ACVA - NASDAQ

Greetings and welcome to the ACV Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining ACV's conference call to discuss our third 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 today. We are pleased with our team delivering record revenue despite challenging market conditions during the quarter. Our performance was driven by solid execution in our dealer wholesale business as we continue to gain market share, expand our dealer partner network, and leverage our value-added dealer solutions. And again, this quarter, ACV Transport and Capital delivered record revenue performance. We also executed on our product road map to further differentiate ACV's marketplace experience, support our commercial wholesale strategy, and expand our TAM. As Bill will detail later, we have updated our 2025 guidance to reflect continuing crosscurrents in the broader macro environment, while still expecting to deliver strong top line growth of 19% year-over-year. Furthermore, we expect to deliver strong adjusted EBITDA growth of over 100% 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. Q3 revenue was $200 million and grew 16% year-over-year, against a tough comparison in Q3 2024 with 44% growth. We sold 218,000 vehicles, which was 10% year-over-year growth despite the sustained market deceleration during the quarter. Next on Slide 5, we will again focus our discussion around the 3 pillars of our strategy to maximize long-term shareholder value: growth, innovation, and scale. I will begin with growth. On Slide 7, we highlight how ACV is leveraging AI across our suite of solutions to attract new buyers and sellers, increase penetration and wallet share, and gain traction with large dealer groups. Let's begin with our marketplace. For sellers, we provide highly accurate, condition-adjusted pricing guidance, enabling them to set better informed reserve prices, increasing buyer engagement. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions, with vehicle price depreciation above normal seasonal patterns, dealers are increasingly leaning into ACV's technology. The buying experience on ACV is tailored across buyer personas, and we optimize the bidding experience by providing AI-enabled recommendations informed by dealer preferences and current market factors. Our differentiated marketplace experience is showing up in the numbers. In Q3, we achieved new quarterly milestones with over 10,000 sellers and 14,000 buyers transacting in our marketplace. Our franchise rooftop penetration also achieved a new milestone, reaching 35% in the quarter. And our major account team delivered impressive results with rooftop penetration within the segment increasing 300 basis points year-over-year. Lastly, from a geographic perspective, we delivered solid growth in our more established regions, where ACV has built significant market share. We also delivered accelerating growth in several emerging regions, like in Southern California and the Midwest, where unit growth exceeded 20% in Q3. While we are very pleased with this performance, there are certain emerging regions where we are enhancing our field engagement model to accelerate growth. These efforts will continue in 2026, and we are confident in the medium-term growth outlook for these emerging regions. Next on Slide 8 I'll provide some highlights on our data services. Market traction for ClearCar remains strong. Dealers are leveraging ClearCar service to generate consumer appraisals and offers in their service lanes, creating a valuable sourcing channel in the current supply-constrained environment. While this is great for our dealer partners, ClearCar is also becoming an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. Dealers that recently launched ClearCar increased their wholesale volume by over 30% after going live. And 50% of recent ClearCar customers also became new sellers on our marketplace. ACV MAX is gaining further traction in the industry with dealers now using AI to accurately price retail and wholesale inventory. And we're seeing the same cross-sell dynamic when bundling ACV MAX with wholesale. A recent cohort of new ACV MAX dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within 1 quarter of launching MAX. We're excited to see that our strategy to offer a broader set of solutions is creating another long-term growth lever for ACV. Turning to Slide 9. Let's review our marketplace service offerings, beginning with ACV Transportation. The Transportation team had strong execution in Q3, again, setting records for both quarterly revenue and transports delivered. AI-optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 200 basis points year-over-year in Q3 and was in line with our medium-term target in the low 20s. And our off-platform transportation service continues to gain traction from our dealer partners, creating additional long-term growth opportunities. Lastly, I'll wrap up the growth section on Slide 10 with ACV Capital highlights. ACV Capital team delivered strong revenue performance with 70% growth in Q3, which was the fourth quarter in a row of accelerated growth. In terms of managing risk and in light of the bankruptcy of a former customer, Tricolor, we conducted a review of our loan portfolio. Based on our review and current macro factors, we're lowering our exposure to higher-risk customer segments and reducing our Q4 ACV Capital revenue forecast. Overall, we are confident that ACV Capital will remain an important value-added service for our dealers and long-term growth opportunity. Next on Slide 11 I will 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're leveraging ACV AI to drive growth and deliver value to our dealer and commercial partners. Using machine learning, we've used inspection and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. Last quarter, we highlighted how we're leveraging our pricing platform to offer ACV Guarantee to sellers and deliver a no-reserve auction format to buyers. This offering is the fastest-growing channel in our marketplace. We were pleased to see ACV Guarantee increase from 11% units sold in Q2 to 18% in Q3. As a reminder, our Guarantee sale is a win-win-win for buyers, sellers and ACV. This offering accelerates bidder engagement, increases buyer satisfaction, and delivers 100% conversion rate while removing seller market risk. We're confident this highly differentiated offering will be another key driver of continued market share gains. On Slide 13, we highlight how we're expanding our competitive edge with AI-driven next-generation products like Project Viper and Virtual Lift 2.0. Since launching our first few pilots in Q2, we added new dealers and our own remarketing centers to the pilot program. To date, over 60,000 vehicles have been inspected by Viper and Virtual Lift, and our team is leveraging this data to fine-tune the product. We are receiving tremendous feedback from dealer and commercial partners as our imaging and AI models are maturing and identifying key inspection data. We are looking forward to the commercial launch of Project Viper and Virtual Lift 2.0 in 2026. Wrapping up on innovation, let's turn to our commercial wholesale strategy on Slide 14. Our first greenfield remarketing center in Houston successfully completed its soft launch and volumes are beginning to ramp. Our team has deployed a range of capabilities developed over the past year, including vehicle assignments from AutoIMS, commercial inspection applications, work order and repair estimates, and integration with ACV's wholesale marketplace. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing. We also look forward to launching additional greenfield locations to expand our footprint. With that, I'll 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 Q3 financial performance. Along with record revenue, we continue to deliver strong adjusted EBITDA margin expansion and growth, demonstrating the strength of our business model. On Slide 16, let's begin with a recap of our third quarter results. Revenue of $200 million grew 16% year-over-year and was at the midpoint of our guidance range, despite market headwinds in the last 2 months of the quarter. Adjusted EBITDA of $19 million was at the midpoint of guidance, with margins improving 280 basis points year-over-year. Note that adjusted EBITDA benefited from a $7.6 million class action lawsuit settlement against a data services vendor. However, this benefit was almost entirely offset by approximately $7 million in ACV Capital reserves. As George discussed earlier, during our quarterly review of capital loss reserves, we factored in current macro conditions and exposure to higher-risk customer segments, which yielded a higher level of reserves booked in Q3. Adjusted EBITDA also excludes $18.7 million of operating expenses related to the Tricolor bankruptcy. Finally, non-GAAP net income of $11 million was also at the midpoint of guidance. Non-GAAP net income includes the net impact from the legal settlement and ACV Capital reserves and excludes the $18.7 million bankruptcy-related reserves. Next on Slide 17, let's review additional revenue details. Auction and assurance revenue was 56% of total revenue and grew 10% year-over-year against a very tough comparison of 52% growth in Q3 '24. This performance reflects 10% unit growth and Auction & Assurance ARPU of $508, which grew modestly year-over-year but declined 3% quarter-over-quarter. The sequential decline resulted from targeted volume pricing and ACV Guarantee promotions we implemented to support our seller acquisition strategies. We were pleased to see the promotional activity deliver early returns, with unit growth accelerating in September to 13%, reflecting 16% market share gains. Note that we're expecting Auction & Assurance ARPU to increase sequentially in Q4. Marketplace Services revenue was 40% of total revenue and grew 28% year-over-year, reflecting record revenue for ACV Transport and ACV Capital. Lastly, our SaaS & Data Services products comprised 4% of total revenue and grew 2% year-over-year. Next I'll review Q3 costs on Slide 18. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 100 basis points year-over-year. Note that cost of revenue benefited from a $7.6 million credit related to the class action lawsuit settlement. Excluding the credit, cost of revenue as a percentage of revenue would have increased approximately 300 basis points. The increased cost of revenue was primarily driven by increased arbitration costs within a specific cohort of customers. Given the pressure dealers are facing in the current market environment, we expect arbitration costs to remain elevated in Q4, but are taking steps to mitigate the impact and expect trends to normalize in 2026. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue, decreased approximately 100 basis points year-over-year. Note that Q3 non-GAAP operating expenses included the increase in ACV Capital reserves resulting from our loan portfolio review. Moving to Slide 19, I'll frame our investment strategy as we drive profitable growth. In 2025, we expect OpEx growth of approximately 12% to support our remarketing center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 400 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 20. We ended Q3 with $316 million in cash and cash equivalents and marketable securities and $220 million of debt. Note that our cash balance includes $200 million of marketplace float. In the figure on the right, we highlight our strong year-to-date operating cash flow, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 21. Following 2 months of year-over-year declines in the dealer wholesale market in August and September, market conditions continued to weaken in October. Dealer wholesale price depreciation has been tracking above normal seasonal patterns, which has pressured industry conversion rates. As such, we're expecting the dealer wholesale market to decline in the mid-single digits in Q4, which is more than previously anticipated. Our updated guidance factors in this more challenging market environment and a $2 million reduction in projected ACV Capital revenue, reflecting a more cautious approach in Q4 as we prepare to further scale in 2026. We are now expecting fourth quarter revenue in the range of $180 million to $184 million, growth of 13% to 15%. Fourth quarter adjusted EBITDA is now expected to be in the range of $5 million to $7 million, reflecting the impact of the market conditions on dealer wholesale volumes plus higher expected arbitration costs discussed earlier. Based on the revised Q4 outlook, 2025 revenue is now expected to be $756 million to $760 million, growth of 19% year-over-year. Adjusted EBITDA is now expected to be $56 million to $58 million, growth of approximately 100% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue, to grow approximately 12% year-over-year, resulting in a 24% incremental adjusted EBITDA margin at the midpoint of guidance. Before handing it back to George, I would like to share some initial planning assumptions for 2026. First, based on an uncertain backdrop for automotive retail and elevated trade retention rates, we believe it's prudent to assume that the dealer wholesale market is flat in 2026. Second, as George discussed earlier, we are enhancing our field engagement model in certain emerging regions and rolling out a host of new innovations next year, which will be key factors in reaccelerating market share gains over time. And third, we expect to balance margin expansion while investing for growth. 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 record revenue performance in Q3 and accelerated market share gains, all while navigating through challenging market conditions. We are quickly overcoming these market challenges by continuing to enhance our technology and operating models, ultimately making us even more resilient. We continue to attract new dealer and commercial partners to our marketplace and expand 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 strong adjusted EBITDA growth 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 comes from the line of Chris Pierce with Needham & Company.

Is it fair to ask, do you guys think it's possible the wholesale market -- the dealer wholesale market has changed structurally and dealers are just going to hold on to trade-ins at a much higher rate? Or I just want to think about because it's been a choppy couple of years. Just how you guys think about this going forward? And then I just had one on competitive landscape as well.

Chris, I don't think we should assume that there's a long-term structural change. I think the dealer wholesale market is still -- should recover. I think when you look at all the factors, off-lease really hasn't come back in a significant way, where we haven't seen interest rates come down, you haven't seen all the macro factors play in. So I think at the end of the day, it'd be way too early to say with all the macro events that the dealer market has structurally changed.

So we've got this choppiness right now. And against this backdrop, and maybe a [ truer ] #2 competitor emerging, have competitive dynamics changed on the ground when you go to market to talk to dealers? Are dealers thinking they need to have a second source more? I'm just curious if you're hearing anything different from dealers that you were hearing maybe 18 months ago.

Chris, we'll be very specific. Quarter-over-quarter, we grew by 8,000 units. If you look at 8,000 units quarter-over-quarter, I believe that was significantly more than any other competitor that had U.S. growth. So that will be, I think, fact number one. So that shows pretty significant quarter-over-quarter growth. In addition, when you look at it, we went from -- our share gains became double digits again in Q3 for the whole quarter. And then last but not least, in September, according to AuctionNet, with the market being down 3%, we would, therefore, have had 16%, therefore, mid-teens growth. So the way I look at it is, yes, the market is softer, and with the market ending 3% down -- dealer wholesale market being down, obviously made the quarter challenging and the start of this quarter more challenging. But when you look at the fact that we've always had competitors from day 1, and we grew 8,000 units quarter-over-quarter and had end of the month -- end of the quarter right around those mid-teens objectives for that month, Chris, I would say we've always had competitors, we still have competitors, and we believe we have the best solution.

Our next question comes from the line of Rajat Gupta with J.P. Morgan.

Just have a couple. Could you unpack a little bit on the third quarter auction ARPU moderation from second quarter? I appreciate your market share comments. I'm curious that if there were any price actions that were being taken to maintain that? Is that a change in strategy? I know you talked about putting more boots on the ground. So curious if you could talk about that a little bit. And I have a quick follow-up.

Yes, I'll start and then Bill can chime in, Rajat. We, I think, mentioned in the call that we have targeted regional pricing campaigns where we are being a bit more aggressive. Think about that more on the supply side. So where we're still new and we're still emerging, we are attacking the market and it is helping us win share. I think. Bill, also mentioned in the call that we expect Q4 for ARPU. How did you...

Yes. So what I mentioned on the call was that we expect Q4 ARPU to actually go back up. So it went down 3% in Q3, but that's more just a result of some of the activities in that quarter.

So at the end of the day, Rajat, we're going to go out and win share. We are using pricing, especially where ACV has low volume in certain regions, we are being a bit more aggressive. So I think that that's definitely one part of your question. And the other part is I'm still very confident in our midterm model we've given you guys for pricing. So look at those as -- when you look at our midterm model and where we've been hovering, and I think I feel very confident in ARPU for Q4, but we will use pricing in certain regions to gain more share.

And you briefly touched upon the 2026 wholesale market outlook. I'm curious if there's any more color you want to maybe provide some soft guidance. Should investors still expect the same kind of share trajectory? Or should we expect some acceleration given you're putting more boots on the ground? Maybe if you could give us some sense of market share expectations going forward? And also what incremental margins is reasonable to assume at this point as you attack more share?

Yes. So again, I'll start and Bill will chime in. As you mentioned, I think assuming flat helps us all, so that -- basically just to be very open, we don't have analysts assuming right now dealer wholesale goes up next year. I just think we'd rather just put it out there. Let's not assume that. There's too many macro factors going on. I think better for all of us just assume flat. None of us really know. But if we just assume that, I think that would be prudent for all of us as we start to think about next year. Two, I would look at share gains and how we've operated. In most of our months and quarters, we've been hovering right around the double digits. You've seen us range -- granted last quarter, we were high single digits. This past quarter, we were double digits. We ended the quarter in that mid-teens. So when you look at that range of our execution, just to be fair, I would say our range has been on execution has been -- in that lower double-digit range has probably been our true execution. Our objective is to get back to mid-teens, but I would say we need to go out there and prove that. And that would be a way to maybe restate what Bill said. Maybe just -- I think I basically said the same thing he said a few minutes ago. But it's a way to think about we need to more consistently hit that mid-teens, which we haven't yet proved we can do each and every month. But having said all that, I'm really proud that if you look at the quarter-over-quarter, we grew more than anyone else last quarter. So I would separate those 2 things of how we grew last quarter was better than anyone else in the market.

And in terms of just the incremental -- sorry, go ahead.

No, I was going to say just -- Rajat, one other thing I would just add, again, Q3 of this year was our biggest quarter of the year. And if you remember, historically, at least prior to last year, typically, our growth in unit volume would follow seasonal patterns. The first half would be relatively strong and then Q3 would be a bit weaker and then Q4 would be the weakest quarter. So last year, for the first time since we went public, our Q3 volume and revenue was actually the highest it was the entire year. And the same thing occurred this year. So the growth rate might have been a bit different since we came off of a very, very strong quarter last year. But again, we had record revenue in Q3 and record volume for the full year, bigger than Q1 or Q2. So I guess that's the other context to just give you in terms of our Q3 performance.

I just wanted to follow up on leverage. Given some pricing actions or the low double-digit share, should we assume lower than 30% for now as reasonable before you get back to the 40s on incremental margins? Just curious if that has been a bit of a change in the operations as well.

Yes. I don't think we're ready to comment on that at this point, Rajat. we're in the middle of obviously putting our planning together for next year. You can assume some marginal improvement. But beyond that, there's nothing else for me to comment on at this point until we have our plans finalized.

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

I wanted to ask a question about ARPU is where I'm going to get to. Hopefully, I can make this make sense. Recent J.D. Power's analysis showed the spread between retail prices and wholesale prices has widened from $9,000 to $15,000 over the last 5 years. And this seems to confirm earlier points you guys were saying that dealers are keeping more cars and better cars and retailing those versus wholesaling them. That's part of the problem now because there's no off-lease to have, et cetera, et cetera. So the question is, what does this mean for your ARPU going forward if retailers -- I'm sorry, if dealers are going to keep the highest value cars and wholesale lower ones, how should we think about this trend? And when does it start to reverse itself?

Yes. Bob, I think it's a great question. Difficult one to answer because you're predicting obviously, macro with everything else. I think the simple thing to do is just to look at a revenue range, an ARPU range that you're hearing us be comfortable with a certain ARPU range. And you saw our execution in Q2, Q3 a bit later. We're trying to give you guys a little bit of an indication on Q4. But I think for right now, just to keep everyone's expectations in line, I would just not have ARPU going up materially next year or at all. Because to your point, with all these factors going on, I would rather just put it out there that keep ARPU in this moderate area for now. There will be 1 quarter or 2 that it might bump up. And you may see a little bit of that. But I think we'll go into next year, and I think better to keep the expectations of ARPU in a reasonable area for analysts, never want to think about the year. And then to your point, in a more medium-term outlook, there probably is some ARPU that maybe in the next 1 to 3 years, whenever that happens, Bob, to your point, we could start to see ARPU bump up even more. And I just don't want to be wrong at this point, right, and put too much out there. So I just think let's take this correction and say, I think you're right, there will be a correction, and it would mean we'd have a higher ARPU. I just don't want to think -- I don't want to guess it's going to happen next year. If it happens, it takes a little bit longer.

No, absolutely fair. I think you just need [ deals ] to start wholesaling better as well, and therefore, off-lease to come back so that they have other things to sell, et cetera. Okay. Great. And then you talked about lower conversion rate for the industry in Q4 based on the accelerated depreciation of values. But at the same time, you guys are increasing your guaranteed pricing. I think you said it was 18% during the quarter, and that's higher conversion, obviously. So looking into next year, how should we think about conversion at auction with those little factors?

I think conversion rates, my biggest goal for next year is it's just not as crazy. We've seen some ups and downs this year, even within a quarter, that's pretty significant. And when you think about this year with everything from tariffs and everything else going on, we've really had a challenging year for dealers to absorb the value of a car. And then what is that value, what is that depreciation, all these factors, it's been a very difficult year for dealers. I hear sentiment from dealers saying some of this will normalize. I mean, that's what I'm hearing. I believe that's what many of you and others are hearing, which the normal -- having the value of these vehicles normalize would mean that we'd see the bid and the ask between sellers and buyers also start to normalize, and we won't have this up and down on conversion rates that we've seen. So I think next year, conversion rates would -- we'd see a bit more consistency in conversion rates across the industry. Obviously, it all depends upon all the macro factors. But I think some of the stuff starts to work itself out. I don't know, Bill, if you have any more on that topic. But it's a hard one, Bob, as you know, for us to predict next year as it relates to conversion rates. But I think you and others have also heard dealers saying things should start to normalize as some of these other factors start to take place.

Our next question comes from the line of Andrew Boone with Citizens.

I wanted to ask about ACV Capital and just the return to normalization of lending. Can you guys just help us understand the guardrails outside of macro of what you guys need to do to be able to return that business? And then again, going just back to top of funnel demand. Can you guys talk about cohorts, and is there anything you're seeing within the cohorts as we think about just the change in dynamic of macro and what you guys are seeing? Or is this just widespread?

This is Bill. So I'll start with ACV Capital, and then I'll turn it over to George. So maybe first, a little bit of context in terms of ACV Capital. So as part of our planning, we have historically planned an historical loss rate that's slightly higher than some of the bigger players out there. Typically, we model a 3% loss rate based on the fact that we're in a high-growth phase for the business, and we're certainly not as mature as some of the bigger players out there. So that's what's been baked into our financial models for ACV Capital historically. So despite what occurred in Q3, and I'll get into that in a minute, our view of that loss ratio hasn't changed in terms of our modeling going forward into next year. That said, as I mentioned on the call, as a result of this large bankruptcy that occurred in which we've reserved basically over $18 million for that bankruptcy, not sure what the ultimate outcome will be in terms of recovery, we did do a very thorough portfolio review. And as a result, we've looked at our internal controls, our processes, and we're in the process of making a number of improvements going forward so that we can scale with comfort next year in terms of the confidence that we're going to stay within our planned target in terms of those loss ratios. But as a result of that, there were certain higher risk credits that we had outstanding that we concluded it was prudent to book some reserves in Q3, which is what flowed through the quarter, and that was approximately $7 million. In terms of the go-forward plan, there's still a lot of upside opportunity for us. This is very synergistic, obviously, with our auction business. So it's very strategic. And you can expect this business to continue to grow next year at a good clip, albeit maybe at somewhat of a slower rate than we experienced this year. And we are taking our ACV Capital revenue down a couple of million for Q4, as I mentioned, just to ensure that before we start to scale next year, we've got the right processes and controls in place. So hopefully, that gives you a little bit of color in terms of ACV Capital.

And maybe just 2 more things on that. Even with that bit of caution, we're still going to be executing on attach rates in the high teens. So look at this as it's still very strong execution, even with having this mitigated risk and being a bit more careful. The midterm model assumed 25% attach rates. So when you just -- the way I look at this is, listen, you learn on moments this, you sometimes just add some more controls. You take moments this. Obviously, there's other major banks in the world that had the same common customer. This will make us even a better company in the midterm. And you really become, I think, a more durable company in moments that when you have a situation this like this Tricolor. But I would say, I have the same confidence in getting back to the 25% attach rate goals in the midterm model. This is a small period of time. We have a lot of demand for ACV Capital. We've got a great product. You saw us execute really well up until that moment. And I would say one step backwards, I think we'll then take 3 steps forward. So that was all on your first question. Your second question, I believe, was about other cohorts and other things going on the business. Can you repeat that one, just to make sure because it was so long ago, it took us a while -- such a long time to answer your question that I remember your first one, but I want to make sure -- your second one, but I want to make sure I got it right.

It was a great first answer. So let me try the second one again. If I think about macro just overlaying in terms of results, is there anything you want to call out in terms of specific cohorts or geographies that may help us better understand what's going on across the industry?

Yes, I'll try to give a little color on this. We mentioned on the call that 2 of the regions that we were probably known to be weaker in had 20%-plus growth year-over-year, and we were really excited about that. If you look at our largest regions from a cohort perspective, most of our large regions are still growing. And there's only one, and the one that -- it still grew. It grew, but it didn't grow as much. It was one where we've got nearly 40% market share. And so when you look at overall the cohorts, I still -- the reason why I remain confident in the midterm model is because in the regions where we don't yet have the brand and support of being the dominant player in that region, we're emerging. And in the areas -- in most of the areas where we have very significant market share, and that's significant against physical and digital, all in, we're still growing in the majority of those regions even with big numbers. So long-winded way of saying, I think not a lot has changed. But we did mention on the call, there's a few reasons where we need to step it up and grow even more, and we're on it.

Our next question comes from the line of Naved Khan with B. Riley Securities.

Maybe just touching on commercial. How should we be thinking about the volume through the AutoIMS relationship ramping exiting this year and into next year? What trajectory should we assume there as we not only just map out Q4, but also look at 2026. And then, George, you spoke about being opportunistically with respect to discounting in certain markets where the penetration is low. What do you see from your competitors in terms of price promotions? Do you see any price increases occur in recent quarters? Or are we in an environment where pricing is not necessarily going to be a lever for any of the players, including yourself?

I'll go to the second one first. I think pricing between the hundreds of physical auctions and a few digital, there's a lot of different pricing things going on. To your point, some people continue to increase fees and some are using fees primarily on the supply side to get the attention. But generally speaking, buy fees typically go up every year with most of the competitors, which is the majority of the ARPU. And your first question on commercial, we're going to be hovering somewhere in the mid-to-higher single digits, I think somewhere 6%, 7% of our volume in commercial for 2025, somewhere in that range for commercial. So I'm very proud of what we're doing. But as I've said in many other calls that we are -- we're really laying out the foundation right now for many years to come. I'll just remind you of the 3 things we're doing there. One is the upstream digital like you said, with AutoIMS upstream digital. That's one. Two is the greenfields, like Houston being our first. And then we'll have a second greenfield that we launch sometime early next year. And then third is once our software is hardened and we're ready to go, we'll take it back to the 10 legacy locations that we acquired. So that will take us some time. So look at it as if you're -- right now, our total commercial is in that 6% to 7-ish-percent range of our total volume. And even if that increased pretty materially for next year, it won't be a big number. I just want to be fair to that. It will help. It all helps. And it will grow. But dealer wholesale will remain next year being a far significant piece of our overall volume. But then commercial, when you think about going into out years, into '27 and beyond, it starts to really add up. So hopefully, that gives you a lot of color, because we're really not yet talking about next year. Obviously, a lot of these questions are about next year, but trying to give you enough color. But we're going through that planning cycle right now to nail down our objectives. But maybe that gives you a little bit of color based on the base.

Our next question comes from the line of Glenn Shell with Raymond James.

Just following up with what Naved said on commercial wholesale. Will we see that broken out so we can parse out dealer wholesale versus commercial wholesale? And then I just got a quick follow-up after that.

At this time, we don't know yet. We really didn't come into today's call with that answer, I would say, ready to go, but appreciate the question. But I would say we're not sure yet.

And then on Project Viper, is that still on track for a first half of '26 launch? Or is that more just generally '26? And then what have you been seeing from initial demand contribute to performance next year?

Yes. Project Viper is getting incredible feedback from dealers. Our goal -- and we need to still go out and hit this goal, I just speak to be open, but our goal is to start taking orders by an [ MADA ]. That's when we start actually taking orders by dealers, which will be in February and start shipping units in that middle of the year. Those are the internal goals. So I don't have any reason why we're not going to hit those goals of starting to take orders by [ MADA ]. I think next year will be primarily launching to enough dealer groups, get the feedback, and you then start scaling it the following year. But I would say so far, so good, getting great feedback, plan to go live, and we'll go from there.

Our next question comes from the line of Jeff Lick with Stephens Inc.

George, I was wondering if you could talk about you guys obviously have a pretty robust and novel set of services and features, ClearCar, ACV MAX, Data Services, obviously, Viper I guess up and coming. If you just look at the places that you're winning that are disproportionately doing better than the average, could you talk about just where you're really getting traction, and the dealer just looks at you to say, hey, look, this is a great partnership and where you clearly have an advantage and you're winning?

Yes, certainly. I'll try to give you a little bit of color without mentioning the dealers' names just to get a little closer to this. But yes, we mentioned on the call that dealers that have recently launched ClearCar and MAX, where we've won a higher proportion of the wholesale volume than our average across the board. And if you get to the why, you're now a strategic partner to that dealership group. And if they're using us for ClearCar and/or MAX, ACV MAX, and soon, hopefully, Viper, then they're using us to price their inventory. We're predicting the retail price, we're predicting the wholesale price, we're helping them make better decisions. And so we were the one to predict the trade value before they even bought the car. So you're not going to sit here and make the wrong decision on having wholesale values that are too high because you actually bought the car right way upfront during the trade. So when you think about what AI can do for this entire industry is take all these manual decisions that a lot of these dealers are working hard. These are people across the country who just don't have the right tools today, who got prices going down. And here we are, we're predicting the retail price of what the car is going to sell for in the next 30 days within a few hundred bucks. We're predicting the wholesale price on average within $100. That's really significant because now as you're sourcing and you're deciding what reconditioning you need to do, it's a big deal. So some of the data we mentioned during the call about dealers now selling more wholesale with ACV, they happen to have ClearCar and happen to have MAX. It's partially because they're actually making better decisions. And by the way, they're retailing more cars and typically having better margin versus our competitor or SaaS equivalent companies that we compete against. Hopefully, that gives you what you're looking for.

And then a quick follow-up for either you or Bill. As it relates to what you guys referred to as targeted volume pricing on the supply side or for the seller, I was just curious because usually that's a pretty low price to begin with. How does that work in terms of -- we're probably talking you're saving $50, $75. Is it short-lived in terms of, hey, okay, I'll give you this. It would seem you're going to eventually have to provide a little more for them than just pricing. Are the dealers really motivated by $50, $75?

First of all, I agree with your question. $50 or $75 or $100 shouldn't matter. We're a better solution. And we're helping them sell the car for more money. But when you do give one of these sell-side promotions, you're getting their attention, you're getting them to try it, you're getting them into the family. And some of these guys have been using these legacy auctions for a very long time. So look at it as you're just trying to get their attention. And then what you do is you start to say, hey, this is good for so long, x period of time or y amount of volume. So you do start to set some parameters about it. And none of those parameters make me worry about our midterm model.

Our next question comes from the line of Gary Prestopino with Barrington Research.

Last quarter, there was a big delta between listings and cars sold. Did you still see pretty good listings, but the conversion rate was just so much lower than expectations?

Yes, Gary. We continue to drive listings, which is listings obviously represents the opportunity to get in front of that car and sell it. But yes, so we've continued to see listings grow.

And then just a question. Bill had mentioned there was an increase in arbitration expense. With all the technology that you've put on your inspections, what is actually causing that to happen? Is it just that you're getting a car that might be a little bit lower quality?

So Gary, most of the customers that we inspect their car and then we go out and we look at the arbitration results, the far majority of the customers, we hit our target arbitration and goodwill. There are subsets of customers where it's become elevated. And what we've been doing is over the last couple of months is we're enhancing some of our dealer management tools to identify faster on what is going wrong with this one seller and/or buyer, what should we be doing differently, where it could be training or other best practices, and we're starting to build privileges and other aspects to our dealer management model. So it's really into the details of -- look at it as the far majority of the time, you really -- you don't have an issue, but you've got to get into those times where things become elevated, and we're diving in it. Again, when I look at this from a going into early next year, I think even by Q1, we're probably fine. I think just you go in there and you mitigate and you really learn through some of these things that crept in, and then we'll -- our dealer management and internal training when these things go wrong will be even better on top of that.

Thank you. And we have reached the end of the question-and-answer session. I would to turn the floor back to Tim Fox for closing remarks.

Great. Thank you, operator. And I'd to thank everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. We'll be at a couple of conferences in November and in December. And finally, thank you for your interest in ACV, and have a great evening.

Thank you.