is creating both liquidity and stickiness to our marketplace. Moving on to our data services. We offer data services for our dealer and commercial partners that bring transparency and insights into the condition and value of used vehicles, both on and off our marketplace. With True360, we provide a detailed vehicle report, including cosmetic and structural assessment. True360 enables us to expand the reach of our products to the dealer retail market, and some of the largest dealer groups in the U.S. are starting to use True360. Our reports are integrated into dealer websites and included within the leading vehicle history report providers. Our commercial partners are also leveraging detailed True360 inspection reports to better understand the value of their vehicles and sell their used inventory. And through our ACV Market Report, we provide transaction data and condition details to help dealers assess the value of used vehicles. This gives dealers another tool to determine pricing strategies for their vehicles. Let's now look at how our marketplace, data and technology combine the power of significant network effects. As more marketplace participants join our platform, we can provide greater liquidity and a better experience, leading to greater scale. This, in turn, enables us to collect more vehicle and market data, bringing greater efficiency and more products. These reinforcing flywheel effects continuously improve our digital marketplace and data services for our customers. Ultimately, this drives greater liquidity, greater scale and greater efficiency, which is demonstrated in our attractive unit economics. With our continued investment in technology and people, we believe we have significant avenues to drive long-term growth. Within our marketplace, our growth will continue to be driven by adding new territory in the U.S. and further penetrating our existing territory by attracting new participants while gaining additional wallet share from our customers. In some of our more mature territories with our longest-running customers, we see dealers that drive up to 100% of their wholesale traffic through ACV. We've already made strides introducing ancillary services like ACV Transport and ACV Capital, and there's a long runway of growth in these areas. But we see opportunities for more. On the data service side, we're focused on helping dealers navigate the used automotive landscape by providing trust and transparency and services they need to compete in the digital world. Everything we're doing represents incremental opportunity to provide more value for our dealer and commercial partners. And we think this opportunity extends internationally. Lastly, M&A can be an accelerant to all of this if we find businesses that match our objectives. Let me wrap up with our ACV leadership team. We founded ACV with the core principle of investing in people and technology to bring trust and transparency across the entire used vehicle market. We have a unique blend of talented teammates with a broad section of background and experience, and I'm excited to have them by my side as we continue on the ACV journey. With that, let me turn it over to Bill.

William Zerella, CFO

Thanks, George. And let me also extend my welcome to our first earnings call. I'll begin with a review of our first quarter results. We are very pleased with our performance in the quarter. We delivered strong revenue of $69 million, which generated year-over-year growth of 64%. Adjusted EBITDA loss of $12 million, or 18% of revenue, was a significant improvement over our Q1 '20 results. This performance was driven by our strong revenue growth, significantly outpacing our total operating expense growth, which underscores the inherent leverage in our business model. Cost of revenue as a percentage of revenue improved by approximately 1,200 basis points year-over-year, which was driven primarily by an increased mix of high-margin auction marketplace revenue. Total operating expenses, excluding cost of revenue, as a percentage of revenue improved by approximately 2,800 basis points. To put this in context, we delivered 64% revenue year-over-year growth on essentially flat SG&A expense growth, once again highlighting the leverage in our marketplace business model. Let's turn to some additional detail on revenue. We have a diverse mix of products and services. Our auction marketplace revenue comprises about half of our revenue today, with our customer assurance offering and our emerging value-added services making up the other half of our revenue. We had very strong performance in our core auction marketplace business with 92% year-over-year revenue growth. This strength was driven by a combination of strong unit growth and the attractive pricing environment, George highlighted in his remarks. And this business continued to deliver very strong profitability. Moving on to some additional operating results. Our business model has delivered impressive growth over time and, despite the larger scale of our business today, continues to deliver strong unit growth and marketplace GMV. To help illustrate the underlying growth dynamics and efficiency of our business model, it's useful to view our historical territory performance. As you can see in the first chart, as our territories mature, our unit production grows exponentially. This is a classic land-and-expand model, and we believe we're still in the very early innings here and there is significant room to grow in our newer territories. And then on the second chart, we illustrate the cost efficiencies we've experienced as our territories mature and gain significant operating leverage, typically reaching breakeven in year 3 or 4. To put a finer point on the operating leverage in our business, we're showing historical adjusted EBITDA margin. In 2020, we had our first positive adjusted EBITDA quarter in the third quarter as demand for used vehicles significantly outpaced supply. This drove strong growth in customers and units sold, and we benefited from significant operating leverage in our business model. As I will discuss in my guidance commentary, we are ramping our growth and technology investments this year, which will, of course, impact our adjusted EBITDA margins. However, we think it's important to recognize the underlying operating leverage in our business model that we believe, over time, can produce significant margin expansion. Now I'll turn to guidance. For the second quarter of 2021, we are expecting revenue of $72 million to $75 million, a growth rate of 60% to 67% year-over-year and an adjusted EBITDA loss of $20 million to $22 million. For the full year 2021, we are expecting revenue of $307 million to $313 million, a growth rate of 47% to 50% year-over-year and an adjusted EBITDA loss of $79 million to $82 million. Our guidance assumes that the favorable market dynamics driving strong demand and higher unit prices will continue in the near term, but to be prudent, we've assumed a more normalized environment later in 2021. Lastly, on guidance, to my earlier point about our investment plans, we are expecting total operating expense growth of 62% to 64% for the full year 2021. To wrap up my comments, let me highlight our strong capital structure. Following our recent IPO, we ended the first quarter with $660 million in cash and equivalents and $7 million of long-term debt. Please note that $98 million of cash is associated with the float in our auction business. Specifically, we generated $46 million of cash flow from operations during the quarter due to an increase in the float on our marketplace of $53 million since December 31, 2020. The amount of float on our balance sheet can fluctuate meaningfully, driven by business trends in the final two weeks of each quarter. With that, let me turn it back to George.

George Chamoun, CEO

Thanks, Bill. Before we take your questions, let me summarize. We are extremely pleased with our execution in the first quarter, which illustrates the momentum we're seeing in the market for our leading digital platform. We've made significant progress in redefining the wholesale vehicle market, but we're still in the early innings. And we have a number of exciting growth opportunities that we believe can meaningfully expand our addressable market. Data and technology is core to our advantage and will remain a strategic priority as we deliver new and enhanced services to the market. We have a proven business model that can deliver scalable growth with attractive unit economics and structural operating leverage that we believe will drive significant shareholder value. With that, I'll turn the call over to the operator to begin the Q&A.

Operator, Operator

Our first question comes from Ron Josey with JMP Securities. Ron, if your line is muted, please unmute. And the next question will come from Michael Graham with Canaccord.

Michael Graham, Analyst

I appreciate all the insights shared on the call and congratulations on the quarter. I would like to ask two questions, if possible. First, your expansion into new territories is going well, and you're seeing improved economics in more established areas, but this must be weighed against the fact that entering new territories can compress economics. Can you discuss how you balance these two factors? Secondly, I am curious about any plans you might have for ACV Capital and what milestones we might expect in that regard.

George Chamoun, CEO

Thank you, Michael. I appreciate your comments. Regarding the territory expansion and team building, we have been working on this for over four years and have established a playbook. When we initially open a territory, we don't have any customers, so we hire vehicle condition inspectors. At that stage, we incur costs while we grow our customer base in the new market. Fast forward four years, for example, and you might be selling over 1,000 cars a month, with inspectors operating more efficiently and handling more vehicles per dealer visit. This reflects the scalability of our model, which evolves from a less efficient state in its early days to a highly efficient one after three to four years. I hope that clarifies your first question. As for your second question, we achieved our goals in the first quarter, with significant dealer adoption and attach rates. We're thrilled about ACV Capital, focusing on providing transparency in the fintech aspect of our business. Dealers can see the exact costs for capital while buying used vehicles, which is a major improvement over traditional models that included various complicated fees. Our model is straightforward, giving dealers insight into their costs during the bidding and buying process. Additionally, they receive the broader ACV service model. Everything has been going smoothly, and we've exceeded our goals for ACV Capital in Q1, and we're excited about what’s ahead. Hopefully, I addressed both your questions.

Operator, Operator

Our next question comes from Nat Schindler with Bank of America.

Nat Schindler, Analyst

Congratulations on your first quarter as a public company. George, you mentioned some macro concerns in the market. We've heard from your offline competitors about the difficulties new dealers face in selling their used cars because they don't have enough new cars to replace them. This situation has led to fewer cars coming into the auction. While this hasn't significantly affected your results, could you explain what is happening on the macro side and how you anticipate this will develop throughout the year? Specifically, considering that manufacturers are not expected to return to previous production levels until the fourth quarter, it seems that the supply of new cars may not increase until later in 2022. How do you foresee this situation evolving over the year?

George Chamoun, CEO

Yes, certainly, Nat. Thank you. Thanks so much for the kind regards. Much appreciated. I'll try to describe this for you sort of in the way dealers are looking at it, which is the majority of our supply today comes from dealers. This trend, I would say, started in really Q4 of last year. Generally, our franchise dealers, our new car dealers are selling less cars, selling less new cars. By selling less new cars, now they had less trades coming in for those new car sales. Some of that was made up by the increase in used cars for some dealers but not for others, meaning the total car sales for any one dealership. You look at new plus used, may have been lower for some of them because of the fact that they sold less new cars. Some made it up by the used car side. Either way, they've had fewer trades. So with fewer trades, to your point, some of them have decided to keep some of the cars that would have been traditionally wholesale. Now that mix was already happening to us in Q4 of last year. It was already happening in Q1 of this year. So you've seen us have tremendous growth while facing challenges for the dealers really needing more inventory. And what we're also seeing is you've also seen our GMV increase. If you look at it from the ASP segment, that has increased partially because franchise dealers are also buying in our platform now because they need vehicles. So it's really interesting. I would say so on the first part of your question, yes, these have been challenges for dealers. We've been in a great spot because we're both on the supply and the demand side. So as these macro things are going, sometimes it helps in supply. Sometimes it helps in demand either way. We've been able to grow through this very significantly. When we look out, we are thinking, you'll hear trends of new car supplies will return back to normal by Q1 of next year. Whether it ends up being Q1 or Q4 of this year or sooner, we're going to be prudent on how we think about the year. And as we think about how the supply will increase with more new cars and overall more cars in the inventory, dealers will face pricing challenges as it relates to used cars. We think they should really consider using ACV Auctions because with ACV, you know the value of the vehicle. You're not making any guesses on the vehicle. So we think we're in a great spot to help them with these fluctuations with used car values. But in really each of these cases, we're in a really good spot to benefit from these macro changes. Does that answer your question, Nat?

Nat Schindler, Analyst

Yes, partially. And also, well, looking at it going forward, one of the things that's clear that these macro changes are causing kind of pricing to increase on used cars, as you alluded to as well. That helps your auction as well. But is your auction more levered to price or volume or neutral? So would it be better if you were getting more units than getting higher prices?

George Chamoun, CEO

Being a marketplace essentially allows you to level the playing field. Increased supply provides an opportunity to sell more cars. The impact of having fewer cars in the marketplace is currently reflected in a higher GMV because dealers are broadening the range of cars they are purchasing and selling on ACV. During the roadshow, we mentioned our GMV could reach $10,000 to $11,000 in a few years. A notable aspect of Q1 is that we see a preview of the future, with dealers engaging in buying and selling a wider variety of inventory on ACV. In the short term, having less supply is advantageous for us. We benefit from an effective rate or sell-through rate on the platform, and we're also seeing positive effects on GMV. If the supply of used cars starts to rise by the end of this year or early next year, we will gain from having more cars inspected. There are definite advantages and disadvantages to both scenarios. I hope that clarifies your question.

Nat Schindler, Analyst

It does. And just one quick more for Bill just so he doesn't feel left out.

William Zerella, CFO

Thanks, Nat.

Nat Schindler, Analyst

Bill, just looking at your guidance, it looks like you're incrementally about $4 million of revenue, but incrementally about $9 million more EBITDA losses. Obviously, you said something about increased investment. How much though of that difference from Q1 to Q2 in the spending side is going to be something more prosaic, like cost of being a public company?

William Zerella, CFO

Certainly, here’s the rewritten remark: Nat, to provide more context on pricing versus unit volume, about three-quarters of the increase in our auction plus assurance revenue comes from volume growth, while one-quarter is from pricing. This highlights that our revenue growth is primarily driven by unit volume. Regarding our future investments, we saw a quarter-over-quarter increase in our operating expenses in Q1, excluding cost of revenue, exceeding $10 million. We are currently in investment mode across the business this year to enhance long-term value and gain market share. For Q2, we anticipate a similar increase in operating expenses, with a slight tilt towards SG&A, but mostly evenly distributed. We continue to invest in product and technology, expanding our go-to-market efforts. There is some increase in public company expenses, but that was expected and won't significantly impact our spending. As we consider Q2 and the rest of the year, our operating expense outlook remains consistent with prior expectations, with no dramatic changes. For our full-year guidance, we're accounting for the benefits from Q1, as our operating expenses were about $7 million lower than anticipated even while we rapidly ramp up internal resources and talent acquisition. Overall, we are tracking well in that area. I hope this gives you better insight into our future outlook as reflected in our guidance.

Operator, Operator

Our next question comes from Ali Faghri with Guggenheim.

Ali-Ahmad Faghri, Analyst

So I guess as a follow-up to the last question on the market trends, it sounds like the dynamics you're describing on the supply side were a headwind to your volumes in the quarter but a tailwind to GMV. So when in your guidance, you talked about favorable market dynamics continuing in the near term before normalizing later this year. Are you specifically talking about tailwinds to GMV and revenue per unit?

George Chamoun, CEO

I would say that is one of the main differences as we consider Q2 and look ahead to Q3 and Q4. We are ahead of schedule in terms of revenue per unit and GMV. At this moment, we are being cautious. Whether this will continue is uncertain, but it seems prudent for us to maintain this cautious approach. Bill, would you like to add anything to that?

William Zerella, CFO

No. I mean what I would say, Ali, is we're trying to be just balanced in terms of how we guide you guys for Q2 and the rest of the year. I mean you're right, in some sense in Q1, there was kind of both headwinds and tailwinds, but at the end of the day, we kind of came out on the positive side of that. The numbers kind of bear that out. So we're just trying to be balanced in terms of how we think about things from a guidance perspective.

Ali-Ahmad Faghri, Analyst

Okay. That makes sense. And just a follow-up here. You've talked about investments on the commercial side of the market, which seems like a big and largely untapped opportunity for the company. Most of those cars, particularly the off-lease cars, are sold on private label, digital auction websites utilized by the OEM fincos. So it's a bit different than your current dealer wholesale business platform. Can you talk a bit about the products you're developing to target that commercial market, specifically within the off-lease category and how you're hoping to maybe differentiate yourself from the incumbents given that market is already largely digital?

George Chamoun, CEO

Yes, certainly. I will describe it at a high level since we have some upcoming announcements related to our product strategy in this area in the short term. One of the key investment areas is our inspection platform. As you know, we acquired an off-lease inspection business and another company focused on assessing the integrity of vehicle frames and structural elements. We are diligently working to create what we believe will be the leading inspection platform for commercial partners, and we expect to release that product toward the end of this year. We are very excited about this investment, as it will assist us and our commercial partners in understanding their assets, assessing their condition, and making informed decisions regarding pricing for those specific assets. On the marketplace front, we have indicated in the S-1 that we will introduce private marketplace capabilities later this year. We will provide more information on this because we have not widely marketed our upcoming products yet, but we do have offerings in development that will allow both dealer partners and commercial partners to establish a private marketplace for their own stakeholders. More updates on this will follow.

Operator, Operator

Our next question comes from Ron Josey with JMP Securities.

Ronald Josey, Analyst

Apologies on earlier. Maybe two please, bigger picture, George. Clearly, a great quarter and you're seeing more dealer sign-ups. Can you just remind us or talk a little bit more as to what might be the #1 reason or a top reason or so why dealers wouldn't join the platform? Is it just inertia; things are working fine? Or maybe just walk through that, please. And then I don't know if I heard before, but you talked about the ramping investments, and Bill, I know you talked about that as well. Just if you could touch Canada. Just things seem to be going really well. And I wanted to see if there's any updates on Canada that I might have missed.

George Chamoun, CEO

Thank you, Ron. We're truly growing as planned. If you consider why a dealer might not be using our services, you can see that we've captured significant market share throughout the sector. Looking back over the last four years, we've demonstrated consistent growth quarter after quarter. Dealers traditionally have various ways to sell their wholesale inventory, such as through wholesalers or auctions, and they have established long-term relationships. Our approach involves entering a market, building those relationships, starting with a few cars, proving our capabilities, and gradually earning a larger share of their business. Over time, we expect that dealers will entrust us with all of their wholesale needs. We're experiencing exceptional and consistent growth in each community across the country, fostering relationships dealer by dealer. Does that address your initial question? Before I respond to the inquiry about Canada.

Ronald Josey, Analyst

Yes, yes. It is. I mean, I totally get the land-and-expand strategy, and it's helpful to hear that.

George Chamoun, CEO

Great. On Canada, really no updates yet on our plan. We alluded in the S-1 that we've come with a strategy before year-end of this year. So this would be a little early to come back to you all. Our goal is to come to market with a strategy for Canada by the end of the year. So I would say I'm sort of sticking with that for now.

Operator, Operator

Our next question comes from John Colantuoni with Jefferies.

John Colantuoni, Analyst

I wanted to dig a little bit more into guidance. It looks like full year revenue guidance is primarily flowing through upside from the first two quarters, at least according to our numbers. So we're expecting pricing in the wholesale market to remain elevated until 2022. So maybe you can talk about the key puts and takes of your expectations for growth in the second half in the context of broader industry trends and how you envision ACV's market share progressing within the digital sphere. And I have a follow-up.

George Chamoun, CEO

Good. Bill, do you want to go first on this one? And then I'll go second.

William Zerella, CFO

Yes, I'll begin and then George can add his thoughts. John, as I mentioned in my prepared remarks, we expect the current market conditions to continue in the near term. Looking at our Q2 guidance, at the high end, we're anticipating a year-on-year growth of 67%, which is higher than Q1. For the second half, we are being careful in how we model the business, assuming that these trends will moderate. However, if the current market drivers remain in place, we will benefit from that, but we are not including that in our guidance. If things unfold differently, we could see varying results. The foundational assumptions for the second half are more balanced, and I anticipate that the market dynamics we are experiencing now may not continue. George, feel free to provide additional insights on this.

George Chamoun, CEO

Yes. John, I guess, first, thanks for the question. If you kind of learned the ACV culture and method, is we really look back at our last four years to help us think about out quarters. We've been this very predictable company. And we don't know yet what's going to happen with all these moving parts. We tend to just look at our historical data. And that's what you see us always do. Now can the market be more favorable? And that seems like that's what your firm is predicting. That could be the case. But for now, we rely very much on our historical data to predict the future. And then we'll see what the market trends are at that point. Is that helpful on how we look out?

John Colantuoni, Analyst

Yes, absolutely. I wanted to ask about customer trends. Could you compare the retention and frequency of dealership customers acquired since the wholesale market began to change significantly over the past three months? I'd also appreciate it if you could discuss the engagement levels of these new customers and how that gives you confidence in retaining them once the wholesale market starts to stabilize in the second half.

George Chamoun, CEO

Yes, we are experiencing great success in acquiring new sellers, particularly with dealers involved in both buying and selling cars. Our team is expanding, and we are thrilled with the results in the new territories we have opened. While we can't disclose all the data currently, I can say that our internal expectations for the number of units in these new territories have been exceeded. This development boosts our confidence in the model we provide. Our seller acquisition and retention continue to be very strong and predictable. On the buyer side, our net promoter score is improving and standing out in the sector. Buyers prefer purchasing through our platform due to its transparency, and we ensure that every dealer's experience in buying a car is fair, which enhances our NPS and customer satisfaction. Buyers are willing to pay more for cars on our platform compared to others. Overall, we are pleased with our results in acquiring new sellers and buyers, as well as the number of sellers who have also become buyers in the last quarter, particularly for frontline-ready vehicles. We had an excellent first quarter, and we anticipate further market share gains in the upcoming quarters.

Operator, Operator

Our next question comes from Rajat Gupta with JPMorgan.

Rajat Gupta, Analyst

Congratulations on your first quarter as a public company. I have a question about your operating expenses. The leverage in the first quarter was quite impressive, and the expenses appear to be significantly better than we expected. I'm wondering if the operating expense forecast for the full year, which stands at 63%, aligns with your initial projections. Are there any changes to that plan, or do you think you'll need to adjust your spending over the next couple of years? Also, did the spending in the first quarter match your expectations, and is there a possibility of catching up later? I have a follow-up question as well.

William Zerella, CFO

Yes, Rajat. It's Bill. We observed significantly greater leverage on the operational expenses in Q1, coming in around $7 million under our initial projections, which we have adjusted for the entire year. Consequently, the full-year operational expense estimates now reflect that positive Q1 performance. We expect to maintain the trajectory we had planned for the remainder of the year. Despite falling short of our model in Q1, we are still aligned with our internal targets. Regarding our product and technology investments, our go-to-market strategies are progressing well, and we have successfully onboarded many new team members in Q1. We are also enhancing our recruitment efforts to bring in more talent in Q2 and beyond. Overall, we are on track, but based on our current expectations, we will finish the year with total operational expenses below our original projections. Nonetheless, we are confident in achieving our internal goals. Just as a reminder, this is a year of investment for us, and we believe it is the right time to reinvest in our business. This might lead to some deleveraging in our profit and loss statement, yet we believe it will position us well for better leverage in the following year as we continue to grow, scale, and move towards profitability and beyond.

Rajat Gupta, Analyst

Got it. That's really helpful information. Can you provide an update on the penetration rates for some of the additional areas like transportation and capital? Any insights you could share on that would be appreciated.

William Zerella, CFO

We are currently tracking our attach rates as planned. Our goal is to grow our ACV Capital business by increasing these rates, which have been in the low single digits. We are still in the early stages, but as George mentioned, we saw a significant improvement in Q1. We are meeting our internal targets. Regarding transport, we discussed during our IPO roadshow the importance of increasing attach rates on that side to achieve more scale, which should lead to margin improvements over time. Additionally, we believe ACV Transport will ultimately provide a higher service level agreement for our sellers, making it a strategic focus. Overall, we are progressing as planned, if not slightly ahead.

Rajat Gupta, Analyst

Got it. Just one last follow-up for George regarding the commercial side of the business. I'm trying to understand the private label brand opportunity you mentioned. Once you penetrate that channel and conduct your tests, how does that affect your auction ARPU compared to your current dealer-dealer channel? As we know, OPENLANE's auction revenue per unit is around $100, with additional ancillary services on top of that. I'm curious about how the ARPU or the overall economics might change once you delve deeper into those channels, if it is significant.

George Chamoun, CEO

Yes, certainly. Rajat, I think a way to approach this is that our current guidance does not take into account the revenue opportunities from private marketplaces. I see this as two parts: the existing marketplace growth and the expansion of products and Total Addressable Market (TAM). As we enhance our product offerings and market reach, we will return to discuss these new categories. In the commercial sector, the revenue per unit from open auctions or sales tends to be on par with what we currently earn per unit. Some competitors may even generate higher revenue per unit from open auctions that are accessible to all buyers. In contrast, revenue from private sales tends to resemble that of a high-margin cloud service, yielding very high gross margins. These products are excellent opportunities for us. We are in the final stages of product development and plan to roll them out soon. View these products as areas for growth in the next 2 to 5 years, representing the next phases of our company. Currently, we are focused on expanding our market share, as we believe our product is the best available, and we will continue to capture more market. Alongside this, we will launch additional products and expand our TAM. Once these new products are available and we have insights about future adoption rates and revenue, we will provide updated guidance. Most of our current focus and guidance relates to our auction products, transportation, ACV Capital, and True360, and we expect to see more products and TAM expansion in the coming years.

Operator, Operator

Our next question comes from Alex Potter with Piper Sandler.

Alex Potter, Analyst

Okay. Great. So I wanted to ask a question. I guess you're in 125 regions now. Obviously, there's varying levels of maturity within each of them. Some of them, you're just coming up the hiring curve now, hiring very aggressively, looking to get your first inspectors out there. And some of them are on the other end of the spectrum. I don't know if it's possible to quantify it in this way, but what percentage of those 125 regions would you say that you are sort of aggressively out there trying to add bodies? And then the follow-up to that would be in this sort of goofy employment environment that we're in right now. I mean it sounds like you're not having a difficult time finding people to do the work, at least if the revenue growth is any indication, but I'm just interested in any challenges to the bottom line you might be having on the hiring front.

George Chamoun, CEO

Yes, Alex, thank you. As many of you know, leading our teammates is one of my favorite topics to discuss. So I appreciate the question. We're hiring, I believe, across, if not all, the majority of our territories. None of our territories are fully mature. We've still got a ways to go in hiring even in the territories that have been operational for 5 years where we're selling a lot of cars. In some of these markets, we're the #1 provider in the dealer-to-dealer channel. But we're still hiring additional talented teammates. So I'm not sure if it's every territory this month, but I would say the vast majority of our territory right now. We're hiring people. And that will continue. And the second part of your question, we are modeling our company to be one of the best places to work in America. So yes, we want to be the most transparent and trusted way to buy used cars across wholesale, retail, and then beyond. But in addition, we're really here to build a team and culture where we provide competitive salaries, additional benefits, stock options, and health coverage because I think that's really important to take care of our team. We provide training and education to help them learn. I mean we're really going above and beyond. And what happens when you take care of your team, the word gets out. So yes, I would say others out there are probably having a hard time recruiting talent. We get thousands and thousands of applicants. And we're doing our best to ensure we're getting in there and interviewing and recruiting the right ones, and then we're training those amazing teammates across the country. But we're doing well from a hiring perspective. We're doing well from training, and we're just getting better and better. So I'm very proud of the team's efforts. Hopefully, that answers your two questions. Thanks. Appreciate it.

Operator, Operator

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Tim Fox for closing remarks.

Tim Fox, Vice President of Investor Relations

Thank you, and thank you, everybody, for joining us on the call today. ACV will be participating in a number of virtual investor events coming up this quarter. So look on our IR website for details in the coming weeks. We look forward to seeing you on the conference circuit in the coming months. And again, thank you for your interest in ACV. I hope you have a great evening. Thank you.

George Chamoun, CEO

Thanks, all. Have a good night.

William Zerella, CFO

Thank you.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.