Earnings Call Transcript - ACVA Q2 2025

Timothy M. Fox, Vice President of Investor Relations

Good afternoon, and thank you for joining ACV's conference call to discuss our second 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.

George G. Chamoun, CEO

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are very pleased with our team's execution in the second quarter, delivering revenue and adjusted EBITDA within our guidance range, despite challenging market conditions in the back half of the quarter. Record revenue and continued cost discipline resulted in adjusted EBITDA margins more than doubling year-over-year, underscoring the scale in our business model. Our results were driven by three key factors: first, solid execution in our dealer wholesale business. We continue to gain market share and expand our dealer partner network by delivering a highly differentiated marketplace experience. Second, we had another record quarter for ACV Transport and ACV Capital, along with strong adoption of our value-added dealer solutions. And third, we further executed on an exciting product road map for our dealer and commercial partners, expanding our TAM and growing our competitive moat. As Bill will detail later, we've updated our 2025 revenue guidance to reflect ongoing crosscurrents in the broader macro environment and are still expecting to deliver strong top line growth of at least 20% year-over-year. Furthermore, we have maintained the midpoint of adjusted EBITDA guidance, reflecting our commitment to deliver significant margin expansion 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. Q2 revenue was $194 million and grew 21% year-over-year. We sold 210,000 vehicles, which was 13% year-over-year growth despite the sharp market deceleration throughout the quarter. Next on Slide 5, we will 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 across our suite of solutions, beginning with our marketplace. We provide dealers with highly accurate condition-adjusted pricing guidance, enabling them to set attractive reserve prices, which increases buyer engagement and conversion. Seller experience is further enhanced with flexible auction durations and scheduling, and our new in-auction tool allows sellers to set their own start price for each vehicle and remove the reserve price, which also drives buyer engagement and conversion. On the demand side, the buying experience is tailored across buyer personas, and we're optimizing the bidding experience by providing AI-enabled recommendations informed by dealer preferences and current market factors. Turning to Slide 8. Let's review our marketplace service offerings, beginning with ACV Transportation. The transportation team had another quarter of strong execution, setting records for both quarterly revenue and transports delivery. AI-optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 370 basis points year-over-year in Q2 and was in line with our midterm target in the low 20s. Lastly, our off-platform transportation service continues to gain traction from our dealer partners. These new value-added services, increased transport network densities create additional long-term growth vectors. Turning to Slide 9. The ACV Capital team also delivered very strong results with over 60% revenue growth in Q2. This was the third quarter in a row of accelerated growth, which supports our confidence that we continue to scale ACV Capital while managing risk. The ACV Capital team is expanding its TAM by delivering new value-added offerings to our dealers, including off-platform transactions such as helping them buy vehicles from consumers, creating additional growth levers for our business. Lastly, I'll wrap up the growth section on Slide 10 with data service highlights. Market traction for ClearCar remains strong, with over 1,600 active rooftops as of Q2. ClearCar service, which enables dealers to provide instant appraisals and offers to consumers in their service lanes is particularly attractive in the current supply-constrained market. One proof point is our success with a top 5 dealer group that has deployed ClearCar service at over 150 rooftops with plans to expand nationally this year. The ACV MAX team delivered another strong quarter, reflecting the investment we've made to advance its features. Through Q2, bookings were up 50% compared to 2024, driven by a number of large competitive displacements. Our strategy to bundle data services with ACV wholesale is gaining traction, creating another exciting long-term growth lever for ACV. Again, this quarter, we're excited to share feedback from one of our dealer partners. Mercedes-Benz of Bakersfield, California, 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. Next, on Slide 11. I'll 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 leverage ACV AI across our products, services and operations. Using machine learning, we are fusing inspection and dynamic market data to provide pricing for every vehicle in real time within ACV's pricing platform. A great example is ACV guarantee, one of the fastest-growing channels in our marketplace, accounting for over 15% of units sold exiting Q2. Our guaranteed sales accelerate better engagement, remove market risk for our sellers and deliver a 100% conversion rate. We're confident this highly differentiated offering will be another key lever in driving market share gains while maintaining attractive unit economics. We are expanding our competitive edge with AI-driven next-generation products like Virtual Lift 2.0 and Project Viper. On Slide 13, we highlight these next-generation products in action at one of our dealer partners. We kicked off several pilots in Q2 and feedback has been very positive. Today, our dealer partners have run over 10,000 vehicles through Viper. We're leveraging this data to fine-tune our hardware and software as we expand our pilots over the next few quarters. We believe we're on track for commercial launch for both Project Viper and Virtual Lift 2.0 in 2026. On Slide 14, we highlight another growth lever powered by ACV AI. Our AI-backed platform is capable of processing trade-ins at scale with repeatable, guaranteed pricing in under a second. We're taking pricing and guaranteed capabilities on our marketplace and by our e-commerce partners directly now to our dealer partners. We currently have 5 of the top 10 dealership groups in the U.S. leveraging our pricing data to appraise trade-ins and acquire vehicles from consumers. Think of this as pricing as a service, which is another high-margin revenue stream to support our growth objectives while expanding our relationship with these major dealer groups. Wrapping up on innovation. Let's cover our commercial wholesale strategy on Slide 15. With our initial commercial platform nearing completion, we are excited to announce the upcoming opening of our first greenfield remarketing center located in Houston, Texas. Our commercial platform includes capabilities to receive assignments from AutoIMS, conduct commercial inspections, create work orders and repair estimates, and receive consignor approvals. We will leverage our technology by opening up additional greenfield locations to address the large commercial TAM, providing another long-term growth lever for ACV. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth at scale.

William R. Zerella, CFO

Thanks, George, and thank you for joining us today. We are pleased with our Q2 financial performance. Along with record revenue, we delivered meaningful margin expansion and adjusted EBITDA growth, demonstrating the strength of our business model. On Slide 17, let's begin with a recap of our second quarter results. Revenue of $194 million grew 21% year-over-year and was within our guidance range, despite challenging market conditions in the back half of the quarter. Adjusted EBITDA of $19 million was at the midpoint of guidance, with margin improving 520 basis points year-over-year. Finally, non-GAAP net income was also at the midpoint of guidance, with margin increasing 430 basis points year-over-year. Next, on Slide 18, let's review additional revenue details. Auction & Assurance revenue was 57% of total revenue and grew 20% year-over-year. This performance reflects 13% unit growth and Auction & Assurance ARPU of $523, which grew 6%. To add some context to unit growth in the quarter, we were pleased with strong listings performance that were in line with our expectations. However, weaker market conditions in the back half of the quarter resulted in lower-than-expected conversion rates resulting in an approximate 500 basis point unit growth headwind. Marketplace Services revenue was 39% of total revenue and grew 25% year-over-year reflecting record revenue for ACV Transport and ACV Capital. Our SaaS and data services products comprised 4% of total revenue, with revenue approximately flat year-over-year. Next, I'll review Q2 costs on Slide 19. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 200 basis points year-over-year. The improvement was driven by Auction & Assurance results and by ACV Transport. Non-GAAP operating expense, excluding cost of revenue, as a percentage of revenue, decreased 300 basis points year-over-year. These results reflect our ongoing focus on expense discipline as we optimize and scale our business. Moving to Slide 20. I'll frame our investment strategy as we drive profitable growth. In 2025, we expect OpEx growth of approximately 11% to support our remarketing center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 500 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 21. We ended Q2 with $305 million in cash and cash equivalents and marketable securities and $187 million of debt. Note that our cash balance includes $198 million of marketplace float. In the figure on the right, we highlight our strong operating cash flow for the first half of 2025, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 22. Based on elevated trade retention rates observed in late Q2, we now expect that dealer wholesale volumes will be flat to down modestly year-over-year in 2025. In terms of conversion rates, we were pleased to see trends improve in July, and we currently expect normal seasonal patterns for the balance of the year. Wholesale price appreciation is also expected to follow normal seasonal patterns. As George mentioned earlier, we are trimming our 2025 revenue guidance by $5 million at the midpoint to reflect the ongoing macro crosscurrents. Revenue is now expected to be in the range of $765 million to $775 million, growth of 20% to 22% year-over-year. At the midpoint of revenue guidance, we continue to expect market share gains in the mid-teens consistent with our midterm target model. We are maintaining the midpoint of adjusted EBITDA guidance with a range of $68 million to $72 million, reflecting growth of approximately 150% year-over-year at the midpoint. We are now expecting non-GAAP OpEx, excluding cost of revenue to grow approximately 11% year-over-year, resulting in a 200 basis point increase in incremental adjusted EBITDA margin versus our previous guidance. For the third quarter, we are expecting revenue in the range of $198 million to $203 million, growth of 16% to 18% year-over-year against a tough comparison in Q3 '24, which had revenue growth of 44%. Adjusted EBITDA is expected to be in the range of $18 million to $20 million, reflecting growth of approximately 70% year-over-year.

George G. Chamoun, CEO

Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our strong execution in Q2 and especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace, while expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving substantial adjusted EBITDA growth in 2025 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.

Operator, Operator

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

Christopher Alan Pierce, Analyst

Could you clarify Bill's comments about the 500 basis points unit growth headwind despite listings meeting expectations? Does that indicate that dealers chose to hold onto these vehicles because they weren’t receiving the prices they desired? Is that what you are referring to with higher retention rates, or does it mean something different? Are those two distinct concepts? I just want to confirm and clarify that a bit.

George G. Chamoun, CEO

Chris, yes, two separate things. Semi-related, but let's call them two separate things. One is dealers, when you survey and you talk to dealers right now, they're keeping a higher percentage of partners, keeping more used cars. They need this inventory. We're still overall as an industry, as we spoke about coming into this year, working ourselves from a several million unit gap. So that broad industry challenge has been going on. The specific headwind that Bill referenced on the call regarding conversion rate was more of, I would say, short term, just a few months, our expectations on what the sell-through rate was going to be the conversion rate on the platform versus what it was. But yes, these two things aren't directly related. Bill, I don't know if you want to add any more.

William R. Zerella, CFO

Yes. I think just to take you through the math, Chris, just so you understand what we're referencing with the 500 basis point headwind. So again, our listings were consistent with our expectations and what we bake into our modeling. The difference in actual unit growth was attributable to lower conversion rates than we had initially anticipated and modeled through May and then especially in June. But that's the math behind the unit growth versus what our expectation was.

George G. Chamoun, CEO

But your question of combining the two makes sense, meaning like if you're going to keep some of them versus wholesaling them, some percentage of those lower conversion that they just kept the vehicle, it's not the whole story. But Chris, that is part of the story.

Christopher Alan Pierce, Analyst

Okay. And then just lastly for me. Can you talk about any competitive dynamics or competitive changes in the marketplace you're seeing? Or should we think of this as 80-20 macro versus competitive or whatever kind of ratio you might want to put on that. I'd love to hear your thoughts there.

George G. Chamoun, CEO

I think the things we saw in the quarter was pretty much in line with what the industry saw. We get data from NAAA, AuctionNet and other data and conversion rates came down in the quarter pretty consistently. I would say, for us and the competitors. So I would say we probably all saw similar trends where you saw the pull forward, you saw a lot of activity in the beginning of the quarter. We saw few different macro headwinds all happening. And so I would say the slight dip in conversion rate made sense. Now because I say that also confidently that conversion rates did come back up to start this quarter. I think some of that is the market. And some of that also could be the things we're doing with our no reserve sale and pushing the guarantee offering. But Chris, we did see the quarter start out stronger from a conversion rate perspective and actually see pretty healthy conversion rate. So all good right now.

Operator, Operator

Our next question is from Bob Labick with CJS Securities.

Will Gildea, Analyst

This is Will on for Bob. Can you discuss the progress on your pricing engine and the benefits to auction liquidity from being able to have guaranteed pricing?

George G. Chamoun, CEO

Yes, absolutely. We're making significant progress. Bill or I mentioned that we exited at around 15%. When considering that progress, we are genuinely proud of what we've achieved. We feel confident putting a price on a vehicle that is roughly within $75 of its selling price. That's impressive, whether the vehicle is priced at $5,000, $10,000, or $20,000. Our condition-adjusted data set, which we've developed from extensive inspections and our direct integrations with dealer DMS systems via our ACV MAX system, gives us a substantial competitive advantage. We believe our sale, which we describe as a guarantee to the seller and no reserve for the buyer, will experience significant growth in the coming years. We plan to proceed thoughtfully, but our confidence is increasing. Bill, do you have anything else you would like to add at this time?

William R. Zerella, CFO

Yes. I would just say in terms of the numbers again. So we exited the quarter at about 15% of our unit volume was no reserve, with these guaranteed sales. For the full quarter though, it worked out to about 11% of volume, which was 200 bps above Q1. So we saw an acceleration exiting the quarter and that kind of continued through so far this quarter.

Will Gildea, Analyst

And what's next after the price guarantee in terms of new tech and data products?

George G. Chamoun, CEO

We have three of the top five dealer groups either actively using or in beta with our data to assist in pricing cars for consumers. Additionally, one of the largest marketplace companies globally, Amazon, utilizes our data set. This is becoming a significant competitive advantage. When you consider aligning with the market's critical focus, dealers are interested in buying cars from consumers and setting accurate prices. We are excelling in wholesale and will also transition to retail. Currently, we are in beta testing a feature that predicts retail prices, which is impressive with our data set. Our data science team has achieved an incredible accuracy of $360 within 30 days of predicting what a vehicle will sell for. This data set allows us to launch new products like no reserve, which we believe will play a major role in our company's future. This aligns well with Project Viper, which will enhance our ability to inspect cars within a dealer service drive and automate pricing for these vehicles, along with other features we plan to introduce. We are very proud of the progress we have made so far.

Operator, Operator

Our next question is from Eric Sheridan with Goldman.

Eric James Sheridan, Analyst

Maybe two, if I could. We have gotten a number of questions about the Amazon partnership and how to think about that scaling and delivering volume to the platform. I'm not sure how much you're willing to say, you're able to say about how to think about the embedded assumptions about what that looks like over the next couple of years? And then when just putting a finer point on some of the AI solutions you talked about in the prepared remarks, how should we be thinking about the geographic expansion of those tools and sort of coverage across your market, so we can get a better sense again of sort of the travel from point A to point B and thinking about some of the contributions to growth in the coming years.

George G. Chamoun, CEO

Yes, certainly. I'll address both of those questions. First, the contributions will emerge as we implement these solutions. This year, keep in mind that initiatives like Project Viper, related to your second question, will have a minimal impact. We are not including many of these new capabilities in our sales forecasts. Regarding Amazon, we cannot predict their actions, so we will not provide a forecast. Whether it's Amazon, Project Viper, or other new initiatives, we are not relying heavily on these for this year. As we approach the end of this year, we will consider how much to factor in for next year. Currently, we are investing resources in our R&D budget, but we do not expect significant contributions this year. However, I believe there are substantial medium- to long-term benefits to be realized. I cannot provide much more detail on specific partnerships, including those you mentioned. Bill, is there anything else you would like to add?

William R. Zerella, CFO

Yes. I would just say this year, frankly, Eric, it's more the case where our P&L is being burdened with the cost to kind of get these platforms scalable going forward, especially Viper. With Amazon, we've built that platform, so it's capable of processing trade-ins at scale. So the opportunity is really for growth down the road. But Viper especially, we're investing in this year, and that's baked into our current modeling in terms of our OpEx spend. So really, the opportunity on Viper is really going to materialize next year in terms of revenue and kind of opportunities to sell this overall solution that kind of plays into the guarantee offerings that we have as well.

Operator, Operator

Our next question is from John Colantuoni with Jefferies.

Vincent Nugent Kardos, Analyst

Yes, this is Vincent on for John at Jefferies. So after consistently delivering roughly mid-teens outperformance of industry unit volumes for the last couple of years, it looks like growth relative to the broader dealer-to-dealer industry may have slowed down a bit in the quarter, but then you expect a return to mid-teens gains going forward. So maybe just help us think about the drivers of deceleration relative to the broader industry, whether you think they're transitory? And then just help us think a little bit about the contribution from commercial units in 2Q as well.

George G. Chamoun, CEO

I'll start and then Bill can add his thoughts. When reviewing the last several years, the quarterly percentages don't capture the complete story. We have experienced significant year-over-year growth in absolute terms. However, viewing it annually provides a clearer picture, which we demonstrated last year and the year before. We intend to do the same this year. In our view, there has been no change in our ability to continue increasing our market share. The numbers are growing larger, which means our absolute figures must also rise, and we fully acknowledge that. We're confident that, with the new product suite and our broader market strategy, we anticipate further growth. Therefore, our perspective remains unchanged. Bill, do you have anything to add before we move on to the first question?

William R. Zerella, CFO

No, I would just say, again, to put things in context. So a few things for the second half of the year. So first, keep in mind that the first half of last year, the market was down. In the second half of last year in Q3, growth was 4% and then 6% in Q4. So the compares are a bit different. But the context is we're assuming that the market for the full year ends up being flat to slightly down because of all these potential crosscurrents that are out there, right? And hopefully, things are better and will perform better. But right now, that's our baseline assumption. And then that sort of gets us back to kind of the mid-teens in terms of the math, right? So just to make sure you guys understand the way the math works and what we've modeled and what's therefore baked into our guidance. Understanding, of course, again, as I said in our prepared remarks that we're maintaining the same midpoint of adjusted EBITDA. So we're actually generating higher incremental margins based on the revenue guidance that we provided for the second half and the full year. That was just some context. George, if you want to say anything else?

George G. Chamoun, CEO

I think you covered it. Any other question there?

Timothy M. Fox, Vice President of Investor Relations

Commercial contribution...

George G. Chamoun, CEO

Oh, commercial. Thanks, Tim. We're still in the early stages. One of our accomplishments this quarter is that we completed our software for the new platform and sold our first car. While it's not something to highlight in the earnings script, it's worth celebrating. We sold our first car at our new location in Houston, which served as a practice run. Everything worked smoothly, including reconditioning. We also sold a car using our new software without needing a greenfield setup. Both trials took place during the quarter, and we're ready to go live very soon. The team is finalizing live dates for Houston and is preparing to handle vehicles not located at our sites while managing our reconditioning estimates, determining if we're the right remarketing channel, which aligns more with upstream commercial. I'm really proud of what we accomplished this quarter. It was primarily software-related, but it's always exciting to sell the first car on a new tech platform as we continue the process of going live.

Operator, Operator

Our next question is from Rajat Gupta with JPMorgan.

Rajat Gupta, Analyst

Great. George, Bill, I had a little bit of a philosophical question. You've obviously done a tremendous job historically managing EBITDA, even though growth has fluctuated a lot, like on a quarterly basis, share has fluctuated quite a bit. You talked about some of these software development, all gaining traction. I'm curious, is this like a resource allocation decision every quarter where like it looks like your sales and marketing expense came down a lot this quarter, but you made all this progress on the software side. I'm curious, is this like a more concerning decision around to take this approach? Would you consider like investing more on like boots on the ground, sales and marketing to maybe accelerate share even, if it could come up to loss of some EBITDA in the near term. Just curious like how you're thinking about this? Or is the focus totally on managing like to your guidance on the dollars and EBITDA? I have a quick follow-up.

George G. Chamoun, CEO

Yes, Rajat, your summary reflects our perspective well. First and foremost, we allocate a significant portion of our annual budget to product and technology. This is crucial because while we need to focus on quarterly performance, we also envision a future where ACV becomes the standard for pricing and selling cars, much like how we view Kleenex today. Understanding the actual cash value of a vehicle will shape our brand identity, and achieving this requires investment in product and technology. As we approach our budgeting, this remains a priority. We are developing a tech stack that will reduce friction in the marketplace, regardless of location—whether it's in the U.S. or globally. We commit to a baseline spending in this area and may increase it if our performance allows. Regarding inspectors, our hiring strategy for them is not influenced by our quarterly budgeting or EBITDA figures. It's critical to have boots on the ground, and we recognize the need for flexibility in different locations. We currently need about 30 more inspectors across the country, and we are actively working to hire them. This hiring process operates independently from our EBITDA considerations. As for sales, we have a robust sales team of over 150 field teammates, along with additional teams focused on major accounts and strategic partnerships. Therefore, we believe we have a healthy sales force built into our budget. I hope this clarifies how we prioritize our investments. Go ahead, Bill.

William R. Zerella, CFO

Yes. And then I would just add, Rajat, look, we're still a relatively young company. And we're still maturing a lot internally and operationally. And we know that over time, in order to hit our financial targets, we need to continue to just optimize operationally. And that's kind of a daily and weekly process. So we're always looking at ways that we can optimize and streamline the way we operate internally. And that's frankly probably never going to change and continuing to leverage technology, not just in terms of the products that we offer our customers, but also how we can leverage technology internally from an operational standpoint. So what you're seeing is just the continual effort to continue to do that. But to George's point, we're really not looking to sacrifice the investments that we need to make to drive future growth on the product and tech side. Because at the end of the day, that's really our core DNA is product and technology and how do we leverage and invest in order to drive more value for our customers and continue to drive growth.

Rajat Gupta, Analyst

Understood. And just on your market outlook commentary, it looks like July was another decent month for the industry. So it does imply like a pretty material slowing in the remaining 5 months. Curious like is this primarily tariffs related and the impact it might have on just new car sales. Is there some assumption around worsening wholesale to trade ratio? I'm just curious what's guiding that outlook or pretty material worsening in outlook here for the remainder of the year?

George G. Chamoun, CEO

Yes, Rajat, July was a strong month, both in retail and wholesale. It was a really good month overall. In the previous quarter, we observed what can happen when there's a surge in one month followed by a few months that don't perform as well. So, to answer your question, we've been looking at your reports and they seem less optimistic than before. I say this partly in jest, as you indeed have a lot of data on this. We've reviewed all of it. However, there are numerous analysts, and when you talk to the dealers directly, the sentiment for the latter part of the year isn’t very positive, and it’s a tougher comparison. Given these factors—such as the challenging comparisons and the lack of optimistic sentiment—we are trying to approach this situation carefully. Bill, do you have anything else to add?

William R. Zerella, CFO

I would like to point out that trade retention rates are crucial in the wholesale market. We observed data indicating that in the second quarter, trade retention rates increased by about 300 basis points year-on-year compared to earlier in the year. This trend suggests that dealers might be retaining more trades for retail sales if consumer buying preferences change due to tariffs and their impact on new car pricing, which could lead to increased demand and potentially higher prices for used cars. There are many factors at play, and we are carefully assessing how the second half of the year might unfold. To highlight George's point, you may have more insight into this than we do, as we've been reviewing your material extensively. This forms the basis for our modeling.

Operator, Operator

Our next question is from Ron Josey with Citigroup.

Jamesmichael Charles Sherman-Lewis, Analyst

Two questions, please. First, given the challenging macro, curious how dealer conversations around your value prop have evolved over the last 12 months, particularly regarding appetite for cross-sell and upsell of offerings like ACV Max? And then second, on ClearCar specifically, with its 1,600 active roofs, can you update us on the go-to-market and the success you're seeing in supply-constrained markets.

George G. Chamoun, CEO

Yes, we shared in our prepared remarks that we achieved strong bookings at ACV MAX, which, while a smaller revenue stream, still reflects record-breaking performance. We've also onboarded more dealers. Our focus is on creating long-term differentiation in the wholesale market and partnering effectively with our dealers by offering MAX and ClearCar at competitive rates. This allows us to support them in acquiring more cars from consumers, ensuring proper pricing, and establishing ourselves as their go-to wholesale partner. This approach is beneficial for both us and our dealer partners. We've seen record bookings for MAX, and ClearCar is progressing well. Recently, the most notable achievement has been dealers successfully buying cars directly from their service drives. It will take additional time and effort to encourage dealers to purchase more vehicles through their websites, as we need to assist them with effective marketing strategies to reach consumers. We're viewing this as a phased approach. In Phase 1, we have consumers visiting for services like oil changes and tire rotations, and some dealers are managing to buy three to five cars daily from their service drives. In terms of trade retention, many dealers are keeping a greater percentage of these sales. As inventory levels stabilize, we expect to return to our historical wholesale trade ratios. So far, everything is progressing well. We're planning to launch a guarantee offering that will integrate with both ClearCar and MAX, which is currently in beta. We aim to assist dealers in pricing vehicles accurately, establishing a competitive advantage and fostering long-term partnerships. Are there any further questions?

Operator, Operator

Next question is from Alex Potter with Piper Sandler.

Alexander Eugene Potter, Analyst

Perfect. So I hate to beat on this revenue guidance thing because it was a relatively minor adjustment at the end of the day. But just to put a finer point on this, primarily what you're talking about here is market-wide changes to your own expectations. You've got these puts and takes with conversion rates and things like this. There's nothing fundamentally changing with regard to your own market share or competitive dynamic or anything like that. This is purely just the reassessment of the way the market is functioning. Is that correct?

William R. Zerella, CFO

Yes, it is. If you remember, at the beginning of the year, we expected the market could be flat, meaning it might slightly increase or decrease. Now, our view for the full year is that the market might actually be flat to down. We’re monitoring how this will unfold, but that’s what we gathered based on the trends we observed, especially at the end of Q2, where various macro signals are indicating different directions. There's significant uncertainty around tariffs. Earlier, I mentioned that trade retention rates increased by 300 basis points in Q2. We considered all these factors and concluded that it would be prudent to adopt a more conservative outlook for the rest of the year. Despite this, we can still uphold our EBITDA guidance, aligning with our commitments to investors. Overall, we remain enthusiastic about our initiatives, like the guaranteed sales and Project Viper, and our first greenfield testing is showing promising results so far. There are many reasons for optimism about the future. However, we aim to set realistic expectations and adjust our revenue midpoint down by $5 million as a small measure.

Alexander Eugene Potter, Analyst

That's very helpful. I have another question. Earlier, Rajat mentioned adjusting OpEx spending as a strategy to manage EBITDA. Pricing is another option you have historically kept in reserve. What is the outlook for the fees you are charging for auctions? What are the recent trends and do you have any plans to adjust prices in the coming months or quarters?

George G. Chamoun, CEO

Yes. Listen, we're always looking at this. On the supply side, we basically reduce the price if we get volume. That's how we handle the supply side commitments to our sellers. So I think we've been doing that since 2016. Give us more cars, we charge you less. So it's pretty simple. On the buy side, we've got an array of features. The opportunity here isn't just by fees, like you've seen us historically, it's also adding new products where buyers can get additional assurance and other capabilities, which we're starting to get a little bit of take rate for these newer offerings. So we're always dialing in here and trying to find that right balance of the right product mix and the right assurance. So we do have some more room. Our fees are still a bit lower than the traditional physical auctions. But we're always looking at it, but we don't have any timing expectations to talk about today.

William R. Zerella, CFO

And that's not baked into our guidance. Now there is going to be call it, 5% or 6% increase in ARPU just based on the buy fee increase that we passed through earlier this year. But other on that, we didn't assume any other fee increases per se in our modeling beyond the take of some of these assurance products and other things that we're seeing.

Operator, Operator

Our next question is from Naved Khan with B. Riley Securities.

Naved Khan, Analyst

Just last year, you made several tuck-in acquisitions, and I'm curious about the growth rate if we exclude those acquired in the latter half of last year. What would the organic growth look like? Additionally, regarding commercial traffic and the expansion of physical locations, are there more opportunities to acquire sites across the country? How are you approaching this for this year?

William R. Zerella, CFO

So I'll handle the first part. I don't know if you want to comment on the second part, George. But yes, we did an acquisition last year. It was a location that was primarily a commercial location in Indiana. And if we look at the impact on the dealer unit growth, it added about 1% to the dealer unit growth in the quarter. So that was from that acquisition. But all the other acquisitions were prior to Q2 of last year. So that was the only one that affected organic versus inorganic growth.

George G. Chamoun, CEO

And then your second question, we're always here to talk to the owners of the current options. And so we're always willing to get into an active engagement. But our focus has been a little bit more on these greenfields. We're really excited about this. Our first one going live in Houston. We'll have our second one go live early next year sometime, we'll come back and tell you the location of that one. We're ready at the contracting phase for that one. So we're feeling really good about the strategy. I'm not ready to give you a ramping of that yet. So when you think about our 40 locations we said we'd like to have, we haven't yet given you how many of that will be M&A versus greenfields. But as we get a little bit more confident on the greenfield side, we'll update you all more as we see how fast we can grow these greenfield locations. So we will have multiple growth lever opportunities here. In addition, we can also look at M&A in certain geos. There are some great little businesses out there, and we'd love for them to be part of the ACV family at the right price. So we shall see. But at the end of the day, we're going to really bank on the greenfields is our core strategy. And if we happen to have some M&A opportunities come on the way, great, but more of a focus on greenfields.

William R. Zerella, CFO

Just a reminder, with greenfield projects, we will incur some initial operating expenses, but the overall capital expenditure will be significantly lower when we can initiate a greenfield rather than acquiring an existing auction. As George mentioned, we are open to both approaches, but greenfield offers a potentially more efficient way to expand our business. We will monitor the performance of our first greenfield project, and we have already indicated that we will launch a second greenfield in Q1 of next year, with the location to be announced.

Operator, Operator

Our next question is from Josh Beck with Raymond James.

George Josh Beck, Analyst

This is a bit of a forward-looking perspective. It's early, and I understand the qualifiers. However, it appears that for 2025, the visibility has decreased slightly, especially with the market growth shifting from flat to down. It seems to be more about conversion and retention rather than being focused on listings. Additionally, conditions appear to fluctuate month to month due to macroeconomic factors. As we think about 2026, it's clearly too soon to make any predictions, but what key milestones are you looking for as we finish this year that might help clarify what 2026 could look like from a market perspective?

George G. Chamoun, CEO

I believe we all desire consistency in the end. We're observing that dealers are increasing their vehicle purchases and are becoming less dependent on trades alone. A lot is happening simultaneously; OEMs are addressing tariff issues and are concentrating on product movement. Ultimately, we want to see continued development of new cars and work through the significant pull forward and drag situations we've experienced. In the meantime, off-lease vehicles are expected to return in 2026, along with used car inventory. It seems that 2026 could be a much healthier period for the entire industry, not just for ACV but for everyone. Bill, would you like to add your thoughts?

William R. Zerella, CFO

Yes. I would say there are two other factors for us all to consider. Hopefully, by the time we reach 2026, all the tariffs and trade agreements will be resolved, which will certainly remove a lot of the uncertainty that many dealers and consumers are facing. This would definitely create more stability. Additionally, it is hoped that interest rates will decrease, which would enhance consumer affordability. This improvement would likely benefit everyone in our industry. So, it seems reasonable to expect that the tariffs will be settled by then, as things seem to be heading in the right direction. As for interest rates, we will have to wait and see what the Federal Reserve decides, but there appears to be growing agreement that they may begin to lower rates. The exact rate and frequency of reductions are uncertain, but if they do start to decrease, it will help us move forward positively.

George G. Chamoun, CEO

Okay. That's super helpful. And then I think, Bill, maybe going back to some of your earlier comments about you being a relatively young company and there's still opportunities to unlock operational efficiency. It certainly seems like that's an area you're excited about. Is there a short list of a couple of initiatives that really kind of rise to the top? Is it maybe more related to the adoption of some of these newer initiatives that would help usher that in? Just any other talking points there that we should be considering?

William R. Zerella, CFO

Yes, I can't provide specific details. Generally, we are always looking for operational efficiencies throughout the company. It's difficult for me to highlight one specific initiative. With a workforce of 3,000 employees, we have a substantial and growing organization. Therefore, I prefer not to be specific at this moment. As time goes on and more details emerge, we will discuss specifics in the future.

George G. Chamoun, CEO

I think like any large company, we are using data to identify our efficiencies and areas for growth. As AI continues to evolve, we're finding ways to enhance customer satisfaction by communicating with customers more quickly, whether through phone calls or texts. We are examining this throughout the entire organization. We are also seeking to enable dealers to access self-service options more rapidly. As Bill noted, there isn't a single aspect of our business where we are enhancing customer satisfaction while simultaneously improving efficiency. It is fundamentally integrated into our approach to data collection and our overall business strategy.

Operator, Operator

Thank you. This concludes our question-and-answer session. I would like to hand the floor back over to Tim Fox for any closing comments.

Timothy M. Fox, Vice President of Investor Relations

Thank you, Paul. We appreciate everybody joining us this afternoon and evening on the call and look forward to hopefully seeing you on the conference circuit this quarter. Again, thank you for your interest in ACV, and I hope everyone has a great evening. Bye now.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.