ACV Auctions Inc. annual report, FY2022

ACV Auctions Inc. — Fiscal 2022 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022, filed March 1, 2023. The filing is an annual report; it does not provide a standalone fourth-quarter financial statement summary, although management notes fourth-quarter seasonality.

Business Context

ACV operates a digital wholesale marketplace for used-vehicle transactions between dealerships and commercial automotive enterprises. Its offerings include auctions, transportation, inventory financing, vehicle-condition assurance, inspections, data services, and inventory-management software. Operations are primarily in the United States, with supporting operations in Canada and France.

Marketplace Units: 546,088, down from 560,959 in 2021.
Marketplace GMV: $9.0 billion, up from $7.9 billion.
Marketplace Buyers: 14,453, up 3%.
Marketplace Sellers: 10,285, up 14%.
The company had more than 2,000 teammates at December 31, 2022.

Financial Performance and Key Metrics

Metric	2022	2021	Change
Total revenue	$421.5 million	$358.4 million	+18%
Marketplace and service revenue	$361.6 million	$308.4 million	+17%
Customer assurance revenue	$59.9 million	$50.1 million	+20%
Operating loss	$106.2 million	$76.8 million	Loss increased
Net loss	$102.2 million	$78.2 million	Loss increased
Adjusted EBITDA	$(56.4) million	$(44.1) million	Loss increased
Net loss per share	$(0.65)	$(0.62)	Loss per share increased
Operating cash flow	$(75.2) million	$85.3 million	Declined materially

Margins: Operating loss was approximately 25.2% of revenue, net loss was approximately 24.2%, and Adjusted EBITDA loss was approximately 13.4%. Marketplace and service cost of revenue remained approximately 44% of revenue, while customer assurance cost of revenue improved to approximately 12% from 13%.

Revenue growth was driven by higher transportation, auction, and data-services revenue, increased Marketplace GMV, higher buyer fees implemented in October 2022, and increased Go Green assurance revenue. Data-services revenue increased to $32.9 million from $23.1 million.

Liquidity, Cash Flow, Debt and Capital Resources

Cash and cash equivalents: $280.8 million at December 31, 2022, compared with $566.0 million at year-end 2021.
Marketable securities: $215.9 million, compared with $13.8 million at year-end 2021.
Cash, cash equivalents and marketable securities totaled approximately $496.7 million.
Net cash used in investing activities was $283.0 million, primarily reflecting purchases of marketable securities, increased finance receivables, software capitalization, capital expenditures, and the Monk acquisition.
Net cash provided by financing activities was $72.9 million, including net borrowing activity.
Long-term debt was $75.5 million, consisting of $0.5 million under the 2019 Revolver and $75.0 million under the 2021 Revolver.
The 2021 Revolver provides borrowing capacity of up to $160.0 million and matures August 24, 2026. A $1.6 million letter of credit was outstanding.
The company reported compliance with applicable debt covenants at December 31, 2022.
Lease obligations totaled $4.6 million on a present-value basis, with $1.4 million due within one year.

Management stated that existing cash, cash equivalents, marketable securities, and expected operating resources should support working capital and capital expenditures for at least the next 12 months and the long term, but also noted that additional financing could be required depending on growth investments, customer volumes, acquisitions, and technology spending.

Material Changes Versus 2021

Revenue increased 18%, but operating expenses increased 21% to $527.7 million, causing the operating loss to widen.
Operations and technology expense rose 35% to $136.5 million, primarily from increased headcount and technology investment.
Selling, general and administrative expense increased 19% to $143.6 million, including higher personnel costs, litigation accruals, and bad debt expense.
Stock-based compensation increased to $39.3 million from $23.2 million.
Operating cash flow shifted from a $85.3 million inflow to a $75.2 million outflow, largely due to changes in accounts receivable and accounts payable associated with marketplace transactions.
Marketplace Units declined approximately 3%, despite GMV increasing approximately 13%, indicating higher average vehicle values and/or fee economics.
Finance receivables increased to $78.0 million from $44.3 million, while the allowance for finance receivables increased to $2.3 million from $0.6 million.
ACV acquired Monk SAS for approximately $18.6 million, adding visual-processing and inspection capabilities. The acquisition added approximately $13.4 million of goodwill and $6.4 million of intangible assets.
The company recorded a liability in the fourth quarter for an antitrust class-action settlement. The complaint was settled and dismissed by the court as of January 31, 2023; the filing does not state the settlement amount.
ACV became a large accelerated filer and was subject to auditor attestation of internal control over financial reporting for the first time in this filing. Ernst & Young issued an unqualified opinion.

Outlook, Commentary and Risks

Management continues to invest in sales, marketing, personnel, technology, data services, transportation, and financing with the stated objective of achieving sustained profitability. The filing does not provide a specific 2023 revenue, EBITDA, or earnings outlook.

Management expects Adjusted EBITDA to fluctuate in the near term and improve over the long term as the company gains scale and operating efficiencies.
Fourth-quarter and winter auction volumes are typically seasonally lower, while holidays and the timing of tax refunds affect demand.
Key operating risks include used-vehicle supply and pricing, interest rates, dealer demand, macroeconomic weakness, inflation, credit availability, and recessionary conditions.
The company bears settlement risk for vehicle transactions and credit risk on dealer financing and receivables. Bad debt expense increased in 2022 because of more challenging macroeconomic conditions.
Go Green assurance exposes the company to claims and potential losses if vehicle-condition reports omit material defects. Outstanding vehicle sales subject to vehicle-condition guarantees totaled $160.3 million at year-end, with a $1.2 million recorded guarantee liability and an additional $1.4 million probable-loss accrual.
The business faces competition from large physical and digital auction platforms, including Manheim, Adesa, KAR Auction Services, and smaller online marketplaces.
Debt is secured and subject to financial and operating covenants. Variable-rate borrowings create exposure to interest-rate changes and the transition from LIBOR to a replacement benchmark.
Other significant risks include cybersecurity and data privacy, platform outages, fraud, inspection quality, transportation disruptions, regulatory compliance, litigation, intellectual-property claims, and continued operating losses.
The company had U.S. federal and state net operating loss carryforwards of approximately $299.8 million and $241.2 million, respectively, but recorded an $84.8 million valuation allowance against deferred tax assets.

Most Important Facts for Investors to Verify

Whether revenue growth can continue while Marketplace Units are flat or declining and operating expenses remain above revenue.
The pace at which operating cash burn improves and whether the company can reach profitability without raising additional debt or equity.
Liquidity after considering marketplace float, finance receivables, debt maturities, secured collateral, and customer settlement obligations.
Credit losses, delinquencies, and recoveries in ACV Capital’s finance-receivable portfolio.
Go Green claim frequency, guarantee liabilities, and the effect of vehicle-condition claims on margins.
The final cost and any residual effects of the settled antitrust litigation.
Progress in monetizing data services, transportation, financing, and other value-added offerings.
Effects of used-vehicle supply, pricing normalization, interest rates, dealer consolidation, and broader automotive demand.
Stock-based compensation, remaining unrecognized equity-award expense, dilution, and the company’s dual-class voting structure, under which Class B holders controlled approximately 75% of voting power at year-end.