Executive Summary / Key Takeaways

• ACV Auctions is establishing itself as a leading digital marketplace for wholesale used vehicles, leveraging proprietary AI and data to drive efficiency and transparency for dealers and commercial partners.
• The company is successfully executing a profitable growth strategy, demonstrating strong revenue growth (25% YoY in Q1 2025) and significant Adjusted EBITDA expansion (150% YoY projected for FY 2025 midpoint), achieving full-year profitability in 2024.
• Key growth vectors include continued market share gains in core dealer wholesale, expansion into the commercial market (targeting 15% of units midterm), and increasing adoption of value-added services like ACV Transportation and ACV Capital, alongside data solutions like ClearCar and ACV MAX.
• ACV's technological differentiation, particularly its AI-powered inspection, pricing, and operational tools (e.g., predicting retail prices within a few hundred dollars), forms a competitive moat and is central to its strategy to enhance dealer profitability and capture wallet share.
• While macroeconomic crosscurrents and used vehicle inventory shortages present headwinds, ACV's guidance assumes a flat dealer wholesale market in 2025, focusing on factors within its control: market share capture, operational efficiency, and strategic investments in technology and adjacent markets.

The Digital Transformation of Wholesale Auto: ACV's AI-Powered Approach

ACV Auctions Inc. is at the forefront of digitizing the historically fragmented and opaque wholesale used vehicle market. Its mission is to build the most trusted and efficient marketplace platform, empowering licensed automotive dealerships and commercial enterprises to buy and sell used vehicles with unprecedented transparency and data. The company's journey, beginning around 2016, has been defined by a relentless focus on leveraging technology to solve long-standing industry challenges, moving transactions online and enhancing every step of the process.

At its core, ACV operates a digital marketplace connecting buyers and sellers. This platform is complemented by remarketing centers, transportation services (ACV Transportation), financing solutions (ACV Capital), and a suite of data services. This integrated offering positions ACV not merely as an auction facilitator but as a strategic partner aiming to address dealers' broader inventory management and sourcing needs.

The competitive landscape is dynamic, featuring established physical auction houses, other digital-first platforms, and large retailers with their own wholesale operations. Players like Copart (CPRT) and KAR Auction Services (KAR) have significant scale and established networks, while newer entrants or expanding retailers like Carvana (CVNA) are also active in related segments. ACV strategically positions itself as a neutral, independent partner for dealers, contrasting with retailers who are also competitors for consumer vehicles. This neutrality, coupled with a focus on providing a comprehensive, integrated suite of services, is central to its strategy to gain market share and deepen relationships.

ACV's most significant competitive differentiator lies in its proprietary technology, particularly its extensive application of Artificial Intelligence (AI) and machine learning, underpinned by a vast, curated database of vehicle condition information. This data is initially captured by ACV's vehicle condition inspectors (VCIs) and increasingly through AI-guided self-inspection tools like ClearCar. This condition data is then fused with market data to power ACV's AI capabilities.

The tangible benefits of this technology are numerous and, in some cases, quantifiable:

• Pricing Accuracy: ACV's AI-enabled pricing platform provides highly accurate wholesale and retail pricing guidance. By Q4 2024, the company reported predicting retail prices within a few hundred dollars and wholesale values within $100, a capability management believes is a significant advantage over legacy tools. This accuracy helps sellers list vehicles effectively and buyers bid with confidence.
• Operational Efficiency: AI optimizes processes across the platform. In transportation, AI-optimized pricing achieved 95% lane coverage by Q2 2024, driving both growth and operating efficiency (e.g., Q1 2025 transportation margin expanded 460 basis points YoY). In inspections, technology contributed to record VCI efficiency in Q2 2024. Automated appraisal tools driven by AI are expected to lower operating costs per auction.
• Enhanced User Experience: AI-enabled recommendations tailor the buying experience, improving discoverability and search refinement. For sellers, AI assists in setting listing prices and managing auctions (e.g., the in-auction tool allowing reserve price removal).
• Risk Management: In ACV Capital, AI and data insights support improved risk management capabilities, contributing to a 50% year-over-year reduction in bad debt expense in Q1 2025 despite accelerated growth.
• New Product Development: AI is foundational to new initiatives like Project Viper (putting hardware/software into operational workflow, beta summer 2025) and AI-backed platforms for processing trade-ins with guaranteed pricing in under a second, being piloted with partners.

The "so what" for investors is clear: ACV's technological edge creates a significant competitive moat. It enables the company to offer a superior, more efficient, and more trustworthy platform compared to less technologically advanced competitors. This differentiation drives market share gains, supports pricing power (as seen in ARPU growth), improves operational efficiency, and expands the addressable market through new data-powered services and bundled offerings. While competitors are also investing in technology, ACV's deep integration of AI, particularly its condition-enhanced data advantage, positions it favorably for long-term growth and profitability expansion.

Business Model and Performance Dynamics

ACV generates revenue primarily through its marketplace and related services. Auction and ancillary fees, charged to both buyers and sellers upon successful transactions, form the core. Transportation fees, where ACV acts as a principal, contribute significantly to marketplace services revenue. Customer assurance revenue, mainly from the "Go Green" offering, provides sellers with guarantees on vehicle condition reports. Data services, including SaaS subscriptions for ACV MAX and True360 reports, represent a smaller but growing revenue stream.

The company's financial performance in recent periods reflects its strategy of driving unit growth, increasing ARPU, expanding value-added services, and maintaining expense discipline.

• Revenue Growth: ACV has demonstrated strong top-line momentum. Q1 2025 revenue reached $182.7 million, a 25% increase year-over-year. This followed robust growth in 2024, with Q4 revenue up 35% YoY (20% organic) and full-year 2024 revenue reaching $637.2 million (32% growth). Unit growth has been a primary driver, with 208,025 units sold in Q1 2025 (up 19% YoY) and 743,000 units in full-year 2024 (up 24%).
• ARPU Expansion: Alongside volume, ARPU has increased, reflecting the value delivered and strategic pricing adjustments. Auction and assurance ARPU was $500 in Q1 2025 (up 8% YoY), $500 in Q4 2024 (up 10% YoY), and $506 in Q3 2024 (up 15% YoY). Management noted they have made progress closing the gap on buyer fees relative to competitors and still see some room for price adjustments.

• Value-Added Services Momentum: Marketplace services (Transportation and Capital) have shown strong growth, contributing significantly to revenue. Q1 2025 saw marketplace services revenue grow 24% YoY. ACV Transportation achieved record revenue and deliveries (410,000 in 2024), with expanding margins (low 20s in Q1 2025, exceeding high-teens midterm target for 2024). ACV Capital delivered over 30% revenue growth in Q1 2025, marking the second consecutive quarter of accelerated growth, supported by improved risk management and increasing attach rates (well into double digits, targeting 25% midterm).
• Profitability and Scale: A key focus has been on achieving profitability and expanding margins. ACV delivered its first full year of Adjusted EBITDA profitability in 2024 ($28 million). Adjusted EBITDA margin saw significant year-over-year improvement, increasing approximately 500 basis points in Q1 2025, 900 basis points in Q4 2024, and 800 basis points in full-year 2024. This reflects operating leverage and expense discipline, with non-GAAP operating expenses (excluding cost of revenue, D&A) decreasing as a percentage of revenue. Non-GAAP cost of revenue as a percentage of revenue also decreased, driven by improvements in auction/assurance and transportation.

• Cash Flow and Liquidity: The transition to profitability has translated into improved cash flow generation. Net cash provided by operating activities was $66.6 million in Q1 2025, a significant increase from $43.0 million in Q1 2024. Full-year 2024 operating cash flow was strong at $65 million. As of March 31, 2025, ACV held $291.9 million in cash and cash equivalents and $49.9 million in marketable securities, providing ample liquidity. The company utilizes debt facilities (2021 Revolver, Warehouse Facility) to support operations and finance receivables, maintaining compliance with covenants.

Strategic Expansion and Future Outlook

ACV's strategic roadmap extends beyond its core dealer wholesale marketplace, targeting significant expansion opportunities and leveraging its technological foundation.

• Commercial Market Penetration: A major focus is the commercial wholesale market (leasing companies, rental fleets, finance companies). ACV is building out its capabilities through acquisitions of remarketing centers (10 locations by Q3 2024) and developing a dedicated commercial platform. This platform, slated to power the first greenfield remarketing center in H2 2025, will integrate with industry systems like AutoIMS and include specific features for commercial workflows (inspection, reconditioning estimation, reporting). Commercial volume was over 5% of total units in Q3 2024, and ACV targets this to reach approximately 15% of its 1.5 million total unit midterm target. Profitability per commercial unit is currently comparable to dealer wholesale.
• Consumer Sourcing & Bundled Offerings: ACV is enabling dealers to acquire vehicles directly from consumers through solutions like ClearCar. This AI-guided self-inspection tool is gaining traction (targeting over 1,000 dealers live by year-end 2024) and providing tangible benefits to dealers (estimated 10% increase in retail profits, 20% increase in wholesale profits on ClearCar-sourced vehicles). ClearCar is also driving new customer acquisition and is being bundled with ACV Capital to finance consumer-sourced vehicles, creating a powerful value proposition and deepening dealer partnerships. The strategy to bundle data services (ACV MAX, ClearCar) with wholesale and capital offerings aims to capture greater wallet share and align interests with dealers.
• International Exploration: While early stage, ACV is exploring international expansion, pulled into some markets in Europe. The envisioned model is asset-light and technology-first, focusing on self-inspection and the marketplace rather than replicating the full U.S. physical footprint.

Looking ahead, ACV has provided concrete guidance reflecting its confidence in continued growth and profitability expansion despite a stable market backdrop.

• Q2 2025 Guidance: Revenue is expected between $193 million and $198 million (20% to 23% YoY growth). Adjusted EBITDA is projected between $18 million and $20 million, representing approximately 170% year-over-year growth at the midpoint.
• Full Year 2025 Guidance: Revenue is reiterated at $765 million to $785 million (20% to 23% YoY growth). Adjusted EBITDA is reiterated at $65 million to $75 million, reflecting approximately 150% year-over-year growth at the midpoint.
• Guidance Assumptions: This outlook assumes the overall dealer wholesale market remains approximately flat year-over-year in 2025, with conversion rates and wholesale price depreciation following normal seasonal patterns. ACV expects its revenue growth to exceed non-GAAP operating expense growth (excluding cost of revenue, D&A) by approximately 500 basis points in 2025.
• Midterm Targets: ACV remains committed to its updated midterm targets of 1.5 million total units (with 15% commercial mix), $1.4 billion in revenue, and $350 million in Adjusted EBITDA, underpinned by sustaining market share gains, penetrating adjacent markets, and expanding margins through revenue mix and scale.

Risks and Considerations

While ACV's trajectory is promising, investors should consider several key risks:

• Macroeconomic Sensitivity: Used car demand is tied to consumer affordability, which can be impacted by interest rates, inflation, and overall economic health. Macroeconomic and geopolitical conditions, including potential changes in trade policies and their impact on new/used vehicle supply and pricing, could affect market volumes and pricing dynamics.
• Used Vehicle Inventory: Persistent shortages of used vehicle inventory, particularly later-model, low-mileage cars, remain a headwind as dealers may retain more trades for retail. While the trade-to-wholesale mix is expected to normalize over time, the pace of recovery is uncertain.
• Competition: The market is competitive, with established players and new entrants. ACV must continue to innovate and execute to defend and expand its market share against rivals with significant scale and resources.
• Execution Risk: Successful execution of strategic initiatives, particularly the expansion into the commercial market and the adoption of new AI-powered products and bundled offerings, is critical to achieving growth targets. The pace of dealer adoption of new technologies and processes is a factor to monitor.
• Seasonality: The business experiences seasonality, with lower volumes typically in the fourth quarter and winter months, which can impact quarterly results.
• Arbitration Costs: While ACV is managing arbitration costs, an increase in claims (potentially linked to market price volatility or inspection accuracy) could pressure customer assurance margins.

Conclusion

ACV Auctions is executing a compelling strategy to transform the wholesale used vehicle market through technology and an integrated service offering. The company's core investment thesis is centered on its ability to leverage proprietary AI and data to create a more efficient, transparent, and trusted marketplace, driving sustained market share gains and expanding into lucrative adjacent markets like commercial wholesale and consumer sourcing. Recent financial results demonstrate strong top-line growth and a clear path to significant profitability expansion, achieving full-year Adjusted EBITDA profitability in 2024 and projecting substantial growth in 2025.

While macroeconomic headwinds and inventory dynamics present challenges, ACV's guidance reflects confidence in its ability to control its destiny through operational execution, technological differentiation, and strategic investments. The company's focus on AI-powered innovation, expanding its suite of value-added services, and disciplined cost management positions it favorably against competitors. Investors should monitor the pace of market recovery, the successful execution of commercial and bundling strategies, and the continued adoption of ACV's differentiated technology as key indicators of its progress towards its ambitious midterm targets and long-term value creation potential.