ACVA - NASDAQ

Good day and thank you for standing by. Welcome to the ACV Fourth Quarter and Full-Year Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker for today, Tim Fox. Please go ahead.

Good afternoon and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2023 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are pleased with our fourth quarter performance, which capped off another strong year of execution by the ACV team. We delivered 21% revenue growth in Q4 and adjusted EBITDA have once again exceeded our guidance. For the full year, revenue grew 14%. We gained market share and exited the year with over 28,000 dealer partners buying and selling on our marketplace. We launched new innovations that expanded our competitive moat and drove operating efficiencies, resulting in approximately 70% year-over-year improvement in adjusted EBITDA. Along with our continued momentum in dealer wholesale, we expanded our TAM with the launch of ACV's consumer sourcing solution, ClearCar, and by building the foundation for our commercial wholesale strategy. We are pleased to announce that our expansion into commercial wholesale will benefit from securing access to the AutoIMS software platform and also by growing our remarketing center footprint. More on our commercial efforts later in the call. As we turn to 2024, ACV is focused on accelerating top line growth, continued margin expansion, and achieving an important milestone with adjusted EBITDA profitability in 2024. We're confident that executing on this profitable growth strategy will result in creating long-term shareholder value. With that, let's turn to a brief recap of fourth quarter and full year 2023 results on slide four. Fourth quarter revenue of $118 million was in line with guidance and grew 21% year-over-year. GMV increased 6% year-over-year despite a 9% decrease in GMV per unit as wholesale prices continued to normalize. We sold 144,000 vehicles on our marketplace, growth of 15% year-over-year, reflecting solid listings growth and improved conversion rates. For the full year, revenue of $481 million increased 14% as unit growth rebounded year-over-year, along with strong attach rates for ACV Transport and ACV Capital. GMV for the year declined modestly to $8.8 billion due to a 10% decrease in GMV per unit, largely offset by a 10% increase in unit growth to just under 600,000 units. On slide five, I will again frame the rest of today's discussion around the three pillars of our strategy to maximize long-term shareholder value; growth, innovation, and scale. I'll begin with growth. Turning to slide seven, I'll share our observations about automotive market trends as context for dealer wholesale volumes in 2023. New retail sales increased 8% year-over-year, recovering from a 10-year low in 2022. While volumes continue to lag 2019 levels, inventories improved and OEM incentives increased. These are key factors in supporting a recovery in retail sales, trades, and therefore dealer wholesale supply. The used retail environment was a different story. Units declined 1% year-over-year in 2023, down from what was also a 10-year low in 2022 as affordability issues continued to pressure consumer demand. In terms of vehicle sourcing, dealers continued to retain a higher-than-normal percentage of trades for retail inventory, creating a headwind for dealer wholesale supply. The trade-to-wholesale mix is expected to normalize over time as new and used inventory recovers from depressed levels, which are currently about 30% below normal. While the supply picture remains muted, on a positive note, price depreciation and conversion rates across the industry recovered in 2023 following very challenging operating conditions in 2022. On balance, we believe that end markets are showing early signs of improvement and while the shape of the dealer wholesale recovery is difficult to predict at this stage in the cycle, we do believe the market will post modest growth in 2024. Moving to slide eight. After declining 20% in 2022, we estimate that the dealer wholesale market declined 7% in 2023. As new retail sales recovered from depressed levels year-over-year, given our 10% unit growth, this implies 17% market share growth for ACV, which is in line with our midterm target model. As I mentioned earlier, while there are cross currents still impacting the broader automotive market, we continue to believe that 2023 will be the trough for the dealer wholesale market. Next, I would like to provide highlights on our value-added services. First on slide nine, the ACV Transportation team delivered very strong results in 2023. Attached rates for the year were in the mid-50% range, in line with our midterm target model and our carrier network delivered over 325,000 vehicles. Our tech investments yielded a greater than 20% improvement in cycle times, which is a key element of ACV's value proposition for our dealer partners. AI-optimized pricing, which we introduced in early 2023, expanded significantly during the year and we achieved 90% lane coverage in Q4. By leveraging AI, our Transport team drove growth and operating efficiency, resulting in a 900 basis point year-over-year increase in revenue margin, reaching the high-teens. As a reminder, our midterm target model assumes Transport revenue margins in the high-teens. While margins may fluctuate modestly over time, the fact that we already achieved our target speaks to the value we're delivering to our dealer partners and our strong execution. Turning to slide 10. Our ACV Capital team also delivered very strong results in 2023. Attach rates in the low double digits resulted in 50% loan volume growth year-over-year, and combined with strong ARPU expansion, resulted in over 80% revenue growth year-over-year. We are continuing to invest in new ACV Capital capabilities, including bundled offerings with ClearCar, and we remain confident that ACV Capital will be an important long-term growth and profit driver. Next, I would like to wrap up the growth section by updating our progress on penetrating adjacent markets to provide ACV with additional growth levers. On slide 11, I'll begin with ClearCar, ACV's consumer sourcing solution that leverages AI and real-time market data to deliver highly accurate condition based pricing. As a reminder, the consumer peer-to-peer market is large with about 10 million vehicles transacting each year outside the dealership ecosystem. Given ongoing inventory challenges facing our dealer partners, the peer-to-peer market is an attractive vehicle sourcing opportunity. ACV is addressing this challenge with ClearCar. Adoption has been impressive with about 600 dealer rooftops live today, and we have a robust pipeline of new prospects. Based on dealer feedback, lead generation and conversion rates are significantly higher than competitive sourcing tools. This speaks to the power of ClearCar in driving qualified leads and ultimately increasing overall dealer supply. We are excited about the momentum for this value-added solution, which adds another growth lever to our business. Next on slide 12, I am pleased to highlight some exciting news related to our commercial wholesale strategy. At our Analyst Day last June, we shared our rational for expanding into commercial wholesale, while we believe ACV is well-positioned to capture commercial market share and the investments required to service commercial consignors, and it turns out our timing could not have been better. Commercial volumes in the rental, repo, and fleet categories are recovering at a strong pace. While off-lease will take a few years to normalize, the overall commercial opportunity is very attractive. We believe that ACV is uniquely positioned to address this market with our deep data moat and vibrant marketplaces, along with a growing nationwide buyer base looking to secure commercial inventory. And we've expanded our remarketing center footprint with a recent acquisition of a Texas-based auction group that provides additional locations for vehicle storage and light reconditioning to service commercial vehicles. Lastly, we are thrilled to announce that ACV has secured licensing to AutoIMS. This technology platform connects wholesale auctions to nearly all 1,300 commercial consignors in the U.S. Our agreement enables ACV to deploy AutoIMS in a way that supports our remarketing centers and our digital-focused business model, which will be an industry's first capability. To wrap up on growth, we continue to execute on our playbook to capture dealer wholesale market share. Our Transport and Capital offerings are gaining significant traction and we are well-positioned to expand our TAM by executing on our consumer sourcing and commercial market expansion. Turning to the second element of our strategy to drive long-term shareholder value, innovation. On slide 14, I will first recap some of our growth-oriented product innovation. Let me begin with the dealer buying experience. We leaned in with tech to increase conversion rates by launching new auction formats, an improved user interface, better inventory notifications, and enhanced pricing data. Our private marketplace solutions experienced strong traction with some of the largest dealer groups in the country, enabling dealers to both easily auction inventory within their network and leverage ACV's open marketplace. We launched new capabilities in our advanced buyer solution, S.A.M., which enhances the buying experience through intelligent notifications and auto-bidding capabilities. And as I discussed earlier, our ClearCar solution is gaining significant market traction and our Transport team is leveraging AI to drive growth and operating efficiency. On slide 15, we highlight examples of tech investments that extend into our operations, delivering customer success, while reducing costs. One of the key drivers is inspection accuracy. Just as a reminder, each vehicle is unique with its own imperfections. We believe AI and our structured data is a massive competitive advantage. Our field team is equipped with technology such as CoPilot, ArbGuard, Apex, and our AI-powered imaging apps to deliver high-quality inspections. CoPilot and ArbGuard leverage machine learning, predictive analytics, and sensor data to inform our VCIs on vehicle-specific issues before and after conducting an inspection. This is an industry-first. Apex delivers significant transparency into vehicle operating conditions, while also increasing the inspection productivity of our VCI team. Dealers often observe that you can't smell a car over the internet. This is no longer true thanks to Apex, with smell being one of the many sensors it enables, and we continue to expand our AI imaging capabilities to identify specific important conditions like the presence of damage and rust. Together, these innovations contributed to a 10% reduction in customer assurance costs in 2023, incredible performance in the current market. Next, I'd like to share some of the key focus areas of our tech roadmap for 2024 on slide 16. First, we plan to continue driving increased conversion rates by further tailoring the dealer experience on our marketplace. What was MAX Digital is now ACV MAX. This is more than a name change. We integrated ACV's proprietary data moat from our million annual inspections to enable dealers to make smarter sourcing decisions. We introduced cutting-edge recon alerts by leveraging ArbGuard and built a seamless integration with ClearCar to help dealers source more vehicles from consumers. Dealers now have a way to elevate their brand by becoming more consistent at all their stores, ultimately enabling them to source more inventory and drive gross profits. Given the strong adoption of ACV Transport in our marketplace, we are extending these services to vehicles transacted off-platform, enabling our dealer partners to further leverage our best-in-class Transport services. We recently implemented a loan management system to support our growing ACV Capital business, which enables us to offer a broader set of finance offerings and drive scale across the platform. For example, expanding our finance to dealers looking to source consumer vehicles. To accelerate our commercial strategy, we'll be focused on integrating our remarketing centers with ACV's digital marketplace to create a range of cross-sell and upsell opportunities. We are well underway selling vehicles from our remarketing centers on ACV's marketplace. Lastly, we are planning to leverage our industry-leading inspection technology to create dealer self-inspection solutions for two use cases, private marketplaces and live appraisal. These are examples of dealers directly using ACV's inspection and auction capabilities. To wrap up on innovation, ACV remains committed to delivering industry-leading technology to our dealer partners and to our own operations, driving both growth and scale. And we look forward to sharing more details with you next quarter. With that, let me hand it 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. We are very pleased with our Q4 and 2023 financial performance. Along with delivering accelerating revenue growth in the back half of the year, we had meaningful revenue margin and adjusted EBITDA margin expansion, which demonstrated the strength of our business model. Turning to slide 18, I'll begin with a recap of our fourth quarter results. Revenue of $118 million was at the midpoint of our guidance range and grew 21% year-over-year. Adjusted EBITDA loss of $5 million beat our guidance range and adjusted EBITDA margin improved approximately 800 basis points versus Q4 '22. This demonstrates both the operating leverage in our model and continued strong OpEx management. Next on slide 19, I will cover additional revenue details. Auction and assurance revenue, which was 56% of total revenue, increased 19% year-over-year. This performance reflects 15% year-over-year unit growth and auction and assurance ARPU of $456, which grew 3% year-over-year. Note that ARPU increased year-over-year despite a 9% decline in GMV per unit, reflecting our Q3 price increase, and we believe we will still have pricing headroom going forward. Marketplace services revenue, which was 38% of total revenue, grew 29% year-over-year. Results were driven by strong ACV Transport performance and another record revenue quarter for ACV Capital. Our SaaS and data services products comprised 7% of total revenue and revenue was flat year-over-year. While ACV MAX revenue grew modestly year-over-year, recall that we have been taking a measured approach to customer acquisition, while making significant improvements to the ACV MAX platform. As George discussed earlier, we recently launched the upgraded ACV MAX suite and we're confident these improvements will drive long-term growth. Turning now to slide 20, I will cover costs in the quarter. Q4 cost of revenue as a percentage of revenue decreased approximately 300 basis points year-over-year. The improvement was driven by strong auction and assurance results and by ACV Transport. As George mentioned, we delivered high-teens Transport revenue margins, which is in line with our midterm target model. We continue to focus on expense discipline as we optimize and scale our business. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased 4% year-over-year in Q4. This reflects a more metered approach to growing OpEx relative to our revenue as we march towards profitability. Moving to slide 21, let me frame our investment strategy and path to profitability. Our focus on spending discipline and operating efficiency resulted in a material decrease in OpEx growth in 2023, resulting in adjusted EBITDA losses declining by approximately 70% year-over-year. And as you've seen reflected in our Q4 results, we delivered margin expansion while preserving our go-to-market and technology investments to ensure ACV is in a strong position as market conditions improve. On slide 22, I would like to provide an update to regional profitability that we shared at our Analyst Day last June, demonstrating why we're confident in our midterm target of achieving 25% adjusted EBITDA margins. In 2023, 35% of our regions comprising about 50 territories achieved adjusted breakeven or better. Of those regions, three were in the 15% to 25% adjusted EBITDA range. Additionally, we had three territories exceeding 25% adjusted EBITDA margins. We believe that this performance demonstrates the inherent leverage and scale of our business model as we continue to drive top line growth. Next, I will highlight our strong capital structure on slide 23, We ended Q4 with $411 million in cash and equivalents and marketable securities and $115 million of debt on our revolver. Note that our cash balance includes $134 million of float in our auction business. The amount of float on our balance sheet will continue to fluctuate meaningfully based on business trends in the final two weeks of each quarter, which has a corresponding impact on operating cash flow. Cash flow from operations in 2023 improved significantly year-over-year, a 75% reduction in burn, reflecting the strong margin improvements and OpEx management we delivered and the leverage in our business model. Now, I'll turn to guidance on slide 24. For the first quarter of 2024, we're expecting revenue in the range of $141 million to $146 million. Adjusted EBITDA is expected to be in the range of $2 million to $4 million, consistent with our commitment to achieve a full quarter of profitability in Q1. For the full-year 2024, we are expecting revenue in the range of $610 million to $625 million, representing growth of 27% to 30% year-over-year. Adjusted EBITDA is expected to be in the range of $20 million to $25 million, reflecting operating improvements in our core business and integration investments in our remarketing centers. As it relates to our guidance, we are assuming that the dealer wholesale market grows modestly in 2024 and conversion rates and wholesale price depreciation follow normal seasonal pattern. We're expecting the Texas-based auction group acquisition to contribute approximately 5% of annual revenue in 2024 and be accretive to full year adjusted EBITDA. Revenue growth is expected to outpace non-GAAP OpEx growth, excluding cost of revenue, and depreciation and amortization by approximately 10 percentage points. And finally, moving to slide 25, we remain committed to achieving our midterm target model, which is underpinned by sustaining market share gains, penetrating adjacent markets, and expanding margins through revenue mix and scale, all of which we've clearly demonstrated in our performance. Our midterm targets are primarily predicated on the dealer wholesale market recovering to historical volumes over time. But in addition, we are expanding our TAM and consistently taking share, which will drive long-term growth. And with that, let me turn it back to George.

Thanks, Bill. Before we take your questions, I will summarize. We are very pleased with our strong execution in 2023. We are 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. We are expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product roadmap to further differentiate ACV and drive operating efficiencies. We are on track to achieve our near-term adjusted EBITDA targets and deliver 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.

Thank you. [Operator Instructions] Our first question today will be coming from Michael Graham of Canaccord. Your line is open.

Hey, thanks a lot for all the detail and congrats on the quarter. Just wanted to ask on the 2024 guide, you know, we understand that it includes about $30 million from the acquisition. And I know you mentioned, you know, expecting some recovery in the wholesale market underpinning that guidance, but just wonder if you could go into a little more depth about what you're seeing, you know, on the macro and you know, how you handicap sort of, you know, whether the market might perform, you know, better or worse than what's embedded in your guidance.

Hey, Michael. It's George. I'll start first, and then Bill can always add in. So, yes, thank you. Thanks for your comments on the quarter. Yes, it was another strong quarter and great execution as a team. I appreciate you saying that. We had some comments earlier that we discussed that we believe '23 would be the trough on overall dealer wholesale supply. When you look at the broad trends, we obviously saw even in Q4 another sort of year-over-year decline in overall wholesale supply, right. We do think things will marginally be better this year. Obviously, we didn't give much more details than that, but it's not like we're expecting this year to be the market to improve, you know, significantly. So when we said marginally earlier on the call, we're speaking to, you know, new car supply is coming back nicely. Used car, year-over-year, retail is still a little lower. Obviously, with interest rates and everything, we're still seeing an environment still tough on used retail. Overall, cars on dealers' lots are about 30% lower than 2019. So when you look at overall supply on a dealer's lot, we're still seeing it's still going to take some time for the market to kind of get back to normal. But we're thinking, you know, this year, things will marginally improve. Bill, I'm not sure if there's anything more to, you know, communicate.

Yes, I'll just say the only other thing I would add, Michael, is that, you know, if you subtract out this Texas-based acquisition, right, at the midpoint, results in about 22% revenue growth versus 14% for last year. So think of that as a combination of both an improvement in ARPU and then some modest improvement in the market, along with share gains. So just to frame out the math for you.

All right. That makes sense. Thank you, guys.

Thank you, Mike.

Welcome.

Thank you. One moment for our next question. Our next question will be coming from Chris Pierce of Needham & Company. Your line is open.

Hey. Can I talk about the sequential downtick in ASP on the platform? Is that a concerted effort to kind of attack a different part of the market, or is that just the market itself and wholesale prices kind of moving lower consistently? And then should that inform lower retail prices or you're just -- you're still not kind of baking that in?

Hey, Chris. As we predicted, ASP's decline, you know, somewhat consistently with used car value is declining. You know, we've been seeing just like two years in a row overall used cars going down in value and you've been seeing a pretty consistent decline. But as I think you also noted, our ARPU, our revenue per unit has gone up. So we've done a great job of mitigating over -- you know, over the last year, kind of facing, you know, the ASP, you know, overall GMV going down, but ARPU staying very strong. So we're in a really good spot. But yes, that was as we predicted, if you look back last year, we had predicted used car values would continue to decline. And we also predicted we should be fine from a revenue per unit perspective. And I think both of those ended up being true.

Okay. Okay. And then on the call, you framed a million auctions per year and you did 600,000 units. I mean, is it right to think about that conversion rate at 60%? Because that's roughly 1,000 basis points ahead of industry sources. So is that sort of part of the go-to-market or do I kind of have the math wrong?

Conversion rates are little lower than that. There's a few auctions in there, Chris, that are done for dealers, retail cars, and also -- so that's a few thousand units a month. And then, you know, in addition, there's a few other like commercial cars we're inspecting, but conversion is a little bit lower than that 60% range. But it's -- you know, it's in the ballpark.

Yes, Chris, we're basically in the mid-50s, which is pretty consistent with historical trends.

With your historical trends or industry historical trends, if you could go in a little bit more detail?

I would say both, both our historical and industry. Yes.

Okay. okay. Perfect. Thank you.

Yes. Thank you.

Thank you. One moment for the next question. Our next question will be coming from Bob Labick of CJS Securities. Your line is open.

Yes. Hi. Thank you. It's Pete Lukas for Bob. You guys covered a lot in the prepared remarks. Thank you for that. I guess just one for me in terms of innovation. You guys have introduced a lot of cool tech over the years and you discussed innovation. What has you the most excited from that? And where do you see the biggest impact coming from in 2024 in terms of the new stuff?

Yes, Pete, thank you. Yes, it's a great question. We're -- ACV, like many companies out there, are faced with artificial intelligence changing really how we all operate, changing our intelligence, changing how we think about everything from how much time it should take us to inspect a car. So that won't all hit us this year, but we're investing in capabilities to help us inspect cars faster, but yet with more accuracy. That wasn't possible last year or the year before with our focus on artificial intelligence, with our focus on the acquisitions we've made, like Monk, with our R&D team inventing things like ArbGuard and other areas where we can approach a vehicle and know the common issues we've had on that vehicle. Going into next year, our investments this year will help us, we believe, both take the time down on inspections, but yes, improve accuracy and ultimately make us more efficient. So we're really excited about that. So I had to pick one. Now, I can go on and on, take the whole call, but if I had to pick one, that would probably be the one where generally our inspection capabilities are just improving dramatically and artificial intelligence is going to help.

Great. Thank you. I'll jump back in the queue.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Eric Sheridan of Goldman Sachs. Your line is open.

Thank you so much for taking the question. Can you reflect a little bit on the key investments you see necessary to make that are putting some pressure on margins in 2024 and how to bridge that to sort of what you've talked about at prior Analyst Days in terms of the exit velocity of 2024 against your more medium-term EBITDA margin guidance? That'd be super helpful. Thank you.

Why don't you start and then I'll add in?

Sure, yes. Thanks. If we're -- if I list a few and I think we're on track with really each of these, I just spoke a few minutes ago that our ability to inspect a car both deliver on buyer satisfaction, but also hit our medium-term arbitration objectives, we're really doing a great job. So that's one area where we're doing a fantastic job. On conversion rates and what we're doing on our platform to keep improving conversion rates, if you look at what we're doing with selling vehicles on our platform, again, it's really a tough market. You can see with our peers and everyone else, it's been a tough market and our conversion rates have held up really well. That's been all the improvements we've done on our marketplace to keep including -- enhancing conversion rates. When you look at where we're at with Trasport, we're already at our attach rates and we're already at our margin profile for Transport. Capital take rate is really coming along nicely. We're pacing basically as planned with ACV Capital, and that will also improve overall margin, and then really just growth. Growth will help because, you know, in many of these areas across the country, continuing to take market share allows for that one territory or region. And Bill has shared some data on the call regarding our regional profile. Bill, I don't know if you want to expand on that.

Yes, I think maybe first, I'll just take a step back, Eric, at a high level. So, you know, based on the modeling we've done for this year, if we look at revenue margin dollar growth year-on-year, we're going to take about 45% of that down to adjusted EBITDA, right. So we will be growing OpEx this year, but we feel pretty good about the amount of margin that we're going to take down to the bottom line. So first, just, again, just taking a step back, I would just add to everything that George said. We're also going to be making platform investments to further our commercial strategy, and that's baked into our guidance and our OpEx envelope as well. So it's kind of all of everything that George described, specifically driving the commercial strategy. And then outside of that, it's just really scaling the business, you know, as we continue to grow. So hopefully that gives you a little more context.

That's helpful for context. Thanks, guys.

Thank you, Eric.

Thank you. One moment for the next question. Our next question will be coming from Ron Josey of Citigroup. Your line is open.

Great. Thanks for taking the question. Hey, George. Hey, Bill. Wanted to ask about ClearCar and then maybe another crack at the EBITDA long-term guidance, Bill. On ClearCar, George, you talked about 600 dealer rooftops and higher conversion rates relative to the market. Talk to us about just the tie between ClearCar and the core auction marketplace and how that's helping to improve, call it, dealer integration, if you will. And then just on EBITDA, and I know, to Eric's question, we talked about maybe how we get there, but Bill, really helpful to see the regional breakout, again, an update on that post Analyst Day today. So talk to us just about the expected ramp and regional profitability at 35% now of ACV's, call it, 20 regions and just want to understand how we sort of ramp to that number over time, given we're at mid-single EBITDA margins at a company today. Thank you.

Yes, thanks, Ron. I'll tackle the ClearCar one. So if you take a step back and we mentioned, even though we had a fantastic quarter, 2023, we had a great growth year, dealers are still struggling to get the right inventory. And with ClearCar, we are helping dealers with that core problem. 10 million cars sell a year peer-to-peer. Those -- many of those cars, if you just -- if you assumed over 50% of those, a dealer could have purchased it, whether it's 50% or 60%, that would be massive TAM expansion for dealers buying cars from consumers. And a lot of these cars meet the profile of cars dealers would like to retail. And going after that core problem is important. I mentioned earlier that there's still 30% left inventory on dealers' websites. But don't look at all inventory as equal. Dealers should be retailing the right inventory and wholesaling cars that don't match their inventory. And the only reason why they're retailing some of these cars right now, and I'm speaking to franchise dealers, is because they don't have the right mix. And so franchise dealers aren't ecstatic. But the fact that we're not here to just complain, we're here to help them fix that problem. And we offer them two business models. They can pay us a monthly subscription, or even preferably, they could give us a fair share of their wholesale. So we offer them more of a partnership model or a fee model. The majority of our partners are choosing the wholesale model, meaning that by taking ClearCar and leveraging it on their website, on their other channels, creating separate landing pages, using billboards, their service drives, so think about when the consumer comes in to change their oil and it says, hey, we want to buy your car. You know, now, dealers have an effective tool to do that. It focuses on their brand. ClearCar is like a co-brand, and we're helping them with this really key problem. So that's why we're ecstatic really about just using our technology, using our machine learning, using our massive data that we have. And over the next few years, we're going to help dealers buy more cars from consumers, trade cars more effectively online, and ultimately help them have the right supply on their lot. And what that will mean to us is they'll go back. Over the next few years, they'll go back to wholesaling the percentage they were wholesaling in 2019 and prior. Bill, do you want to go on to the second one?

Okay. Yes, I'll -- yes, let me handle the second question, Ron. So, you know, again, just to kind going to review the territory data that we just put out or prepared remarks, right, so we had, you know, approximately 50 territories, which is about a, you know, little more of the -- roughly a third of the country, are already at breakeven or better, right. And we've got, you know, a number of territories over 20 that have double-digit adjusted EBITDA margins and several, you know, that are already, you know, north of 25%. So the way we get from here to our midterm targets is really twofold. It's, number one, growing our margins to around -- from around 50%, which is where they are now, to 60%. And you can expect to see some progress that's baked into our 2024 guidance as part of that path. So that's one component. And the other component really is the OpEx leverage we will get on the engineering, sales and marketing, and G&A side. So if you go back to our materials from our Analyst Day last June, you know, roughly 75% to 80% of those costs are very fixed in nature versus variable. So, you know, it's all about continuing to gain scale, gain market share, increase our unit volume, and then getting that leverage in the model. So that's ultimately how we'll get there. But, you know, again, we've got some territories that are already -- even in today's cost structure, already hitting, you know, double digits, which, you know, gives us comfort in knowing that we can get there over time as the rest of our territories scale.

Thank you, George. Thank you, Bill.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Rajat Gupta of JPMorgan Chase. Your line is open.

Great. Thanks for taking the question and congrats on good quarter here. Just a couple of questions on the 2024 guidance methodology. Firstly, are there any meaningful assumptions baked in from, you know, the commercial business or any assumptions in the revenue from, you know, the off-platform Transportation product? So just that clarification and I have just a quick follow-up. Thanks.

Yes, hey, Rajat. You know, thank you for saying that. Yes, it was a great quarter. We appreciate it. The -- I'll start and then Bill can chime in. And commercial for this year, we're not assuming like a significant ramp. We will start winning some business. But just to be -- just to sort of level set, we just got AutoIMS done like in the last 24 hours. So we still need to integrate with them or that might take a few quarters. And then on the where we're having land to help us on commercial, it's great that we're up at, you know, eight locations. But as we mentioned, it would take 40 locations to get to 80% of the population. So we will have some wins this year. We don't have a huge ramp expectation for this year, you know, just so we don't get over our skies from like how fast that will be, but we think out over the next couple of years that we're investing now really for the next few years, and we're really excited about that TAM. It's going to be, I would say, very significant TAM expansion for us, both for the commercial accounts -- some accounts don't need land, some accounts do. Either way, we're here to help support them and getting AutoIMS in the way was huge.

Yes, and then on the Transport side, Rajat, so yes, look, we're really pleased with the progress the team is making, that's ramping really nicely, but the numbers are still relatively small, so it's not going to materially change, you know, our expected results in terms of Transport revenue. We're still assuming that attach rates are, you know, in the mid-50s, so there'll be some incremental revenue there, but it's really not going to move the needle yet. You know, potentially, as we go into next year, it might be more meaningful, but we'll cross that bridge when we get to it.

Got it. Got it. And a quick follow-up, you know, you mentioned in your prepared remarks, and even the slide deck around, you know, how like 2023, you know, and prior years were impacted by like a very low trade to wholesale ratio. Curious, like, in your expectation of the modest recovery you're expecting in dealer wholesale this year, is it -- I mean, what's kind of like embedded in terms of like trade to wholesale mix in that guidance? Do you -- are you expecting like meaningful change there in behavior or are there other factors that's giving you comfort around that low single -- that modest growth outlook? Thanks.

Yes, Rajat, we're seeing modest improvement over, you know, really kind of coming into this quarter, and we are starting to see dealers. Obviously, the overall supply hasn't improved materially yet, but we are seeing some signs that dealers are a little bit more willing to wholesale. So very small and I would say our assumptions of this year is just continued small improvements. We're not assuming, you know, a significant improvement. You know, but just I would say, consistent with the trends where we've already been observing. So I think we're being very reasonable. But obviously, the majority of the growth comes from taking market share, so that's where the majority is coming from and which we've been doing very consistently. And then like I said, very small additional gains in commercial, but you know, I would say the overall market improvements, we're assuming very modest improvements.

Got it. Got it. Great. Thanks for the color. I'll jump back in queue.

Yes. Thank you, Rajat.

Thank you. One moment for the next question. Next question will be coming from Gary Prestopino of Barrington Research. Your line is open.

Good afternoon, gentlemen. I have a couple of questions surrounding AutoIMS. First of all, as you prepare to utilize this license, what do you have to do? Do you have to sell the consignors on your services or the fact that the dealers already have your product, they can just -- once you hook into -- you hook in whatever integrate, they can just use it to buy these cars that are offered by AutoIMS?

Yes, Gary, thank you for the question. I'll take a step back and just explain. AutoIMS is a middleware in the industry between commercial consignors. So these are folks like banks who have repos, fleet accounts. Fleet accounts are like company-owned cars, government vehicles, and other sort of fleet lease type accounts. So there's about 1,300 of these commercial consignors who use AutoIMS to -- they go into AutoIMS and they sign a vehicle today to a physical option, and it's been in that role for many years. It really doesn't touch the dealer at all. And that ecosystem of -- and there's many commercial accounts that exclusively use AutoIMS, meaning the only way for them to provision a vehicle is to go through AutoIMS. And so the way they would provision is, they would say, okay, I'm going to send this specific vehicle to this specific auction, and then the auction company then would be responsible to auction that vehicle off to dealers. So this is a middleware. It doesn't really touch the end dealer. It's just these commercial accounts who send their vehicles to auctions. We had access to AutoIMS only in a few locations up until recently. Like, think like literally three or four locations across the whole country and only where we had land. And now, with this lawsuit being behind us and the sentiment behind us, we will -- in collaboration with AutoIMS do an integration that is two -- it allows for two different ways for a commercial consignor. Again, when I say that, think bank, think a fleet company. When they have cars, they can either sign it to one of our locations or to other locations wherever the vehicle may be. The first, meaning sending it to a like an auction, that they've already been doing. This other, which is more suitable for our digital model, they've never done this before, and it will take us -- I'm not exactly sure yet if this is going to take us three months or six months or nine months. Again, we just got the lawsuit done, but we will work in good faith on the digital side, where they can assign -- have a commercial consignor assign us a vehicle, wherever that vehicle may be. So, again, to summarize, this middleware provides us the methodology for a consignor to send us a car today to where we have land, and hopefully in the very near future, think more like end of this year to support our digital model.

Okay. But it does open up a market of a couple of million vehicles a year to you eventually, right?

Yes, at least a few million to your point. It's a pretty significant TAM expansion.

Okay. Thank you.

No, thank you. Appreciate it.

Thank you. One moment for the next question. And our next question will be coming from Naved Khan of B. Riley Securities.

We can't hear anything.

Yes, I'm waiting for his line to open up. Is he still there? One moment, please. Okay. I would like to just turn the call back over to Tim Fox for closing remarks. Thank you.

Great. Thank you. And thanks, Lisa, and thanks for everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. And again, thank you for your interest in ACV, and have a great evening.