ACV Auctions Inc. 2021 Q1 Form 10-Q Summary
Business Context and Reporting Period
ACV Auctions operates a digital business-to-business wholesale used-vehicle marketplace, supported by transportation, financing, inspection, data and customer-assurance services. The unaudited report covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The company completed its initial public offering on March 26, 2021 and trades on Nasdaq under the symbol ACVA.
Key Financial and Operating Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $69.1 million | $42.2 million | +64% |
| Marketplace and service revenue | $58.4 million | $34.6 million | +69% |
| Customer assurance revenue | $10.7 million | $7.6 million | +40% |
| Marketplace Units | 128,386 | 82,588 | +55% |
| Marketplace GMV | $1.3 billion | $0.6 billion | +107% |
| Net loss | $17.4 million | $27.5 million | Loss narrowed |
| Net loss per share | $0.51 | $1.30 | Improved |
| Adjusted EBITDA | $(12.4) million | $(24.4) million | Loss narrowed |
| Loss from operations | $17.1 million | $27.9 million | Loss narrowed |
| Net cash provided by operating activities | $45.9 million | $(31.9) million | Improved |
Operating expenses were $86.2 million, or 125% of revenue, compared with $70.1 million, or 166% of revenue, in the prior-year quarter. The implied gross margin, after marketplace and service costs and customer-assurance costs, was approximately 44% in Q1 2021 versus approximately 32% in Q1 2020. The operating margin was approximately negative 25% in Q1 2021 versus negative 66% in Q1 2020. Stock-based compensation was $2.9 million, compared with $2.1 million.
Cash and cash equivalents were $659.7 million at March 31, 2021, compared with $233.7 million at December 31, 2020. The increase primarily reflected IPO proceeds and positive operating cash flow. Investing cash outflow was $10.6 million, including $2.3 million of capitalized software costs and $0.7 million of property and equipment purchases. Total debt was $6.6 million, consisting of borrowings under a secured revolving credit facility with $43.4 million unused availability. The company was in compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Marketplace Units increased 55%, and Marketplace GMV more than doubled, reflecting stronger used-vehicle demand, increased digital adoption and expansion of the marketplace.
- Revenue growth was primarily volume-driven. Auction marketplace revenue increased to $34.3 million from $17.8 million; transportation, data and other services revenue increased to $24.1 million from $16.8 million.
- Cost growth was slower than revenue growth in several categories. Marketplace and service cost of revenue increased 37%, operations and technology expense increased 27%, and selling, general and administrative expense increased 4%.
- Operating and net losses narrowed materially, although the company remained unprofitable.
- Operating cash flow changed from a $31.9 million use to a $45.9 million source, substantially influenced by working-capital movements, including a $138.4 million increase in accounts payable that more than offset increases in receivables.
- The IPO generated substantial liquidity. The company issued 16,550,000 shares for its own account at $25.00 per share; the underwriters also sold 2,482,500 shares for selling stockholders, from which the company received no proceeds. The filing presents net IPO proceeds differently in different sections, including approximately $388.9 million in the financial statements and $385.0 million in the use-of-proceeds discussion.
- All outstanding convertible preferred stock converted into Class B common stock, and the company adopted a dual-class structure. Class B shares have ten votes per share versus one vote per Class A share.
Guidance, Outlook, Commentary and Risks
The filing does not provide specific quarterly or full-year revenue, EBITDA or profitability guidance. Management expects continued investment in sales and marketing, personnel, technology, operations and new products, which may increase expenses and delay profitability. Management stated that existing cash, cash flow from operations and available resources are expected to support working capital and capital expenditures for at least the next 12 months.
- Management expects long-term operating leverage and improved Adjusted EBITDA as the business scales, but acknowledges that Adjusted EBITDA may fluctuate in the near term.
- Used-vehicle demand and supply, vehicle pricing, seasonality and the ongoing effects of COVID-19 could cause significant volatility in transaction volumes, revenue and margins.
- The company provides vehicle-condition and other price guarantees. The sale price of vehicles subject to outstanding condition guarantees was $226.6 million at March 31, 2021, with $1.7 million of related guarantee liability and $1.3 million of additional probable loss contingency recorded.
- A putative class action filed March 19, 2021 alleges federal antitrust and New York law violations relating to alleged bid setting on the marketplace. The company cannot estimate a potential loss but believes the matter will not materially affect its consolidated financial position.
- The company previously identified a material weakness in internal control over financial reporting related to revenue recognition and stock-based compensation. Management reported effective disclosure controls as of March 31, 2021, but warns that material weaknesses could recur or additional weaknesses could arise.
- Principal business risks include competition from traditional and digital auctions, dependence on used-vehicle supply and dealer participation, inspection and fraud exposure, settlement and credit risk, transportation and technology disruptions, privacy and cybersecurity obligations, regulatory compliance and the company’s continuing operating losses.
- Class B holders collectively controlled approximately 98.6% of voting power as of March 31, 2021, limiting the influence of Class A holders. The company does not expect to pay dividends in the foreseeable future.
Investor Verification Checklist
- Verify the sustainability of Marketplace Unit and GMV growth as COVID-related market conditions, used-vehicle prices and supply normalize.
- Reconcile the differing IPO net-proceeds figures disclosed in the financial statements, cash-flow statement and use-of-proceeds section.
- Monitor progress toward profitability and the extent to which operating expenses, stock-based compensation and capitalized software spending scale with revenue.
- Assess the quality of operating cash flow, particularly the effect of marketplace float, receivables, accounts payable and period-end settlement timing.
- Track customer-assurance claims, guarantee liabilities and potential losses relative to the $226.6 million of vehicles covered at quarter-end.
- Follow developments in the antitrust class action and any other litigation or regulatory matters.
- Review future filings for remediation of the historical internal-control weakness and changes in disclosure-control effectiveness.
- Consider the voting concentration, lock-up expirations, equity-plan dilution and potential future sales of Class B or Class A shares.