ACV Auctions Inc (NASDAQ:ACVA)
Q2 2021 Earnings Call
Aug 11, 2021, 5:00 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the ACV First Quarter 2021 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions.
I would now like to turn the call over to Tim Fox, ACV’s Vice President of Investor Relations. Please go ahead.
Tim Fox — Vice President of Investor Relations
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. The discussion of the risks and uncertainties related to our business is contained in our quarterly report on Form 10-Q for the three 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.
George Chamoun — Chief Executive Officer
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 for 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 perspective 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 a 117% year-over-year growth.
Our strong top line performance can be attributed to three factors. First, we continue 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 continue 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 tip 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 is an emerging view at the third quarter or perhaps fourth quarter could be the low 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 trading 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 three 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 a 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 in our Q2 2020 financial results, we included 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 and 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 front line vehicles transacting on our marketplace. While elevated vehicle values are transient, a sustained mix of front line vehicles on our marketplace could be a nice long term tailwind for ARPU.
Moving on to slide 6, we continue to make great progress toward our territory coverage goal on the 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 US. 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 two years.
Turning to slide 7. One of our largest teams at ACV is our vehicle inspectors. This team has grown threefold over the past two 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 a 100% auction marketplace revenue growth and greater than 270% growth versus Q2 2019….