ACV Auctions Inc (ACVA) 2021 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the ACV First (sic) [Second] Quarter 2021 Earnings Conference Call. (Operator Instructions). I would now like to turn the call over to Tim Fox, ACV's Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining ACV's conference call to discuss our second quarter 2021 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 is contained in our quarterly report on Form 10-Q for the 3 months ended June 30, 2021, that will be filed with the SEC following this earnings call. Also during this call, we may present both GAAP and non-GAAP financial measures. Reconciliations to the most direct 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. Finally, 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.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. Let me begin by thanking the ACV team for continuing to deliver superior value to our growing dealer network, which resulted in record second quarter results. I would also like to welcome our newest team members from MAX Digital. We're excited to have you on board and look forward to working together as we deliver best-in-class data and digital technology to the dealer community.

Turning to Slide 3. I'll begin with highlights of our second quarter, then share some perspectives on the automotive market. As you can see, our momentum continued in the second quarter, where we transacted $2.1 billion of GMV and over 150,000 vehicles sold on our digital marketplace, both of which were records for ACV. In fact, we transacted more GMV in Q2 than we did during all of 2019. And we delivered very strong revenue of $97 million, representing 117% year-over-year growth.

Our strong top line performance can be attributed to 3 factors. First, we continued to execute on our proven playbook to grow market share by attracting new dealers into our ecosystem, and by capturing additional wallet share within our existing dealership network. Second, historically high used vehicle values, along with historically low retail inventories resulted in record quarterly GMV and ARPU and also drove elevated conversion on our marketplace. And third, adoption of our value-added services accelerated quarter-over-quarter and was well above our expectations. Simply put, strong execution by the ACV team along with continued customer adoption of ACV's suite of offerings and favorable market conditions yielded truly impressive financial results.

Turning now to the broader market backdrop. We have clearly been operating in unchartered territory over the past year on both the demand side and supply side of the automotive market. And these market dynamics contributed to record financial performance in the second quarter for ACV.

As a reminder, in our first quarter earnings call, we provided an outlook for the balance of 2021 that assumed a more normalized environment, particularly around used vehicle values. I think it's fair to say that our timing was off by a few months, but the market is indeed turning. Wholesale vehicle prices after peaking in early June, started to decline in July and continued to soften, which has been well documented by the industry data providers. The other half of the equation is supply. Last quarter, we also discussed how the lack of new car inventory due to chip shortages and other supply chain headwinds could factor in our 2021 performance in the second half of the year.

In Q2, automotive franchise dealers generally had enough supply to support strong retail performance. However, there's an emerging view that the third quarter or perhaps fourth quarter could be below watermark for retail supply. Of course, these market dynamics are transient. In fact, most industry participants see the new vehicle supply challenge recovering in early 2022, which would be a tailwind for trade-in volumes and benefit our wholesale supply.

Ultimately, this is great news for ACV. A more normalized pricing environment allows buyers and sellers expectations to converge. More supply coming into the market feeds the top of the funnel, which in turn drives higher volumes in our marketplace. It will take a few quarters for these market dislocations to settle out. But in the meantime, we continue to execute on our plan and take market share.

As Bill will discuss in more detail, we have again increased our outlook for the year and are now expecting to deliver approximately 60% revenue growth for the full year. For context, this is a full 20 points higher than our outlook at the beginning of 2021. To frame the rest of our discussion today, we will focus on the 3 top-level elements of our strategy to drive long-term shareholder value: marketplace growth, TAM and product expansion and operating scale.

Let me begin with marketplace growth. Turning to Slide 5. We transacted 153,000 units in Q2, which was 74% growth year-over-year and 19% growth quarter-over-quarter. Due to the impact of COVID-19 on our Q2 2020 financial results, we included the comparison to Q2 2019, which, as you can see, was very strong at 174% growth.

As I mentioned earlier, our unit growth was driven by continued market share gains, as measured by the number of new dealers transacting on our marketplace and by increased wallet share from existing dealers. In fact, we added more sellers to our platform in the first half of 2021 than all of 2020. Unit growth also benefited from very strong customer conversion on our marketplace, which was driven by the low supply environment I spoke about earlier.

As expected, we did see conversion begin to normalize in July as market participants began to adjust to declining wholesale values. The record GMV transacted in Q2 was a tailwind for ARPU, reaching a new high. GMV per unit of 13,900 increased around 90% year-over-year, which reflects both higher vehicle values and an increased mix of frontline vehicles transacting on our marketplace. While elevated vehicle values are transient, a sustained mix of frontline vehicles on our marketplace could be a nice long-term tailwind for ARPU.

Moving on to Slide 6. We continue to make great progress towards our territory coverage goal of 160 by year-end. This will be about a 30% increase in our footprint since the beginning of the year, and will position us to engage with nearly all the franchise dealers in the U.S. We have continued to attract great talent across our organization with some pretty ambitious 2021 goals. To put this in perspective, we ended Q2 with nearly 1,700 ACV teammates, effectively doubling our size over the past 2 years.

Turning to Slide 7. One of our largest teams at ACV is our vehicle inspectors. This team has grown threefold over the past 2 years, supporting ACV's hyper growth while delivering highly differentiated services to our dealer network. And with increased territory density along with new technology investments, we're beginning to scale this business, which is a key element of driving long-term operating leverage in our model.

Moving on to Slide 8. You can see that our strong unit growth and increased ARPU yielded nearly 100% auction marketplace revenue growth and greater than 270% growth versus Q2 2019.

Turning to Slide 9. I'd like to highlight one of our offerings contributing to the strong unit growth, in this case, through consumer sourcing. You've been hearing a lot lately about direct consumer sourcing in automotive. ACV was an early mover in the category with our Live Appraisal offering. We enable our dealers to offer consumers an efficient and effective way to sell their vehicles in ACV's marketplace. We inspect these vehicles at dealer locations or in a consumer's driveway and deliver a real-time market-based offer based on what dealers are willing to pay. Live Appraisals has grown significantly in recent quarters. In Q2, year-over-year unit volume grew more than 150% and accounted for high single-digit percentage of our total volume. And we plan to expand our offerings to help our dealers compete for consumer-sourced inventories.

Let me pivot to our second element of our strategy, to drive long-term shareholder value, TAM and product expansion. Moving to Slide 11. I would like to highlight another future ACV launched that enables highly efficient vehicle sourcing for our dealers through programmatic buying. We have invested in 2 flavors of programmatic buying. Our buying API enables dealers to have their own technology platform or centralized buying centers to integrate into our real-time APIs to bid on vehicles on our marketplace based on their inventory wish list, all without human intervention. Our second offering currently in beta is our buying matrix, which enables dealers who don't have their own automatic bidding capabilities to create inventory wish list within ACV's user experience, including vehicle type, condition, pricing and location parameters to fill their inventory needs automatically. Marrying these programmatic buying capabilities with our nationwide inspection team enables us to offer both highly efficient and trusted experience, which we believe will deliver better results for our dealer partners.

Turning to Slide 12. I would like to remind you about how our marketplace, data and technology combine to power 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 silo effects continuously improve our digital marketplace and improve our data services for our customers. Ultimately, this drives greater liquidity, greater scale and greater efficiency, which is demonstrated in our attractive unit economics.

An exciting new addition to our data and technology capabilities is our acquisition of MAX Digital. Moving to Slide 13. I'd like to touch on some key points about the MAX digital acquisition. Core to ACV's mission is our ability to provide automotive dealers with technology platforms and solutions to compete in a market that is rapidly shifting to digital. MAX Digital is a leading provider of SaaS-based automotive data and software solutions that provides dealers with unparalleled capabilities to source and sell wholesale and retail vehicles. MAX Digital's pricing guidance, merchandising and inventory management products create data-driven insights that complement ACV's current data services, resulting in exciting growth synergies. These synergies include cross-selling MAX Digital's products into ACV's customer base and driving additional marketplace volume by arming dealers with tools to price and sell their wholesale and retail inventory more effectively. For example, ACV's pricing engine will be tied directly into MAX' tools, helping dealers more effectively buy and sell used vehicles. This is just one example of many exciting opportunities our teams are exploring, and we look forward to sharing updates going forward.

Moving to Slide 14. Let me wrap up this section with an update on our value-added services. We had an excellent quarter for both ACV Transportation and ACV Capital. Our transport business has expanded significantly over the past year and has been a key enabler of attracting new buyers to the platform. Our expanded carrier partner network and fast cycle times resulted in attach rates of around 45% in Q2, well above the mid-30s attach rates achieved in 2020. The number of transports more than doubled year-over-year to around 70,000 in Q2. ACV Capital, which is still in its early days, has been gaining a lot of momentum in the market. Attach rates approached the mid-single digits in Q2, with loan volume improving greater than 30% quarter-over-quarter. We also saw a material increase in revenue per loan following the launch of our new finance offerings in early June. It should be noted that ACV Transport and ACV Capital are tracking ahead of our milestones in achieving our long-term targets.

In summary, as it relates to our TAM and product expansion strategy, I think it's clear that we have created some exciting new avenues of long-term growth for ACV by leveraging our powerful data capabilities, expanding features across our technology platform and driving adoption across our growing suite of digital solutions.

With that, let me hand over to Bill to take you through our financial results and how we're driving growth at scale.

Thanks, George, and thank you, everyone, for joining us today. Q2 was a record quarter for ACV across many key financial metrics, and we made significant progress on our long-term strategic objectives. On Slide 16, I'll begin with a review of our second quarter results. We delivered very strong top and bottom line results with revenue of $97 million, which generated year-over-year growth of 117% and was well above the high end of our guidance range. Adjusted EBITDA loss of $4 million or 4% of revenue was nearly flat versus Q1 '20 and was also very favorable relative to our Q2 guidance. This performance was driven by our strong revenue results in the quarter and underscores the inherent operating leverage in our business model.

As expected, cost of revenue as a percentage of revenue increased year-over-year and was in line with our expectations. The year-over-year increase was driven primarily by the mix of ACV Transport revenue, which grew 10 percentage points year-over-year and exceeded our expectations. Total operating costs, excluding cost of revenue as a percentage of revenue, improved by approximately 1,100 basis points. And we delivered this improvement despite growing total operating costs, excluding cost of revenue by 76% year-over-year, once again highlighting the leverage in our business model.

Turning to Slide 17. I will cover 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 offerings and our value-added services making up the other half of revenue. We had very strong broad-based performance across our portfolio in Q2, most notably within our services business that has noted benefit from high transport attach rates. And in our auction marketplace business, which grew 98% year-over-year, profitability remained strong.

Moving to Slide 18. I would like to discuss the operating leverage in our business. Here, we're showing historical adjusted EBITDA margin along with our updated outlook for 2021. As discussed with you last quarter, 2021 is a year of significant investment for ACV. And as you've seen throughout our discussion today, we're delivering on territory expansion with nationwide coverage expected by year-end. We're launching a host of new offerings to drive additional market share and adoption of our value-added services, and we're investing in technology to scale our operations. These investments translate into a 66% year-over-year increase in our operating expenses, excluding cost of revenue. And despite this increase, our adjusted EBITDA margin is down just 400 basis points year-over-year, again highlighting the underlying operating leverage in our business model. Lastly, on operating leverage, note that we have absorbed MAX Digital's expense base without impacting 2021 OpEx guidance excluding cost of revenue.

Now I'll turn to guidance on Slide 19. For the third quarter of 2021, we are expecting revenue in the range of $82 million to $85 million, a growth rate of 22% to 26% year-over-year and an adjusted EBITDA loss in the range of $20 million to $22 million. As a reminder, Q3 '20 was a very strong quarter for ACV with the year-over-year revenue growth of 112% as our business recovered from the COVID-impacted second quarter of last year. As such, we've included the 2-year growth comparison, which yields approximately 160% growth relative to Q3 '19. For the full year 2021, we are expecting revenue in the range of $332 million to $338 million, a growth rate of 59% to 62% year-over-year and an increase of $25 million from our previous guidance. Adjusted EBITDA loss is now expected to improve by approximately $17 million to a range of $62 million to $65 million.

As George discussed earlier and consistent with our commentary from last quarter, we believe it's prudent to assume that the favorable market dynamics driving elevated conversion on our marketplace, higher unit prices and supply headwinds for dealers will continue to normalize in the back half of 2021.

And finally, on guidance, to my earlier point about our investment plans, we are expecting total operating expenses excluding cost of revenue to grow approximately 66% for the full year 2021.

To wrap up my comments, let me highlight our strong capital structure on Slide 20. We ended the second quarter with $664 million in cash and equivalents, $124 million of which reflects the float in our auction business. Note that we generated $27 million of cash flow from operations during the quarter due to an increase in the float of our marketplace since March 31, 2021. The amount of float on our balance sheet can fluctuate meaningfully driven by the business trends in the final 2 weeks of each quarter.

We ended Q2 with $500,000 of long-term debt associated with our ACV Capital business, down from $7 million in Q1. Given our strong cash position, we optimized our cost of capital by paying down the revolving credit facility and at current levels, self-funded the ACV capital business reducing interest expense.

And with that, let me turn it back to George.

Thanks, Phil. Before we take your questions, let me summarize. We are extremely pleased with our execution in the second quarter, which illustrates the momentum we're seeing in the market for our leading digital platform. We continue to gain market share by attracting new dealers to our marketplace and by growing wallet share within our existing customer base. We are executing on our territory expansion plans. We're launching exciting new offerings that further differentiate us in the market. And we strengthened our data services and digital platform with the acquisition of MAX Digital. 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 Instructions) Our first question comes from the line of Ali Faghri from Guggenheim.

So can you help me better understand the assumptions embedded in your second half outlook? In particular, I'm wondering about what type of volume growth in GMV per unit you're assuming in 3Q and 4Q?

Yes. Ali, it's Bill. So I guess a couple of thoughts first, right? Just kind of keep in mind first that full year guidance reflects about 60% revenue growth and that's substantially up from our initial modeling of the year at 40%. So pretty big upward revision there. That said, similar to what other companies in the automotive space have signaled, right, we're seeing a contraction in conversion rates due to pricing normalization that's happening as the market adjusts. And we've taken that into account in our guidance, okay? So we're effectively leaning a bit more conservative on organic growth in the second half until we see the market reach equilibrium.

I guess with that in mind, also a few other thoughts here. So keep in mind also that the second half of the year is seasonally weaker than the first half and Q2 is typically the strongest quarter, which, of course, was turbocharged as a result of the market dynamics in the quarter. That all said, right, we're going to continue to execute against the playbook we have in terms of adding sellers and buyers to the platform, expanding our footprint, right, on the go-to-market side, investing in tech with the thought that we're going to come out the other end of this market adjustment being that much stronger. So we did assume, obviously, that the market is adjusting and it's going to drive some of these metrics the other way in terms of conversion rates and ARPU.

Got it. That's helpful. And so just digging in further. I mean, is the expectation that volumes can still grow quarter-over-quarter in the back half?

So we don't really guide, Ali, to unit growth, right? I mean there's always puts and takes between units and ARPU, right? So we try to focus everybody in terms of what the revenue output will be. So we don't get to that level of fidelity typically, right? And again, it's going to be very much driven by market conditions. At the end of the day, we keep gaining market share. I think Q2 kind of reflected that really strongly in terms of adding sellers to the platform and buyers. So at the end of the day, we're going to keep doing the same thing. And then however this plays out, it's in part going to be dictated about how the market adjusts this quarter.

Great. Great. That's helpful, Bill. And then just one more quickly. On your comments about conversion starting to normalize here as used car prices also start to normalize. Shouldn't that also drive just more trade-in supply making its way to auction. So one thing we had heard about is with new car supply constrained a lot of dealers were just keeping a lot of these trade-ins to sell at retail versus potentially wholesaling them. And so while used car prices moderating could have a negative impact on conversion rates, couldn't it help just the overall supply of cars that are being sent to wholesale auction?

Ali, it's George. I hope you're well, and thanks for that question. We -- right now, we are being prudent, and we're assuming that based on what we're hearing from dealers that inventory is going to stay very short for Q3. We also -- as you mentioned, you heard in the call, we said Q3 and Q4 could be sort of leveling out. And I think so going into 2022, this will all be noise, right, from our perspective. And well, I think right now, what we're assuming is dealers are going to still be in the same predicament.

And in summary, even assuming right now in Q3, it actually might be the toughest, I would say, phase of this lack of inventory. So I think, Ali, that's really at least how we're thinking about the forecast right now and the lack of inventory. And to your point, does that mean dealers may be keeping cars that they would have historically wholesaled, I think yes, I think that's already happening. We have to assume that for now. Fast forward, as these new cars come back, as the factories start to correct whatever issues, there'll be chips or other constraints they have, our new car dealers will have more cars, they'll go back to selling the cars that their brand is -- really aims to be selling and (inaudible) impact to be wholesaling the types of vehicles that historically they have wholesaled. Is that helpful, just to give you a little bit of that color?

It is very helpful.

Our next question comes from the line of Nat Schindler from Bank of America.

So one, is there any revenue associated in the second half with MAX Digital?

Nat, it's Bill. So there is, but it's not material, Nat. So we haven't broken it out. It's a relatively small business. But we -- it's just not material enough for us to break out.

Totally understand. So -- and I get your answer from the last question about being conservative on the change to what's going on in the market on the pricing side. Wouldn't that -- the problem in the market is a lack of supply, which is driving the price up because there was a demand added to the equation with -- for used cars. So wouldn't, if the pricing starts to normalize, we get more supply? Are you taking any indication that supply is going to come back? In which case, is that overly conservative?

Nat, well, again, thank you. Overly conservative, I don't know. But we're -- when you look at the correction that's happening is the prices start to decline really sort of 2/3 into the quarter, right? We started to see used car values decline. So that's one trend happening. So that's something we're being conservative around, it started to happen. So therefore GMV and other factors will also imply -- lower GMV, okay? So that is a fact. The other fact is dealers are getting to historical lows right now on inventory. How quickly that's going to change. You're seeing a lot of folks in the automotive market predict.

We didn't want to predict really anything more than sort of we felt that we can control. So we're predicting, to your point, as we're modeling, that our new car dealers, which is where the majority of our supply comes from are going to have a low amount of supply, and therefore, a low amount of trades. So we -- that is sort of what we're predicting. That is sort of what we're hearing from our new car dealers. There are many factors going on. But yes, so we are predicting both. Is that helpful? Or are you looking for -- Bill, would you like to add to that?

Yes. Nat, let me add one more piece to the puzzle here, just to be clear. So when prices are declining, okay, there is basically lower conversion rates on the marketplace, right, because buyers are more hesitant to commit, right, to these prices with the exposure that by time they sell the car, the price might be even lower, right? And it takes time for sellers to adjust to the new reality in terms of what their inventory is worth, right? So what it does -- it kind of has the opposite effect of what's happened in Q2 -- or happen in Q2 when prices go up. right? Because there's a lot of -- very high conversion because buyers know they're going to flip that car and probably sell it for more than they even thought because prices are going up. When prices are going down, you have the opposite effect, right? Until you get to this normalization in equilibrium where it's kind of a more of a normal marketplace. So while it's adjusting, your conversion rates go down. And I think that's consistent with what you would hear from other players in the industry.

That makes perfect sense, but I was also wondering if on the other side, when the Manheim Index was approaching 2 or going north of 2 and pricing was going crazy, I would think that dealers would just simply not sell their car into the auction because the longer they keep the car on the lot, the more valuable it was.

Yes. Nat, we had a great quarter. We're gaining a lot of sellers. We also mentioned that we had more net new sellers this year added this first half of the year than we did all of last year. So we're gaining interest on the platform. These other trends are important. Obviously, we're all looking at these quarter-to-quarter trends. We are just trying to -- as you know our style, we're always prudent. Here, we do believe there is going to be -- dealers are going to have a lack of inventory this quarter. And so how do we forecast is obviously what you see.

Our next question comes from the line of John Colantuoni from Jefferies.

It's good to see the faster-than-expected progress in penetration rates for ACV Transportation and Capital. Talk about if there was any benefit to adoption from the unique inventory environment that we saw. And if you'd consider the increased engagement to be sticky once the inventory cycle begins to normalize in the second half? And I have a follow-up.

Okay. Why don't we look at Transportation first? I think one of the reasons why Transportation adoption increased is the -- we are getting better. So when you think about pricing your lanes, just to kind of give one example, we're now to a point where for 20% of the moves in Transportation, we have a programmatic way not leaving -- not needing our ACV Transportation load board to have a price from a carrier. And what does that mean? That means that because we're starting to invest in technology, we're starting to invest in our network, we're able to really optimize our lane pricing for transport. It allows us to have predictability. And the more we invest both in our technology for transport and we invest in our network of carriers, it allows us to get stronger as the price (inaudible) appropriately. And ultimately, if we've got the right pricing, the right service for our dealer partners, they're going to choose ACV Transportation. So I'd say very proud of what we've done with ACV Transportation.

In addition, I would say there's also just more density, right? So density and scale, obviously, also helps in getting better pricing from our carriers. And ACV Capital, we did announce that we had some product mix additions recently. We are listening to our dealer partners. It's also the first time we're just now starting to market our product in our app. So I think this was an early product we mentioned during the IPO. We mentioned words in the IPO process that was nascent at the time. We're just starting to market the product. We're just starting to add additional SaaS, but really with both initiatives, we're investing in technology. We're investing in great people, we're absolutely excited about the progress. And the progress is at or exceeding, in both cases, what we set out to do this year.

Great. That's helpful. And now that you've developed capabilities behind consumer sourcing, which you mentioned in the prepared remarks, could you, at some point, start to leverage the connection you've now made between dealerships and consumers to become an online marketplace or platform for dealerships to begin selling retail-ready cars to consumers?

Thanks, John. As of right now, we're not yet planning or broadcasting to help helping dealers sell cars to consumers beyond our tools. So for example, within the MAX Digital products, we have the industry-leading way to merchandise car by car and some of the largest dealer groups in the country use this platform. And these are data tools that helps really market this one specific Ford 150 and exactly why this Ford 150 should be priced at $35,000 and has all this value. So we've got these unbelievable tools that now help dealers enrich their data, enrich their experience.

As of right now on the -- I would say, as it relates to e-commerce, that's at least for today at all of our broadcasting and helping dealers, where you are seeing us lean in and start to open up a little bit more on our strategy is dealers buying cars from consumers and dealers taking in trades and competing in this digital world. You're in a CSP -- and we mentioned this on our IPO that this will be coming. We're starting to lean in there. We do think peer to peer will shrink over the coming years. We think dealers are very well positioned to buy these cars from consumers. And we're here to help dealers compete sort of in this digital world of helping them take more of these cars, whether they're going to take them as a trade or whether they're going to turn around and wholesale it, we're here to help dealers.

Our next question comes from the line of Ron Josey from JMP Securities.

Lots to unpack here, another great quarter. But I wanted to maybe follow up on that call and that question just now on ACV Capital. And George, you mentioned Capital is now available on the app and that drove awareness and probably getting to mid-single-digit attach rates. Can you talk a little bit more just about how you plan to ramp awareness besides just putting in the app? Talk about the drivers here to ramp awareness. And really where do you think this can get to over time from that what we say mid-single-digit attach rates from low single digits prior? Do you think this gets to mid-single digits? Talk to us a little bit more about the strategy with Capital. And I have a quick follow-up.

Certainly. We are, right now, currently doubling the size of the sales team. It's all in the model, right? We now felt comfortable and ready it was time to increase the specific sales team. If you think about when ACV starts to have these, let's call them, product sales teams, the product sales teams leverage the leads and relationship from the other account managers. So we're already on the phone with thousands and thousands of dealers a month. And these specialized teams, whether it be ACV Capital or MAX Digital, et cetera, these teams now are leveraging the fact that we have these relationships. We are doubling the size of ACV-dedicated product sales team. We're really excited about that. Our expectations are in line with what we -- for your second question, our expectations are in line with what we outlined in our -- while we're in the road show, Bill, you want to give a little bit more of our expectations where ACV Capital should be in the next handful of years.

Yes. Ron. So yes, if you remember, on the roadshow, we talked about really getting to a 20% attach rate over 5 years, right? So I would say we're making really good progress this year. We'll most likely kind of update you and investors on that kind of longer-term path and whether or not we're getting there faster. We're certainly getting to our milestones a lot quicker on the transport side. But we're really happy with the progress that we're making on Capital. And by the way, we're also not just investing in sales. We're investing on the tech side as well, right? So we're dedicating more resources to just continue to make our offering more compelling and competitive in the marketplace.

So yes, I would just -- what I would just say at this point is we're making great progress. We're going to be looking at most likely in the order of 4x prior year revenue from Capital. Granted, it was small last year, but over the next few years, it will certainly become more meaningful. And look, whether we'll get there faster than 5 years, I don't want to comment at this point. I would just say that we're making really great progress. And obviously, as you and the other investors know, this is a very high-margin business for us. So it will be accretive to margins over time.

Perfect. That's super helpful. And then one quick follow-up. I think, George, you mentioned you added more, I think, dealers on the network in the first half than all of last year. As we get to normalization in the market, whenever that is, maybe in the first half of next year or the first quarter, just talk about if you think that it will be easier to add sellers then? Or is the environment going to be the same in terms of adding sellers? And I think you also said vehicle inspectors were up 3x in the last 3 years. So you're seeing progress of feet on the street. So just talk to us about adding more sellers as things normalize and whether it might get easier or not?

Yes, certainly. So it seems obviously between our brand increasing, our network increasing, territory managers getting out into the field, it could be also going public. And all these factors, right, the ACV brand is out there. We're growing sellers in a very successful way. So we're very excited. Maybe a way to answer your question instead of will it grow even faster next year, is our mix is also changing. So we think about selection of assets on the ACV platform. You're also -- you're noticing our GMV has gone up. And really some part of that is, yes, vehicle costs right now are higher. But part of this is the mix and selection has increased.

So I think we will get, we think, a broader selection of vehicles as we grow. So that would be part of the trend we think can happen going into next year. Our product mix is growing. So as we're adding on new dealers, and we're successful from growing sort of from one product to multiple products. You've heard me talk about in a prior call of private marketplace, as an example. We've been adding, just as an example, about one dealer group a week coming on to the private marketplace, which has been exciting.

So think, yes, we'll keep adding more and more sellers. I don't want to predict it growing even faster at this point, but really excited about what's going on here. And so far, the momentum and the scale is helping. And I believe the product mix is also helping. So when you look at this sort of broad strategy we've outlined to you a few months ago, is we're both a marketplace and data story. You're seeing that become true, right? We didn't say we're just a marketplace company. We had this vision, we're executing on this vision. And you can see us very focused on executing on both sides, marketplace and data. And I think it's in that mix we add tremendous value back to our dealer partners, and when you add tremendous value to your dealer partners, it only helps the retention, it helps us to grow more what they're considering to do with ACV. Hopefully, that's helpful.

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

This is Stefanos Crist calling in for Bob. Congrats on the quarter. So you discussed your goal of expansion to 160 territories. Can you discuss the tight labor market and how, if at all, it's impacting your ability to fill those?

Sure. First of all, on the territory manager side, we are slightly ahead of schedule. So we are on plan. We will come back over the next few quarters, and I'm very confident to say we'll have reached sort of full coverage sort of coast to coast that we have the territory managers out there in the field to reach out to all the franchise dealers from a supply perspective and these other products.

The other part I would say maybe also related to your labor question is writing vehicle condition inspectors. We were just looking at some data earlier on this. And this is helpful to be and we'd love to share is, right now, our average time from posting a vehicle condition inspector teammate to -- and this is average, obviously, some higher, some lower, but the average from posting a VCI teammate to selecting one is 16 days. That's average. And it's about a month from start day, meaning when they start being trained to be an inspector teammate.

So that's pretty strong. right? So when you think about that, there's a lot going on in this world right now. And I don't want to underestimate or under signal, yes, I would say labor challenges are a challenge, I think, for all companies these days. But I would say those 2 rolls out in the field right now, we're executing our goals, and it's going well.

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

A lot of questions around that conversion in the second half. But just had a bit of a longer-term question. Did the second quarter market dynamics accelerate the value of your offering? Or did it allow you to penetrate into more customers than you would have previously thought maybe at the time of the IPO? And if yes, that is the case, do you expect those customers to be sticky? And would that then imply that versus March versus today, moving away from the near-term dynamics on the market, like say, 2022, 2023, does that automatically imply more units just because you were able to accelerate your customer base in the second quarter? Just any color around that would be helpful. I'm not sure if my question was super clear, but I can go over again.

Sure. First, thank you. Thank you for the questions. And let me try to answer that. I think there's a few questions within that. So I would say we accomplished our goals for the first half. As you know, we've been at this now for a little over 5 years. We've got a model. We go out there executing our model and I would generally say bringing on sellers in the first half we were very successful.

I would say the part that's different is most sellers have less inventory than in prior, let's say, last year, let's say, in 2019, okay? So part of what's been going on, and this is in -- it's in the mix already. There might have been a dealer partner who had 220 cars they wholesaled with us. They might only have 150, 160, whether they're keeping them or whether they say they just don't have enough, whether they say they have less overall retail. Whatever those reasons. You're really have seen a signal -- I would read into this less about, I would say, keeping, more about dealers have less cars.

And we hear this every day. Dealers will reinforce I'm giving you all my wholesale and more and more of them signaling that we're getting a lot of their vehicles. But it is going to be -- there are going to be some these dynamics that are short term right now. We all read about it every single day. And that's really all we're really broadcasting there as it relates to the supply as we think dealers will have less cars in their lots, but which also means less retail and likely less conversions to wholesale.

As it relates to the stickiness, I don't have any data to really sort of give you on stickiness or attention, but I will say that we believe our strategy is working extremely well. We believe this idea of not only being a great marketplace but having this end-to-end platform of services is going extremely well. We believe offering more and more capabilities, investing in these partnerships, these dealer partners is going well. Investing our team is going well. So I would say no -- really no change on our belief of how any of these market dynamics are going to change retention.

I think the other part or maybe the third part of your question would be could it accelerate our growth even more? And I don't know how to answer that. Bill, I don't know if you want to answer it. But I think at the end of the day, we're growing extremely well. And all these dynamics could mean accelerated growth. But obviously, we can't speak to that.

Yes. I mean what I would add is that, look, we've been -- as George said, we've been really successful in adding a lot of sellers on the platform. And obviously, they've had a chance to see how we perform as a marketplace, right? And the mix has changed as well. So we're more broad-based, at least right now to the extent we come out the other end of this adjustment in the market. And those sellers feel good about the value add from ACV, then we should benefit, right? Whether it's more accelerated than would have been prior, I mean it's kind of hard to say. All we could say is we feel really good about our penetration and market share gains.

Our next question comes from the line of Alex Potter from Piper Sandler.

Great. Great quarter, guys. So I wanted to go back to a question that was asked earlier about how -- I mean, obviously, there's limited supply and prices are high. So all else equal, the dealers, if they can, should just sell the inventory they have to retail and not go to wholesale and your response was we just put up a great quarter, which is obviously, I think, indisputable at this point. But generally, market-wide, that dynamic is accurate, right? There's been a disincentive to push vehicles to wholesale, which implies that you guys are basically just running away with the market, and I don't think that's a secret anymore. So the question that I have is, do you experience a change in the competitive response of some of these other platforms when you're out talking to dealers trying to pitch yourself as a partner. Do you find yourself pitching yourself against digital platforms more often than you used to? That's my only question.

Yes. Thanks, Alex. We're -- if you remember, we had -- and I hate these names, but one of the large auction companies had a digital company right away. So when we started this journey, there was already a digital competitor. So I would say this entire time, there's been digital competitors and there's been physical competitors. If you look -- in fairness, when you look at the, let's call it, 8 million to 9 million cars that were sold at physical auction last year. And we're very proud of the number of cars we sold. When you look at it from a percentage basis, we're still small. We're growing. But I think the majority -- I think if you added up most of the digital -- other digital competitors collectively, they, I believe, would still just be a fraction of our size.

So I think the majority of the competition of where these vehicles are going is still the physical auctions, is all I'm really trying to paint for you. And yes, there are other digital companies. But this whole category should grow. And again, we believe we're the leader and we'll remain the leader in the category. But still the majority of the cars have been going through, let's say, the physical auction lanes, and we've got some room to grow this category. I think the broadening of our services, and you're seeing now with broader mix different types of vehicles, we started the journey with just the lower-priced vehicles. That typical $3,000 to $5,000 car to the dealer with a 120,000 miles on it, a dealer would never want to retail, a franchise would never want to retail. We're still getting a lot of those units. But you're seeing the type of inventory on ACV grow, which is fantastic because we're really becoming a broader marketplace. Sellers are becoming buyers. Buyers are becoming sellers. It's in that mix and then offer these other data services that we believe we can really -- not only become the dominant in marketplace in time but add more value to our dealer partners.

Our next question comes from the line of Nick Bacchus from Raymond James.

Congrats on a great quarter. Just on cohort behavior. Maybe you could just talk about any learnings or changes in dealer behavior in your newer cohorts, newer territories in terms of number of vehicles transacted per dealer. Or any other important metrics you look at versus past cohorts in the earlier stages.

Yes. Nick, we really aren't sharing any cohort data, but just so I can share something. What I'll share with you is how we're going into these new markets has starting to broaden. We're looking at -- one of the themes we're looking at because right now, we're just getting into markets within the Northwest, and we're just opening up some of the markets on the West Coast. How we're going in, we're looking at, for example, there was dealers for the first time ever being introduced ACV through our private marketplace because they're part of a dealer group. That would be different.

We wouldn't have had that entry. We'd had to wait until we got that first seller or that first buyer, if that makes sense. So our broader product selection will be helpful. The first time you're sort of hearing about ACV may not be the day we hire our territory managers, they go through training and we go out to the market. So I would say that part will start to be different. That's a new theme, I would just say, over the last 60 days or so. But that would be like the newest thing. I think there's something else, Bill, we can share from a cohort basis because we...

Not really.

Hopefully, that's helpful, Nick.

Got it. And then just real quick on the programmatic buying. Just maybe just a little bit more about this new offering and the launch in fourth quarter. Do you view this as a meaningful kind of incremental driver? Or is it more of a complementary type feature.

Sure. So there's 2 parts of our programmatic buying product strategies. The first part is live. And we've got some dealers who are already integrated with ACV. The dealers who integrate with us for our buying API tend to be larger dealer type groups, they have a technology department and can -- and have, let's call it, the internal technical resources to integrate with our API. So that product is live, and we're starting to integrate with additional dealer groups. What that product allows is a large dealer who has the technical capacity will automatically be putting bids on ACV without any human intervention. And not only picking the types of vehicles, but in addition to types of vehicles, its condition and other factors.

So think basically what a human would do in picking inventory. We're ingesting our condition report into the buying process so that their machines and our machines can help them at the end of the day by the vehicle. So that's live and we're very excited to get that live. We were working on this part of our platform for a while, and we're so happy to get some dealer partners now using it. And the feedback has been tremendous. It's still early days, but we're actually seeing, for example, arbitration rates being lower than our averages for dealers buying without having any human intervention, which is just awesome. So that's product one. That's the buying API. And I believe -- I'm not sure that I believe we're the first in the industry to do programmatic buying via an API, at least as far as I know.

The second is we've started to build a buying matrix approach where dealers can, via interface, select the types of vehicles they'd like to buy as well as condition. And so it's basically emulating what our API does, but it's an interface for the dealers that don't have the engineering team to integrate with us, right? So we're going to have both options. So I think whether they have an engineering team and ability to integrate or if they are going to use our user experience. At the end of the day, they do the same thing. That product is in beta, that one is not live. We only have a few dealers using it today. Because I'm getting such positive feedback, I felt why not announce it.

I usually wait till products are fully live, but the feedback we're getting is tremendous so far. So we'll be looking to launch that. And really, what does it do to your second part of your question is it adds a persistent demand into the platform for the vehicle segment that we have, where -- whether it be one of our API buyers or one of our -- the preferences on the buyer matrix, we have this persistent demand. And persistent demand is helpful. And think about persistent demand plus the ACV marketplace demand, the 2 together is extremely unique. Because for some vehicle types, you really want an auction format, and you really want that competitive bids. And these -- the API and our buying matrix actually it's not just a separate thing. It actually delivers results into our 20-minute auction. So yes, we're -- as you probably can tell, we're very excited about that. I can't wait to roll this out even further.

Our next question comes from the line of Daniel Imbro from Stephens Inc.

I have got a question just on how the industry should change as supply/demand normalizes. Maybe first, so as conversion rates begin to tick down and it takes longer to sell the vehicle, does the capability of having land help you or hurt you win share? I mean obviously, dealers right now have plenty of excess capacity. But as lots begin to fill up, are you seeing more dealers ask you to start moving inventory off their lots? And if so, Bill, can you talk about your ability to flex your land capacity through their partnerships or buying land to service that demand?

Yes. Certainly, so we'll -- I'll go through both of those for you. So it doesn't seem like, at least this year, land will be much of a problem for franchise dealers. I don't know if you've driven by any lately, but there aren't many cars in these lots. So I would say digital, I believe, this is my opinion, is an advantage because at least you can try to sell it wholesale, while it's still on your lot. You can debate between wholesale and retail. So I believe upstream and digital for this environment is beneficial, not a detriment. And I don't believe land. If maybe historically, let's say, 10% to 15% of dealers historically had a land challenge as it relates to wholesale, whatever the right percentage is, you can guess 10%, 15% or 20% of dealers had land challenges. Right now, it's an even lesser percentage.

The second part of your question is if we needed land, there's a lot of land out there in this country. So we're not worried about if we ever need land. There's -- it's noise. We have a few, very few lot sweeps going on in small parts of the country that we don't usually broadcast. If we really need it, we would just stand it up. The land is generally cheaper these days. And it's really just not a problem. If we need it, we can just go and rent it from somebody we need it for. But right now, it's by far not even in the top 3 things that are usually come up is like why they would go with us or not go with us. Land is not even in the top 3 at this point.

Great. That's helpful. And then one just following up. I think earlier you mentioned helping dealers maybe source directly from consumers. Can you talk a little bit more about that service, how differentiated it is maybe from some of your other peers offer? And then longer term, as you help dealers source inventory maybe outside the auction channel, how do you balance that longer-term risk to them finding ways to buy outside of your digital auctions and maybe directly from consumers. Just how you balance that long-term impact?

Yes, certainly. So our dealer partners right now look at it for our current products. One of our current products is called Live Appraisal. So what does that mean? That means our dealer markets to their consumers that they will pay more for the cars than those who aren't using our Live Appraisal. Some might use ACV's brand in their marketing. Some may not use our brand. It's really up to them whether or not they're going to use our brand. But the marketing would say something like this. Why have a local dealer or a national dealer give you a price in your car when you can have one of the largest digital auction where having dealers across the country bid on your car, get transparency, know what your car is worth, things like that.

So our dealers are marketing to consumers that they're going to pay more because they've partnered with ACV basically. Now that might be an event on the dealer's lot where there's like a 10 and imagine like coffee and like you go there and it's like an event or it might be us going to a consumer's driveway and actually doing a 20-minute inspection and a 20-minute auction. So that was sort of -- think about -- that's our first product. And our dealers are enjoying this product because there's differentiation. They're not just -- everyone is going to say, we're going to pay the most for your car, right? It's almost going to become noise. I'm going to pay the most of your car. You're going to pay the most for the car. Just kind of like why, how, right?

So at least they've got something to market and our dealer partners, that's expanded quite a bit this year. We mentioned earlier how much Live Appraisal has grown. In addition, you're seeing us build tech and data and pricing capabilities that will help our dealers sort of compete more and more. We're alluding to that. The MAX products will help because they're behind the scenes doing appraisals even when it doesn't go to currently our marketplace. There's additional products we're alluding to, that will be coming as part of our product road map that will help dealers compete for consumer cars. So we love the category. We think our dealer partners are very well positioned to buy more cars from consumers. And you could sort of think about ACV's roles for the Shopify type of role for all these dealer partners. They need someone that has the scale, the nation's largest inspection network, the technology, the data and that's what we provide for our dealer partners.

At this time, I'm showing no further questions. I would like to turn the call back over to Tim Fox for closing remarks.

Great. Thanks, and thank you, everybody, for joining the call today. So we're going to be on the road virtually participating in a couple of conferences coming up here. I'll be at the Canaccord Genuity Conference tomorrow. All the web -- details are on our website. So we look forward to seeing you all in the conference circuit in the coming months. And again, thank you for your interest in ACV. I hope you have a great evening.

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