ACV Auctions Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
ACV Auctions operates a digital business-to-business wholesale vehicle marketplace connecting dealership and commercial buyers and sellers. It also provides transportation, vehicle financing, data services, vehicle condition assurances, and inventory-management technology. The filing covers the three and six months ended June 30, 2022, compared with the same periods in 2021.
- Q2 Marketplace Units were 148,047, down from 153,274; six-month units were 288,172, up from 281,660.
- Q2 Marketplace GMV was approximately $2.7 billion, up 27%; six-month GMV was approximately $5.1 billion, up 48%.
Financial performance and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $115.1 million | $97.4 million | $218.1 million | $166.5 million |
| Revenue growth | 18% | — | 31% | — |
| Marketplace and service revenue | $97.8 million | $83.9 million | $186.1 million | $142.3 million |
| Customer assurance revenue | $17.3 million | $13.4 million | $32.0 million | $24.1 million |
| Loss from operations | $(24.7) million | $(9.3) million | $(53.8) million | $(26.5) million |
| Net loss | $(24.5) million | $(9.7) million | $(54.0) million | $(27.1) million |
| Adjusted EBITDA | $(14.1) million | $(3.7) million | $(32.0) million | $(16.0) million |
| Basic and diluted loss per share | $(0.16) | $(0.06) | $(0.35) | $(0.29) |
- Operating loss margins were approximately 21.5% in Q2 2022 and 24.7% for the first six months, compared with approximately 9.6% and 15.9%, respectively, in the comparable 2021 periods.
- Net loss margins were approximately 21.3% in Q2 2022 and 24.8% for the first six months, compared with approximately 10.0% and 16.3% in the comparable 2021 periods.
- Marketplace and service revenue growth reflected higher GMV per unit, increased buyer fees implemented in December 2021, higher transportation and other marketplace revenue, and growth in data services revenue. Data services revenue increased to $8.2 million in Q2 and $16.3 million for the first six months.
- Operating expense growth exceeded revenue growth. Q2 operations and technology expense increased 56% and selling, general and administrative expense increased 31%. Six-month increases were 54% and 40%, respectively, driven primarily by headcount, stock-based compensation, technology investment, bad debt, insurance, and marketing expenses.
- Stock-based compensation was $8.4 million in Q2 and $16.3 million for the first six months, compared with $3.8 million and $6.6 million, respectively, in 2021.
Cash flow, liquidity and debt
- At June 30, 2022, cash and cash equivalents were $303.9 million and marketable securities were $208.0 million, for approximately $511.9 million of cash and short-term investments.
- Six-month operating cash flow was $(72.6) million, compared with $72.8 million provided in 2021. The deterioration primarily reflected the net loss and a $39.6 million reduction in marketplace float as the timing benefit between buyer collections and seller payments compressed.
- Six-month investing cash flow was $(258.6) million, including $197.3 million of marketable-security purchases, $33.9 million of increased finance receivables, $18.9 million for the Monk SAS acquisition, $8.7 million of capitalized software, and $1.8 million of property and equipment purchases.
- Six-month financing cash flow was $69.1 million, primarily reflecting $130.0 million of debt proceeds, offset by $60.0 million of debt repayments.
- Long-term debt was $70.5 million at June 30, 2022, consisting of $0.5 million under the 2019 Revolver and $70.0 million under the 2021 Revolver. The company also had a $1.1 million letter of credit outstanding.
- The 2019 Revolver has a $50.0 million maximum principal amount, matures June 25, 2024, and had $49.5 million of unused availability. The 2021 Revolver has a $160.0 million maximum principal amount and matures August 24, 2026.
- Management stated that existing cash, marketable securities, and expected operating cash flows should support working capital and capital expenditures for at least the next 12 months and the long term. The company was in compliance with applicable debt covenants at June 30, 2022.
Material changes versus the prior comparable period
- Revenue increased 18% in Q2 and 31% for the first six months, while net losses expanded substantially to $24.5 million and $54.0 million, respectively.
- Adjusted EBITDA declined to $(14.1) million in Q2 and $(32.0) million for the first six months, reflecting continued investment and operating-cost growth.
- Marketplace Units declined in Q2 despite higher GMV, but increased for the six-month period. Management attributed revenue growth partly to higher GMV per unit and higher buyer fees.
- Cash and cash equivalents declined from $566.0 million at December 31, 2021 to $303.9 million at June 30, 2022, while marketable securities increased from $13.8 million to $208.0 million.
- Long-term debt increased from $0.5 million at year-end 2021 to $70.5 million at June 30, 2022.
- ACV acquired Monk SAS for approximately $19.1 million in February 2022. Monk provides artificial-intelligence visual-processing capabilities intended to enhance inspection and service offerings.
- The company expects to lose emerging growth company status and become a large accelerated filer as of December 31, 2022, increasing reporting and internal-control requirements.
Outlook, commentary, risks and unusual items
- Management did not provide specific revenue, earnings, or unit guidance in the filing. It expects continued investment in personnel, sales and marketing, technology, operations, and new products, with near-term profitability potentially delayed but operating leverage expected over the longer term.
- Used-vehicle supply and demand remain affected by semiconductor shortages, COVID-19-related production disruptions, historically low dealer inventories, used-vehicle pricing, macroeconomic conditions, and industry seasonality.
- Management noted that Marketplace GMV could decline as used-vehicle values normalize even if Marketplace Units continue to grow.
- Customer assurance guarantees exposed the company to claims and resale losses. Vehicles with outstanding condition guarantees had aggregate sale prices of $273.8 million at June 30, 2022; the related liability was $2.0 million, with an additional $1.1 million probable-loss contingency.
- A putative antitrust class action alleges bid-setting activity related to transactions from one seller. The court was considering a motion to dismiss the third amended complaint as of June 30, 2022. The company cannot estimate a potential loss but does not currently believe the matter will materially affect its consolidated financial position.
- Key risks include continued operating losses, negative operating cash flow, customer and vehicle-supply concentration, used-vehicle price volatility, competition, inspection and guarantee claims, settlement and credit risk, reliance on third-party transportation and technology providers, cybersecurity and privacy obligations, regulatory compliance, variable-rate debt and LIBOR transition risk, and potential dilution from equity compensation or future financing.
- Disclosure controls and procedures were determined to be effective at the reasonable assurance level as of June 30, 2022, with no reported material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and GMV growth can continue if used-vehicle prices normalize and wholesale vehicle supply remains constrained.
- Whether operating expense growth, stock-based compensation, and negative operating cash flow moderate sufficiently to support the path to profitability.
- The sustainability of marketplace float and the potential cash-flow impact if buyer collections and seller payments remain closely timed.
- The availability, pricing, covenants, collateral requirements, and variable-rate exposure of the revolving facilities.
- The ultimate outcome and potential financial exposure of the antitrust litigation and vehicle-condition guarantee obligations.
- The impact of losing emerging growth company status, including auditor attestation and expanded public-company compliance costs beginning with fiscal 2022 reporting.
- Whether the Monk SAS acquisition and other data-service investments produce measurable increases in adoption, revenue, and operating efficiency.