ACVA - NASDAQ

Greetings, and welcome to the ACV Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Fox, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining ACV's conference call to discuss our second quarter 2025 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are very pleased with our team's execution in the second quarter, delivering revenue and adjusted EBITDA within our guidance range, despite challenging market conditions in the back half of the quarter. Record revenue and continued cost discipline resulted in adjusted EBITDA margins more than doubling year-over-year, underscoring the scale in our business model. Our results were driven by three key factors: first, solid execution in our dealer wholesale business. We continue to gain market share and expand our dealer partner network by delivering a highly differentiated marketplace experience. Second, we had another record quarter for ACV Transport and ACV Capital, along with strong adoption of our value-added dealer solutions. And third, we further executed on an exciting product road map for our dealer and commercial partners, expanding our TAM and growing our competitive moat. As Bill will detail later, we've updated our 2025 revenue guidance to reflect ongoing crosscurrents in the broader macro environment and are still expecting to deliver strong top line growth of at least 20% year-over-year. Furthermore, we have maintained the midpoint of adjusted EBITDA guidance, reflecting our commitment to deliver significant margin expansion while continuing to invest in our long-term growth objectives. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of our results on Slide 4. Q2 revenue was $194 million and grew 21% year-over-year. We sold 210,000 vehicles, which was 13% year-over-year growth despite the sharp market deceleration throughout the quarter. Next on Slide 5, we will again focus our discussion around the three pillars of our strategy to maximize long-term shareholder value, growth, innovation and scale. I'll begin with growth. On Slide 7, we highlight how ACV is leveraging AI across our suite of solutions, beginning with our marketplace. We provide dealers with highly accurate condition-adjusted pricing guidance, enabling them to set attractive reserve prices, which increases buyer engagement and conversion. Seller experience is further enhanced with flexible auction durations and scheduling, and our new in-auction tool allows sellers to set their own start price for each vehicle and remove the reserve price, which also drives buyer engagement and conversion. On the demand side, the buying experience is tailored across buyer personas, and we're optimizing the bidding experience by providing AI- enabled recommendations informed by dealer preferences and current market factors. Turning to Slide 8. Let's review our marketplace service offerings, beginning with ACV Transportation. The transportation team had another quarter of strong execution, setting records for both quarterly revenue and transports delivery. AI optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 370 basis points year-over-year in Q2 and was in line with our midterm target in the low 20s. Lastly, our off-platform transportation service continues to gain traction from our dealer partners. These new value-added services, increased transport network densities and create additional long-term growth vectors. Turning to Slide 9. The ACV Capital team also delivered very strong results with over 60% revenue growth in Q2. This was the third quarter in a row of accelerated growth, which supports our confidence that we continue to scale ACV Capital while managing risk. The ACV Capital team is expanding its TAM by delivering new value-added offerings to our dealers, including off-platform transactions such as helping them buy vehicles from consumers, creating additional growth levers for our business. Lastly, I'll wrap up the growth section on Slide 10 with data service highlights. Market traction for ClearCar remains strong, with over 1,600 active rooftops as of Q2. ClearCar service, which enables dealers to provide instant appraisals and offers to consumers in their service lanes is particularly attractive in the current supply-constrained market. One proof point is our success with a top 5 dealer group that has deployed ClearCar service at over 150 rooftops with plans to expand nationally this year. The ACV MAX team delivered another strong quarter, reflecting the investment we've made to advance its features. Through Q2, bookings were up 50% compared to 2024, driven by a number of large competitive displacements. Our strategy to bundle data services with ACV wholesale is gaining traction, creating another exciting long-term growth lever for ACV. Again, this quarter, we're excited to share feedback from one of our dealer partners. Mercedes-Benz of Bakersfield, California, which is using ACV's full suite of offerings. We posted a video on our IR website highlighting the significant value they're deriving from ACV solutions. Next, on Slide 11. I'll address the second element of our strategy to drive long-term shareholder value, innovation. Turning to Slide 12. Let's go deeper into how we leverage ACV AI across our products, services and operations. Using machine learning, we are fusing inspection and dynamic market data to provide pricing for every vehicle in real time within ACV's pricing platform. A great example is ACV guarantee, one of the fastest-growing channels in our marketplace, accounting for over 15% of units sold exiting Q2. Our guaranteed sales accelerate better engagement, remove market risk for our sellers and deliver a 100% conversion rate. We're confident this highly differentiated offering will be another key lever in driving market share gains while maintaining attractive unit economics. We are expanding our competitive edge with AI-driven next-generation products like Virtual Lift 2.0 and Project Viper. On Slide 13, we highlight these next-generation products in action at one of our dealer partners. We kicked off several pilots in Q2 and feedback has been very positive. Today, our dealer partners have run over 10,000 vehicles through Viper. We're leveraging this data to fine-tune our hardware and software as we expand our pilots over the next few quarters. We believe we're on track for commercial launch for both Project Viper and Virtual Lift 2.0 in 2026. On Slide 14, we highlight another growth lever powered by ACV AI. Our AI backed platform is capable of processing trade-ins at scale with repeatable, guaranteed pricing in under a second. We're taking pricing and guaranteed capabilities on our marketplace and by our e-commerce partners directly now to our dealer partners. We currently have 5 of the top 10 dealership groups in the U.S., leveraging our pricing data to appraise trade-ins and acquire vehicles from consumers. Think of this as pricing as a service, which is another high-margin revenue stream to support our growth objectives, while expanding our relationship with these major dealer groups. Wrapping up on innovation. Let's cover our commercial wholesale strategy on Slide 15. With our initial commercial platform nearing completion, we are excited to announce the upcoming opening of our first greenfield remarketing center located in Houston, Texas. Our commercial platform includes capabilities to receive assignments from AutoIMS, conduct commercial inspections, create work orders and repair estimates and receive consignor approvals. We will leverage our technology by opening up additional greenfield locations to address the large commercial TAM, providing another long-term growth lever for ACV. With that, let me hand it over to Bill to take you through our financial results and how we're driving growth at scale.

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

Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our strong execution in Q2 and especially proud of our ACV teammates that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our marketplace, while expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving substantial adjusted EBITDA growth in 2025 and delivering on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A.

[Operator Instructions] Our first question is from Chris Pierce with Needham & Company.

Could you just kind of parse out from Bill's comments, the 500 bps unit growth headwind despite listings being in line with expectations. Does that mean dealers opted -- well, it does mean -- I'm assuming dealers opted to keep these vehicles because they weren't getting the price they wanted. Is that what you mean by higher retention rates? Or is higher retention rates something else? And this is -- are they two different things. I just want to confirm to kind of parse that a little bit.

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

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

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

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

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

Our next question is from Bob Labick with CJS Securities.

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

Yes, certainly. We're making a lot of great progress. Bill mentioned on the call or I mentioned, one of us mentioned, that we exited at around 15%. And when we -- when you think about that progress, it's we're really proud of the progress. We're comfortable at the end of the day, putting a number on a vehicle that's really, let's call it, give or take, within $75 of what the vehicle sells for. That's incredible. You're talking about a vehicle that can be $5,000, $10,000, $20,000, whatever the vehicle is. In our data set that we've trained, condition-adjusted data set we've trained from all the inspections we've done and also the direct integrations we have with our dealers DMS systems through our ACV MAX system. The combination of those two data sets gives us a tremendous competitive edge. So we think our sale, what you hear us refer to it, it's a guarantee to the seller. It's no reserve to the buyer. We think that sale is going to grow pretty substantially over the next few years. Obviously, we're going to take our time doing it in a really smart way, but our confidence is going up. Bill, I don't know if there's any more you want to share, that we could share at this point.

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

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

Yes, we have 3 of the top 5 dealer groups, either live or in beta using our data to help them price cars with consumers. Obviously, we have one of the largest marketplace companies in the world, Amazon using our data set as well. It's becoming a true differentiator. It's a way when you think about aligning yourselves with the market's key -- the market's key focus. The dealers are here to buy cars from consumers or to price them right. We're really nailing this on wholesale. We will move to retail as well. We have in beta today, predicting the price of retail, which is also really incredible with our data set. And with the same data science team, we can predict not only what the car is going to sell from wholesale, but we were within the last month, $360 prediction within 30 days, what a vehicle is sold for, which is really incredible. So think about this data set, it's a way for us to launch new products like no reserve. I mean the no reserve is guarantee it's going to be a big part of the company. But it also comes in time prior to Project Viper coming live, where we'll be able to inspect cars within a dealer service drive, start to put a number of automatically in these vehicles and in other capabilities that we'll be launching. So yes, we're really proud of the efforts thus far.

Our next question is from Eric Sheridan with Goldman.

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

Yes, certainly. I'll try to tackle both of those questions, Eric. So first, the contributions will come as we roll out these solutions. This year, keep in mind, like initiatives like Project Viper to your point -- your second part of your question, will be very small. I mean we're not baking in a lot of these new capabilities in these sales. What we're doing with Amazon? We can't predict what they're going to do. So you're not going to see us do a forecast, so whether it's Amazon, whether it's Project Viper, whether it's these other new initiatives, you're not seeing us bank on a lot of these things this year. Obviously, as we get closer to the end of this year, we'll think about how much we want to bake in for next year. But right now, we're obviously spending the resources. So it's in our R&D budget. It's in our spend, but we're not expecting a material contribution this year. But I think these are incredible medium- to long-term benefits that should flow through. So I don't think I can really talk much more about like direct partnerships, whether it be about the name you mentioned or others. Bill, I'm not sure if there's any else that you can share.

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

Our next question is from John Colantuoni with Jefferies.

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

Yes. I'll start and then Bill can chime in. So first, when you look back at the last several years, looking at these percentages based on a quarterly basis, we don't believe it shows the full picture. We still put up a lot of growth when you look at year-over-year on an absolute basis. But we're -- I think when you look at it on an annual basis, it really shows a better picture of -- and we did that last year, we did the year before. We plan on doing that this year, too. So I think there's -- there's no -- in our mind, no change in our ability to continue to grow share. And to your point, the numbers are getting bigger. So the numbers are bigger. So our absolute number does need to grow more, and we're not shy about that. But we're pretty confident that with all the things you're hearing about here, our broader array of being able to go to market with this new product suite, we do think we've got additional growth ahead. And so really, we're not changing our perspective. Bill, any more on that before I go to the first question.

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

I think you covered it. Any other question there?

Commercial contribution...

Oh, commercial. Thanks, Tim. On commercial, listen, we're still very early. I mean we -- our wins of the quarter is we just got our software done for our new platform. We did sell our first car. So it's something to celebrate, not something to go in the earnings script per se. But we sold our first car at our greenfield location at Houston, which was like a practice run. It worked, everything worked, reconditioning and everything went back and forth. We also sold our first car in our new software that didn't require a greenfield. So both trials went in place during the quarter. We're ready to go live very soon. The team is working on live dates for both Houston and the ability to start taking a vehicle that's not at one of our locations and still do with our recon estimates, decide whether or not, we're the right remarketing channel for it or not, I think more like an upstream commercial. So really proud. What we achieved in the quarter? It was more software than anything else, but it's always great to sell that first car on a new tech platform, I would call it, in the process of going live as we speak.

Our next question is from Rajat Gupta with JPMorgan. .

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

Yes. Rajat, I think in a way, your summary also was a good representation of how we're thinking about. Like first and foremost, we always protect in our annual budget a pretty significant product and technology spend. So think about that's like core because at the end of the day, obviously, we got to get through these quarter-by-quarter calls but 5 years from now, 10 years from now, we're going to talk about ACV being the global way cars are priced and sold. We're going to talk about ACV sort of like how we think about Kleenex today, right? Like what's the ACV on a vehicle? What's the actual cash value? Like that's how we're going to think about the brand. We'll never get there, if we don't invest in the product and tech. So look at it as we approach our budget, we never lose sight of that. At the end of the day, we're going to -- we're building the tech stack here. That's going to create less friction in the marketplace, wherever the vehicle is, upstream in the consumers drive way, add a greenfield location for a bank, wherever the vehicle is, first and foremost in the U.S., eventually globally. So that part of the budget, it's -- we're spending at lease X. And then we kind of have, hey, if we do well, we might even spend a little more, like we have like our first order of bet from an R&D perspective. And the next part is inspectors. We never ever will allow our budgeting or EBITDA quarter-by-quarter effect of hiring inspectors because to your point boots on the ground, it's important. Everyone here knows that. Hiring inspectors is a core part. At times, you need a little bit more in one location, a little less in another location, but the team won't hold back, as soon as we need more, we need actually right now about 30 more inspectors across the country. It was my last readout I saw. That -- those 30 inspectors we need are in the process of being hired wherever they are in that process, and it just happens. It's like -- it kind of -- we don't really look at it as it relates to EBITDA, like it's there. But it's its own machine. And I would say, generally, broadly sales. Rajat, we have a lot of sales teams. So I don't think we need boots on the ground for selling any more than we have today. We've got well over 100. I think it's somewhere around 150-ish teammates out in the field, and we have another team of like 20 or so that are majors and strategics, and we have another team. So Rajat, we've got a really healthy sized sales team that's already kind of built into the budget. So hopefully, that kind of gives you how we think about prioritization. Go ahead, Bill.

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

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

Yes, Rajat, as you know, July was strong. It was strong from retail, it was strong from wholesale. It was a really good month. We also saw in the prior quarter, what happens when there's a little bit of a pull forward right, where you got one strong month and then you kind of have a few months after that, that aren't as strong. So I'll answer, Rajat, saying it this way, we've been reading your reports and you don't seem so bullish. I'm half serious, half joking. You do have a lot of data on this, and yes, we read it all. But there's quite a few analysts out there and when you spoke -- speak to the dealers themselves, you're not hearing the most bullish back of the year and then also it's a tougher compare. When you got the tougher compare and also not as much bullishness going on, that's why we're trying to be thoughtful. Bill, any more you want to add to that?

Yes, I mean what I would add is, as you know, kind of trade retention rates are pretty key in terms of the wholesale market, and what we did see is data that supported the fact that in Q2, trade retention rates increased about 300 bps year-on-year earlier in the year versus early in the year rather. So the potential trend, and we'll have to wait and see how this plays out is dealers could be keeping more trades for retail purposes in the event that consumers shift their buying preferences depending upon what happens with tariffs and how it affects new car pricing and therefore, potentially there could be more demand and potentially higher pricing for used cars. So there's just a lot of puts and takes here, and we're just trying to do our best to try to handicap this and be prudent in terms of how the second half could play out. So -- to George's point, you've probably been studying this more than we have. And again, we've been reading a lot of your material. So you might have more perspective than we do. But that's the basis for our modeling.

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

Yes, certainly. We mentioned in the prepared remarks that we had one of our best bookings at ACV MAX. Granted, it's a smaller revenue stream for us. So I don't want to oversell it, but it's great to still break records. We brought on more dealers. As we mentioned to you both ClearCar and MAX we're really not -- we're focused on selling these things at a reasonable rate to dealers, but more of our focus is on long-term differentiation on the wholesale side. So we tend to approach these products as a partnership where we're giving MAX and ClearCar for really extremely low prices at times to create that partnership. But we help them buying more cars from consumers, help them price it right, become their long-term wholesale partner. It's really a win-win for both us and our dealer partners. So yes, record bookings for MAX, ClearCar is making great strides. I'll dive in a little bit more. Probably the most recent trends have been -- the biggest success they've had are buying cars out of their service drive, which -- I think getting dealers to buy more cars from their website is still going to take us more months and more work to really help them do the right marketing, get to the consumer. Just kind of look at this in phases, it's like a Phase 1, Phase 2. Phase 1, they already have consumers coming. They're there to change their oil. They're there to rotate their tires. And we have some dealers buying 3 to 5 cars a day right out of their service drive. Now trade retention-wise, they're keeping a higher percentage of those, a lot of them. But in time, as they kind of get their inventory to be right, it will mean we will eventually get back to historical wholesale trade ratio. So, so far, so good. That's going really, really well. We are about to take our guarantee offering and combine it as a feature with both ClearCar and MAX in, but we are just about to launch that. So think about that's probably more like Q4, Q1, it's technically in beta right now. So more to come. We're helping these dealers. We're helping them put the right price in cars and it gives us a differentiator and really a longer-term partnership outlook with these dealers. Any other questions?

Next question is from Alex Potter with Piper Sandler.

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

Alex, yes, it is. So -- if you remember, coming into the year, we said we were assuming that the market could be flat, which meant it could be up a little bit, it could be down a little bit. Now our assessment is, at least for the full year, the market potentially is going to be flat to down. And we'll see how that actually plays out, but that's what we assumed based on just some of the trends that we were seeing, especially exiting Q2, where, again, there's all these crosscurrents and macro signals that are kind of pointing in different directions. There's a lot of uncertainty on tariffs. I just talked earlier about how trade retention rates were up 300 bps in Q2. So we kind of plug all that in, and our conclusion was what we should probably be a little more conservative in terms of what the back end is going to look like, and therefore, the full year. While we're still able to maintain our EBITDA guidance, which is kind of meeting our commitment to investors. So I wouldn't say that there's anything more than that. We're pretty excited about all the things that we've been doing. We talked about the guaranteed sales. We talk about Project Viper, watching our first greenfield, which as George mentioned, we're testing the software so far so good. So there's a lot of reasons for us to be excited about the future. But we're just trying to level set a little bit and be a little more conservative for the second half. And that's why it's just a small trim in terms of adjusting the midpoint down for revenue by $5 million.

Perfect. That's very helpful. And then maybe one other question. I think earlier, Rajat, I think, mentioned sort of dialing up OpEx spend as a way to -- or dialing it down as a way to manage EBITDA. Pricing is another lever that you guys have historically had sort of in your back pocket. What's the outlook just based on the fees that you're charging for auctions, what's the outlook there? What's the recent trends and any ability to -- or intention, I guess, to take price at all in the coming several months or quarters?

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

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

Beyond the take of some of these assurance products and other things that we're seeing.

Right. But that's -- yes. Yes.

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

Just last year, you did a couple of -- a bit more than a couple, but I think a few tuck-in acquisitions, and I'm wondering what the growth rate looks like if we strip out the ones that were acquired in the back half of last year, what the organic growth would be? And then just on the sort of commercial traffic and the build-out of physical, are you seeing more opportunities to acquire some locations around the country? How are you thinking about it for this year?

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

And then your second question, we're always here to talk to the owners of the current options. And so we're always willing to get into an active engagement. But our focus has been a little bit more on these greenfields. We're really excited about this. Our first one going live in Houston. We'll have our second 1 go live early next year some time, we'll come back and tell you the location of that one. we're ready at the contracting phase for that one. So we're feeling really good about the strategy. I'm not ready to give you a ramping of that yet. So when you think about our 40 locations we said we'd like to have, we haven't yet given you how many of that will be M&A versus greenfields. But as we get a little bit more confident on the greenfield side, we'll update you all more as we see how fast we can grow these greenfield locations. So we will have multiple growth lever opportunities here. In addition, we can also look at M&A in certain geos. There are some great little business out there, and we'd love for them to be part of the ACV family at the right price. So we shall see. But at the end of the day, we're going to really bank on the greenfields is our core strategy. And if we happen to have some M&A opportunities come on the way, great, but more of a focus on greenfields.

Well, just a reminder, with greenfield, so we would have some OpEx upfront but the total capital consumption obviously would be dramatically lower for those cases where we can launch a greenfield instead of acquiring an auction. So as George said, we're kind of open to both but greenfield certainly potentially offer a much more efficient way to grow our business. And we'll see how the first one goes. So -- and we have -- I think, we already publicly said that we have a second greenfield that we'll be launching in Q1 of next year with the location to be announced.

Out next question is from Josh Beck with Raymond James.

This is a little bit more of a go-forward look. So it's early. So I totally appreciate the caveats and the like. But it seems like for '25, the visibility has probably gone down a little bit with the -- despite kind of reduction in the market growth from flat to flat to down. It sounds very conversion and retention, not really listed oriented. But it also seems like things are just kind of somewhat hot and cool by the month because of the macro. So I guess when you start to think about '26, it's obviously too early for that. But what are going to be some of the key, I guess, milestones that you're looking for as we close out this year to help kind of better inform maybe what '26 can look like from a market point of view.

I think at the end of the day, obviously, we all want consistency. But I think we've -- we're seeing dealers, at the end of the day, they're buying more vehicles. They're not going to be as reliant on just trades. We're seeing a lot happen at once. We're seeing the OEMs parse out all this tariff stuff and really -- we're seeing OEMs focus on moving products. So I think at the end of the day, what we all want to see is, we want to see new cars continue to developed, kind of get through the sort of pretty significant pull forward and then drag type like situations we've seen get through that. Meanwhile, what we'll see is off-lease will start to come back in '26, used car inventory will start to come back in '26. So it does feel like '26 should be a much healthier time for us for the whole industry, not just the ACV, but the whole industry. Bill, do you want to chime in?

Yes. I would say there's two other variables for us all to think about, right? Hopefully, by the time we get into '26, all these tariffs and trade deals are behind us, which will certainly eliminate a lot of uncertainty that a lot of dealers and even consumers are dealing with. So that would certainly provide a lot of stability. And then hopefully, interest rates will also come down, which would improve consumer affordability, which I think would just kind of raise all boats and help us and everybody in our industry. So I think it's -- hopefully, it's a safe bet that the tariffs will be behind us by then. I think certainly, it seems that way. It's going in the right direction at least. And interest rates, we'll see what the Fed does, but at least there seems to be an increased consensus out there that the Fed will start reducing rates. And what the rate will be, who knows and how often, but at least if they start reducing rates further, it will move us in the right direction.

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

Yes. I mean, I can't give you anything specific. I mean it's just -- I would just say, in general, we're always looking across the company for operational efficiencies in everything that we do. So it's hard for me to call out one thing specifically. We've got now 3,000 employees. We've got a pretty big company and growing. So, yes, I don't want to be specific at this point. As things kind of play out over time, and we can talk specifics, we will in the future.

I would say no different than any other larger-scale company, we're using data to help us understand where are we efficient, where are we not? Where are opportunities to grow? As we all see AI mature, we're really starting to see how can we actually increase our customer satisfaction by getting back to customers faster, not always need a phone call or it could be a text, it could be faster ways to get back. We're looking at it across the whole business. We're looking at ways for dealers to be -- they want to move forward and have self-service faster, they can do it. As Bill mentioned, there's not one thing. There's not like one area of the business where we're both improving our customer satisfaction and also making ourselves more efficient. But it's more built into our DNA, built into how we're capturing our data, built into how we really look at the entire business.

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

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