ACV AUCTIONS INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year endedDecember 31, 2021 included in our Annual Report on From 10-K, filed with theSecurities and Exchange Commission , orSEC , onFebruary 23, 2022 , or the Annual Report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview
Our mission is to build and enable the most trusted and efficient digital marketplace for buying and selling used vehicles with transparency and comprehensive data that was previously unimaginable.
We provide a highly efficient and vibrant digital marketplace for wholesale vehicle transactions and data services that offer transparent and accurate vehicle information to our customers. Our platform leverages data insights and technology to power our digital marketplace and data services, enabling our dealers and commercial partners to buy, sell, and value vehicles with confidence and efficiency. We strive to solve the challenges that the used automotive industry has faced for generations and provide powerful technology-enabled capabilities to our dealers and commercial partners who fulfill a critical role in the automotive ecosystem. We help dealers source and manage inventory and accurately price their vehicles as well as process payments, transfer titles, manage arbitrations, and finance and transport vehicles. Our platform encompasses:
•
Digital Marketplace . Connects buyers and sellers of wholesale vehicles in an intuitive and efficient manner. Our core marketplace offering is a 20-minute live auction, which facilitates instant transactions of wholesale vehicles, and is available across multiple platforms including mobile apps, desktop, and directly through API integration. We also offer transportation and financing services to facilitate the entire transaction journey.
•
Data Services. Offer insights into the condition and value of used vehicles for transactions both on and off our marketplace and help dealers, their end consumers, and commercial partners make more informed decisions and transact with confidence and efficiency. We enable dealers to manage their inventory and set pricing more effectively while turning vehicles faster and maximizing profit by leveraging predictive analytics informed by machine learning and market data.
•
Data and Technology. Underpins everything we do, and powers our vehicle inspections, comprehensive vehicle intelligence reports, digital marketplace, and operations automation.
We have historically generated the majority of our revenue from our digital marketplace where we earn auction and ancillary fees from both buyers and sellers in each case only upon a successful auction. Buyer auction fees are variable based on the price of the vehicle, while seller auction fees include a fixed auction fee and an optional fee for the elective condition report associated with the vehicle. We also earn ancillary fees through additional value-added services to buyers and sellers in connection with the auction.
Our customers include participants on our marketplace and purchasers of our data services. Certain dealers and commercial partners purchase data services in connection with vehicle assessments, software subscriptions, and transactions that do not occur on our marketplace. Our dealer customers include a majority of the top 100 used vehicle dealers inthe United States . 21 -------------------------------------------------------------------------------- For the three and nine months endedSeptember 30, 2022 , 133,165 and 421,337 Marketplace Units were sold on our marketplace, representing a total Marketplace Gross Merchandise Value, or Marketplace GMV, of$2.1 billion and$7.2 billion , an increase of 6% and 33%, respectively, from the same periods in 2021. For the three and nine months endedSeptember 30, 2022 , we generated total revenue of$105.4 million and$323.6 million , an increase of 15% and 25%, respectively from the same periods in 2021, a net loss of$23.7 million and$77.7 million and Adjusted EBITDA of$(11.8) million and$(43.9) million compared to a net loss of$24.8 million and$51.9 million and Adjusted EBITDA of$(12.4) million and$(28.4) million for the same periods in 2021. We continue to invest in growth to scale our company responsibly and drive towards profitability. See the section titled "-Key Operating and Financial Metrics" for additional information on Marketplace Units, Marketplace GMV and Adjusted EBITDA. Impact of COVID-19 on Our Business
Overview
Beginning inMarch 2020 , our business and operations began to experience the effects of the worldwide COVID-19 pandemic. Initially, COVID-19 significantly disrupted the operations of our customers, most of whom are automotive dealers who sell both new and used vehicles to consumers in physical dealership stores. As a result of the COVID-19 pandemic, governments in many of jurisdictions in which we operate instituted shelter-in-place orders, forcing many physical automotive dealership stores to close in March and April and cutting off consumer foot traffic, which led to a decline in overall vehicle sales to consumers. The slowdown in the retail sales of used vehicles subsequently impacted the market for wholesale automotive transactions. Wholesale is one of the most common supply sources through which dealers acquire used vehicle inventory to sell retail. With a sudden decline in retail sales of these dealerships, dealers' demand for wholesale transactions also decreased sharply. In addition, most automotive wholesale transactions inthe United States are conducted through physical or hybrid auctions that still require physical operations, and shelter-in-place orders forced these traditional auctions to temporarily shut down operations. These initial COVID business disruptions were followed by the semiconductor supply chain disruptions limiting the supply of new vehicles and increasing the demand of used vehicles. As a result of these competing dynamics, we observed volatility in each quarter of 2020 beyond the seasonal trends typical of our industry. In 2021 and 2022 to date, the supply and demand in our Marketplace continued to be impacted by the semiconductor supply shortage and COVID-related production disruptions. These factors continue to limit the supply of new vehicles and contribute to short term volatility in used vehicle sales, including those on our Marketplace. New car supply has had a significant impact on the supply of wholesale vehicles available within our Marketplace over this period, as dealer inventories remained at historic lows. We are continuing to monitor the effects of the COVID-19 pandemic on our business and industry. The extent to which COVID-19 will continue to impact our business, and the broader implications of the pandemic on our sustained results of operations, remain uncertain. We cannot predict how the pandemic will continue to develop, whether and to what extent government regulations or other restrictions may impact our operations or those of our customers, or whether and to what extent the pandemic or the effects thereof may have longer term unanticipated impacts on our business. 22 -------------------------------------------------------------------------------- Key Operating and Financial Metrics We regularly monitor a number of operating and financial metrics in order to measure our current performance and estimate our future performance. Our business metrics may be calculated in a manner different than similar business metrics used by other companies. We intend to report Marketplace Buyers, which are defined as dealers or commercial partners with a unique Customer ID that have transacted at least once in the last 12 months as a buyer on our digital marketplace, and Marketplace Sellers, which are defined as dealers or commercial partners with a unique customer ID that have transacted at least once in the last 12 months as a seller on our digital marketplace, on an annual basis. Three months endedSeptember 30 ,
Nine months ended
2022 2021 2022 2021
Marketplace Units 133,165 140,734 421,337 422,394
Marketplace GMV $ 2.1 billion $ 2.0 billion $ 7.2 billion $ 5.4 billion
Adjusted EBITDA $ (11.8) million $ (12.4) million $ (43.9) million $ (28.4) million
Marketplace Units
Marketplace Units is a key indicator of our potential for growth in Marketplace
GMV and revenue. It demonstrates the overall engagement of our customers on the
ACV platform, the vibrancy of our digital marketplace and our market share of
wholesale transactions in the United States . We define Marketplace Units as the
number of vehicles transacted on our digital marketplace within the applicable
period. Marketplace Units transacted includes any vehicle that successfully
reaches sold status, even if the auction is subsequently unwound, meaning the
buyer or seller does not complete the transaction. These instances have been
immaterial to date. Marketplace Units exclude vehicles that were inspected by
ACV, but not sold on our digital marketplace. Marketplace Units have increased
over time as we have expanded our territory coverage, added new Marketplace
Participants and increased our share of wholesale transactions from existing
customers. Because we only earn auction and ancillary fees in the case of a
successful auction, Marketplace Units will remain a critical driver of our
revenue growth.
Marketplace GMV
Marketplace GMV is primarily driven by the volume and dollar value of Marketplace Units transacted on our digital marketplace. We believe that Marketplace GMV acts as an indicator of the success of our marketplace, signaling satisfaction of dealers and buyers on our marketplace, and the health, scale, and growth of our business. We define Marketplace GMV as the total dollar value of vehicles transacted through our digital marketplace within the applicable period, excluding any auction and ancillary fees. We expect that Marketplace GMV will continue to grow as Marketplace Units grow, though at a varying rate within a given applicable period, as Marketplace GMV is also impacted by the value of each vehicle transacted. Due to the historically high values of used automobiles in the current environment, it is possible that as values normalize in the future, Marketplace GMV could decline even as Marketplace Units grow.
Adjusted EBITDA
Adjusted EBITDA is a performance measure that we use to assess our operating
performance and the operating leverage in our business. We define Adjusted
EBITDA as net income (loss), adjusted to exclude: depreciation and amortization,
stock-based compensation expense, interest expense (income), other expense
(income), net, provision for income taxes, and other one-time, non-recurring
items of a material nature, when applicable, such as acquisition-related and
restructuring expenses. We monitor Adjusted EBITDA as a non-GAAP financial
measure to supplement the financial information we present in accordance with
generally accepted accounting principles, or GAAP, to provide investors with
additional information regarding our financial results. For further explanation
of the uses and limitations of this measure and a reconciliation of our Adjusted
EBITDA to the most directly comparable GAAP measure, net loss, please see
"-Non-GAAP Financial Measures."
We expect Adjusted EBITDA to fluctuate as we continue to invest in our business
and improve over the long term as we achieve greater scale, while focusing on
efficiencies in our operating expenses in the short term.
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Factors Affecting Our Performance
We believe that the growth and future success of our business depend on many
factors. While each of these factors presents significant opportunities for our
business, they also pose important challenges that we must successfully address
in order to sustain our growth, improve our results of operations, and increase
profitability.
Increasing Marketplace Units
Increasing Marketplace Units is a key driver of our revenue growth. The
transparency, efficiency and vibrancy of our marketplace is critical to our
ability to grow our share of wholesale transactions from existing customers and
attract new buyers and sellers to our digital marketplace. Failure to increase
the number of Marketplace Units would adversely affect our revenue growth,
operating results, and the overall health of our marketplace.
Grow Our Share of Wholesale Transactions from Existing Customers
Our success depends in part on our ability to grow our share of wholesale transactions from existing customers, increasing their engagement and spend on our platform. We remain in the early stages of penetrating our Marketplace Participants' total number of wholesale transactions. As we continue to invest in eliminating key risks of uncertainty related to the auction process through our trusted and efficient digital marketplace, we expect that we will capture an increasing share of transactions from our existing buyers and sellers. Our ability to increase share from existing customers will depend on a number of factors, including our customers' satisfaction with our platform, competition, pricing and overall changes in our customers' engagement levels.
Add New Marketplace Buyers and Marketplace Sellers
We believe we have a significant opportunity to add new marketplace participants. As we expand our presence within our existing territories, we are able to drive increased liquidity and greater vehicle selection, which in turn improves our ability to attract new Marketplace Buyers and Marketplace Sellers. Additionally, we intend to add more commercial consignors to our digital marketplace and capture a greater share of vehicles in the wholesale market that are sold to dealers by commercial consignors through auctions and private sales. Our ability to attract new Marketplace Buyers and Marketplace Sellers will depend on a number of factors including: the ability of our sales team to onboard dealers and commercial consignors onto our platform and ensure their satisfaction, the ability of our territory managers to build awareness of our brand, the ability of our vehicle condition inspectors, or VCIs, to cultivate relationships with our customers in their respective territories, and the effectiveness of our marketing efforts.
Grow Awareness for Our Offerings and Brand
Wholesale vehicle online penetration is just beginning, lagging the consumer automotive market, and we expect more dealers and commercial partners to source and manage their inventory online. As the digitization of the wholesale automotive market accelerates, we believe that our digital marketplace is well positioned to capture a disproportionate share of that growth. We plan to use targeted sales and marketing efforts to educate potential Marketplace Buyers and Marketplace Sellers as to the benefits of our offerings and drive adoption of our platform. Our ability to grow awareness of our offerings and brand depend on a number of factors, including:
•
Secure Trusted Supply. The more trusted supply on our marketplace, the more buyers we can attract to our platform.
•
Deepen Relationships withDealers and Commercial Partners . We have a team of VCIs who work on our customers' lots to not only provide inspection services, but also to develop strong client relationships and ensure the highest quality service.
•
Drive Customer Loyalty. Our loyal customers and referrals serve as a highly effective customer acquisition tool, and help drive our growth in a given territory.
•
Grow Brand Awareness. We plan to invest in promoting our brand by targeted marketing spend and increase customer awareness in the territories in which we operate.
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Our future success is dependent on our ability to successfully grow our market
presence and market and sell existing and new products to both new and existing
customers.
Grow Value-Added and Data Services
We plan to continue to drive customer adoption of our existing value-added and data services and introduce new and complementary products. Our ability to drive higher attachment rates of existing value-added services, such asACV Transportation and ACV Capital , will help grow our revenue. In 2019, we launched our financing arm,ACV Capital . In 2021, we added MAX Digital's flagship inventory management system to our portfolio of data services offerings. We plan to drive customer adoption of our data services such as our True360 Reports that bring transparency and offer insights into the condition and value of used vehicles as well as our inventory management system which enables dealers to accurately price wholesale and retail inventory while maximizing profit by leveraging predictive analytics informed by machine learning. These data services enable our customers to make more informed inventory management decisions both on and off our digital marketplace. In addition, we will continue to focus on developing new products and services that enhance our platform in areas including new data-powered products. Our ability to drive customer adoption of these products and services is dependent on the pricing of our products, the offerings of our competitors and the effectiveness of our marketing efforts.
Investment in Growth
We are actively investing in our business. In order to support our future growth and expanded product offerings, we expect this investment to continue. We anticipate that our operating expenses will increase as we continue to build our sales and marketing efforts, expand our employee base and invest in our technology development. The investments we make in our platform are designed to grow our revenue opportunity and to improve our operating results in the long term, but these investments could also delay our ability to achieve profitability or reduce our profitability in the near term. Our success is dependent on making value-generative investments that support our future growth.
Used Car Demand
Our success depends in part on sufficient demand for used vehicles. Our recent
growth over the last several years has coincided with a rising consumer demand
for used vehicles. More recently, since early 2020, the demand for used vehicles
has outpaced supply as automotive manufacturers respond to the semiconductor
supply shortage that continues to limit the supply of new automotive vehicles
and contributes to short term volatility in used vehicle sales, including those
on our Marketplace. We continue to see new car supply significantly impact the
supply of wholesale vehicles available within our Marketplace as dealers
inventories have remained at historic lows.
Used vehicle sales are also seasonal. Sales typically peak late in the first
calendar quarter and early in the second quarter, with the lowest relative level
of industry vehicle sales occurring in the fourth calendar quarter. Due to our
rapid growth since launch, our sales patterns to date have not been entirely
reflective of the general seasonality of the used vehicle market, but we expect
this to normalize as our business matures. Seasonality also impacts used vehicle
pricing, with used vehicles depreciating at a faster rate in the last two
quarters of each year and a slower rate in the first two quarters of each year.
We may experience seasonal and other fluctuations in our quarterly results of
operations, which may not fully reflect the underlying performance of our
business. See the section titled "-Seasonality" for additional information on
the impacts of seasonality on our business.
Components of Results of OperationsRevenue
Marketplace and Service Revenue
We have historically generated the majority of our revenue from our digital marketplace where we earn auction and ancillary fees from both buyers and sellers, in each case only upon a successful auction. Our marketplace and service revenue consists principally of revenue earned from facilitating auctions and arranging for the transportation of vehicles purchased in such auctions.
We act as an agent when facilitating a vehicle auction through the marketplace.
Auction and related fees charged to the buyer and seller are reported as revenue
on a net basis, excluding the price of the auctioned vehicle in the transaction.
25
--------------------------------------------------------------------------------We act as a principal when arranging for the transportation of vehicles purchased on the marketplace and leverage our network of third-party transportation carriers to secure the arrangement. Transportation fees charged to the buyer are reported on a gross basis.
We also generate data services revenue primarily through our True360 reports and MAX Digital inventory management software subscriptions and offer short-term inventory financing to eligible customers purchasing vehicles through the marketplace, which has been immaterial to date.
Customer Assurance Revenue
We also generate revenue by providing our Go Green assurance to sellers on the condition of certain vehicles sold on the marketplace, which is considered a guarantee under GAAP. This assurance option is only available for sellers who have enrolled in the service on qualifying vehicles for which we have prepared the vehicle condition report. Customer assurance revenue also includes revenue from other price guarantee products offered to sellers. Customer assurance revenue is measured based upon the fair value of the Go Green assurance that we provide. We expect the fair value per vehicle assured to decrease over time as we continue to improve the quality of our inspection product, which in turn reduces the costs of satisfying such assurance.
Operating Expenses
Marketplace and Service Cost of Revenue
Marketplace and service cost of revenue consists of third-party transportation carrier costs, titles shipping costs, customer support, website hosting costs, inspection costs related to data services and various other costs. These costs include salaries, benefits, bonuses and related stock-based compensation expenses, which we refer to as personnel expenses. We expect our marketplace and service cost of revenue to continue to increase as we continue to scale our business and introduce new product and service offerings.
Customer Assurance Cost of Revenue
Customer assurance cost of revenue consists of the costs related to satisfying claims against the vehicle condition guarantees, and other price guarantees. We expect that our customer assurance cost of revenue will increase in absolute dollars as our business grows, particularly as we provide guarantees on an increasing number of vehicles.
Operations and Technology
Operations and technology expense consists of costs for wholesale auction inspections, personnel costs related to payments and titles processing, transportation processing, product and engineering and other general operations and technology expenses. These costs include personnel-related expenses and other allocated facility and office costs. We expect that our operations and technology expense will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our marketplace, transportation capabilities and other technologies.
Selling, General and Administrative
Selling, general and administrative expense consists of costs resulting from sales, accounting, finance, legal, marketing, human resources, executive, and other administrative activities. These costs include personnel-related expenses, legal and other professional services expenses and other allocated facility and office costs. Also included in selling, general and administrative expense is advertising and marketing costs to promote our services. We expect that our selling, general and administrative expense will increase in absolute dollars as our business grows. However, we expect that our selling, general and administrative expense will decrease as a percentage of our revenue as our revenue grows over the longer term.
Depreciation and Amortization
Depreciation and amortization expense consists of depreciation of fixed assets, and amortization of acquired intangible assets and internal-use software.
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--------------------------------------------------------------------------------Other Income (Expense)
Other income (expense) consists primarily of interest income earned on our cash and cash equivalents and marketable securities and interest expense on our borrowings.
Provision for Income Taxes
Provision for income taxes consists of
Results of Operations
The following table sets forth our consolidated statements of operations data for the periods presented:
Nine months ended September
Three months ended September 30, 30,
2022 2021 2022 2021
(in thousands) (in thousands)Revenue:
Marketplace and service revenue $ 90,852 $ 79,306$ 276,951 $ 221,632 Customer assurance revenue 14,567 12,492 46,605 36,626 Total revenue 105,419 91,798 323,556 258,258 Operating expenses: Marketplace and service cost of revenue (excluding depreciation & amortization) (1) 46,255 41,547 143,400 113,844 Customer assurance cost of revenue (excluding depreciation & amortization) 12,221 12,371 40,432 32,886 Operations and technology (1) (5) 34,328 26,395 103,877 71,489 Selling, general, and administrative (1) (3) (5) 34,701 33,787 106,897 85,275 Depreciation and amortization (2) (4) 3,004 2,348 7,868 5,877 Total operating expenses 130,509 116,448 402,474 309,371 Loss from operations (25,090 ) (24,650 ) (78,918 ) (51,113 ) Other income (expense): Interest income 1,936 29 2,618 100 Interest expense (235 ) (121 ) (683 ) (582 ) Total other income (expense) 1,701 (92 ) 1,935 (482 ) Loss before income taxes (23,389 ) (24,742 ) (76,983 ) (51,595 ) Provision for income taxes 279 61 695 275 Net loss$ (23,668 ) $ (24,803 ) $ (77,678 ) $ (51,870 ) 27
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(1) Includes stock-based compensation expense
as follows: Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Marketplace and service cost of revenue
(excluding
depreciation & amortization) $ 193 $ 107 $ 471 $ 219
Operations and technology 2,483 1,427 6,355 2,201
Selling, general, and administrative 6,918 8,253 19,061 13,997
Stock-based compensation expense $ 9,594
$ 9,787
(2) Includes acquired intangible asset
amortization as follows: Three months ended September 30, Nine months ended September 30,
0 2022 2021 2022 2021
(in thousands) (in thousands)
Depreciation and amortization $ 1,189 $ 1,223 $ 3,718 $ 2,815 Acquired intangible asset amortization
$ 1,189 $ 1,223 $ 3,718 $ 2,815
(3) Includes contingent losses (gains) as
follows: Three months ended September 30, Nine months ended September 30,
0 2022 2021 2022 2021
(in thousands) (in thousands)
Selling, general, and administrative $ - $ - $ 200 $ -
Contingent losses (gains) $ - $ - $ 200 $ -
(4) Includes amortization of capitalized stock
based compensation as follows: Three months ended September 30, Nine months ended September 30,
0 2022 2021 2022 2021
(in thousands) (in thousands)
Depreciation and amortization $ 147 $ - $ 310 $ -
Amortization of capitalized stock based
compensation $ 147 $ - $ 310 $ -
(5) Includes other adjustments as follows: Three months ended September 30, Nine months ended September 30,
0 2022 2021 2022 2021
(in thousands) (in thousands)
Operations and technology $ 220 $ - $ 220 $ -
Selling, general, and administrative 249 - 249 -
Other adjustments $ 469 $ - $ 469 $ -
The following table sets forth our consolidated statements of comprehensive loss
for the periods presented:
Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Net loss $ (23,668 ) $ (24,803 ) $ (77,678 ) $ (51,870 )
Other comprehensive income (loss):
Net unrealized gains (losses) on
available-for-
sale securities (1,810 ) - (2,920 ) -
Foreign currency translation (loss)
gain (1,004 ) (51 ) (2,513 ) 25
Comprehensive loss $ (26,482 ) $ (24,854 ) $ (83,111 ) $ (51,845 )
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The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods presented:
Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
(as a percentage of revenue (1))
Revenue:
Marketplace and service revenue 86 % 86 % 86 % 86 %
Customer assurance revenue 14 % 14 % 14 % 14 %
Total revenue 100 % 100 % 100 % 100 %
Operating expenses:
Marketplace and service cost of
revenue
(excluding depreciation &
amortization) 44 % 45 % 44 % 44 %
Customer assurance cost of revenue
(excluding
depreciation & amortization) 12 % 13 % 12 % 13 %
Operations and technology 33 % 29 % 32 % 28 %
Selling, general, and
administrative 33 % 37 % 33 % 33 %
Depreciation and amortization 3 % 3 % 2 % 2 %
Total operating expenses 124 % 127 % 124 % 120 %
Income (loss) from operations (24 )% (27 )% (24 )% (20 )%
Other income (expense):
Interest income 2 % 0 % 1 % 0 %
Interest expense (0 )% (0 )% (0 )% (0 )%
Total other income (expense) 2 % (0 )% 1 % (0 )%
Income (loss) before income taxes (22 )% (27 )% (24 )% (20 )%
Provision for income taxes 0 % 0 % 0 % 0 %
Net income (loss) (22 )% (27 )% (24 )% (20 )%
(1) Certain Items may not total
due to rounding
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Comparison of the three months ended
Revenue
Marketplace and Service Revenue
Three months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Marketplace and service revenue
15 %
Marketplace and service revenue was $90.9 million for the three months ended
September 30, 2022 , compared to $79.3 million for the three months ended
September 30, 2021 . The increase of $11.6 million , or 15% was primarily driven
by an increase in auction marketplace revenue from our buyers and sellers, as
well as an increase in revenue earned from arranging for the transportation of
vehicles to buyers, data and other service revenue. Auction marketplace revenue
increases in the current quarter were driven in part by an increase in GMV per
unit despite tempering unit volume. Additionally, we raised the buyer fees
charged on our marketplace effective in December 2021 that further contributed
to the increase in revenue year-over-year. For the three months ended September
30, 2022 compared to the three months ended September 30, 2021 , auction
marketplace revenue increased to $41.8 million from $40.0 million , other
marketplace revenue increased to $40.5 million from $32.1 million , and data
services revenue increased to $8.6 million from $7.2 million .
Customer Assurance Revenue
Three months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Customer assurance revenue $ 14,567 $ 12,492 $ 2,075 17 %
Customer assurance revenue was $14.6 million for the three months ended
September 30, 2022 , compared to $12.5 million for the three months ended
September 30, 2021 . The increase of $2.1 million , or 17%, primarily consisted of
an increase in revenue generated from Go Green assurance offerings sold to the
seller in marketplace transactions. For the three months ended September 30,
2022 , Go Green assurance revenue increased to $12.9 million from $11.2 million
in the three months ended September 30, 2021 . Revenue increases were primarily a
result of an increase in the estimated guarantee fair value per unit.
Operating Expenses
Marketplace and Service Cost of Revenue
Three months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Marketplace and service cost of
revenue (excluding
depreciation & amortization) $ 46,255 $ 41,547 $ 4,708 11 %
Percentage of revenue 44 % 45 %
Marketplace and service cost of revenue was $46.3 million for the three months
ended September 30, 2022 , compared to $41.6 million for the three months ended
September 30, 2021 . The increase of $4.7 million , or 11%, consisted of increases
in the cost of generating auction marketplace revenue, other marketplace
services revenue, and data services revenue. For the three months ended
September 30, 2022 , total cost of generating auction marketplace revenue
increased to $7.4 million from $5.4 million in the three months ended September
30, 2021 , the total cost of generating other marketplace services revenue
increased to $32.8 million from $31.8 million in three months ended September
30, 2021 , and the total cost of generating data services revenue increased to
$6.1 million from $4.4 million in the three months ended September 30, 2021 . For
the three months ended September 30, 2022 , direct and allocated
personnel-related costs included in auction marketplace increased to $3.1
million from $2.2 million in the three months ended September 30, 2021 and
direct and allocated personnel-related costs included in data services increased
to $3.5 million from $2.5 million in the three months ended September 30, 2021 .
The amount of personnel-related costs in other marketplace cost of revenue is
not material.
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--------------------------------------------------------------------------------Customer Assurance Cost of Revenue
Three months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Customer assurance cost of revenue
(excluding
depreciation & amortization) $ 12,221 $ 12,371 $ (150 ) (1 )%
Percentage of revenue 12 % 13 %
Customer assurance cost of revenue was $12.2 million for the three months ended
September 30, 2022 , compared to $12.4 million for the three months ended
September 30, 2021 . The decrease of $0.2 million , or 1%, primarily consisted of
costs attributable to our Go Green and other assurance offerings. The decreased
costs incurred to settle guarantees were primarily due to fewer units subject to
assurance guarantees. For the three months ended September 30, 2022 , Go Green
assurance cost of revenue decreased to $10.8 million from $10.9 million in three
months ended September 30, 2021 , and other assurance cost of revenue decreased
to $1.4 million from $1.5 million .
Operations and Technology Expenses
Three months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Operations and technology $ 34,328 $ 26,395 $ 7,933 30 %
Percentage of revenue 33 % 29 %
Operations and technology expenses were $34.3 million for the three months ended
September 30, 2022 , compared to $26.4 million for the three months ended
September 30, 2021 . The increase of $7.9 million , or 30%, primarily consisted of
an increase in personnel-related costs and software and technology expenses. For
the three months ended September 30, 2022 compared to September 30, 2021 ,
personnel-related costs increased to $29.1 million from $22.4 million primarily
as a result of headcount increases and increases in stock based compensation in
2022, and software and technology expenses increased to $3.8 million from $3.0
million as a result of continued investment in our technology and
infrastructure.
Selling, General, and Administrative Expenses
Three months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Selling, general, and administrative $ 34,701 $ 33,787 $ 914 3 %
Percentage of revenue 33 % 37 %
Selling, general, and administrative expenses were $34.7 million for the three
months ended September 30, 2022 , compared to $33.8 million in for the three
months ended September 30, 2021 . The increase of $0.9 million , or 3%, primarily
consisted of increases in other expenses, partially offset by decreases in
personnel and related charges and facilities. For the three months ended
September 30, 2022 compared to September 30, 2021 , other expenses increased to
$5.0 million from $3.6 million , driven primarily by a higher bad debt provision.
Depreciation and Amortization
Three months ended September 30, $ Change % Change
2022 2021
(in thousands)
Depreciation and amortization $ 3,004 $ 2,348 $ 656 28 %
Percentage of revenue 3 % 3 %
31-------------------------------------------------------------------------------- Depreciation and amortization costs were$3.0 million for the three months endedSeptember 30, 2022 , compared to$2.3 million for the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2022 , amortization of internal use software increased to$1.2 million from$0.5 million in the three months endedSeptember 30, 2021 . Amortization of acquired intangibles and depreciation of fixed assets remained flat over the comparative period. Interest Income Three months ended September 30, $ Change % Change 2022 2021 (in thousands) Interest income $ 1,936$ 29 $ 1,907 6576 % Percentage of revenue 2 % 0 % Interest income was$1.9 million for the three months endedSeptember 30, 2022 and less than$0.1 million for the three months endedSeptember 30, 2021 . The increase of$1.9 million is the result of rising market interest rates and our increased investment of cash into marketable securities. Interest Expense Three months ended September 30, $ Change % Change 2022 2021 (in thousands) Interest expense $ (235 ) $ (121 )$ (114 ) 94 % Percentage of revenue (0 )% (0 )% Interest expense on revolving lines of credit was$0.2 million for the three months endedSeptember 30, 2022 , compared to$0.1 million for the three months endedSeptember 30, 2021 . The increase of$0.1 million is the result of increased borrowings.
Provision for Income Taxes
Three months ended September 30, $ Change % Change
2022 2021
(in thousands)
Provision for income taxes $ 279 $ 61 $ 218 357 %
Percentage of revenue 0 % 0 %
Provision for income taxes was
32
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Comparison of the nine months ended
Revenue
Marketplace and Service Revenue
Nine months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Marketplace and service revenue
$ 55,319 25 % Marketplace and service revenue was$277.0 million for the nine months endedSeptember 30, 2022 , compared to$221.6 million for the nine months endedSeptember 30, 2021 . The increase of$55.4 million , or 25% was primarily driven by an increase in auction marketplace revenue from our buyers and sellers, as well as an increase in revenue earned from arranging for the transportation of vehicles to buyers, data and other service revenue. Auction marketplace revenue increases were driven in part by an increase in GMV per unit despite tempering unit volume. Additionally, we raised the buyer fees charged on our marketplace effective inDecember 2021 . For the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , auction marketplace revenue increased to$133.8 million from$120.9 million , other marketplace revenue increased to$118.3 million from$85.2 million , and data services revenue increased to$24.9 million from$15.5 million . Customer Assurance Revenue Nine months ended September 30, $ Change % Change 2022 2021 - (in thousands) Customer assurance revenue$ 46,605 $ 36,626 $ 9,979 27 % Customer assurance revenue was$46.6 million for the nine months endedSeptember 30, 2022 , compared to$36.6 million for the nine months endedSeptember 30, 2021 . The increase of$10.0 million , or 27%, primarily consisted of an increase in revenue generated from Go Green assurance offerings sold to the seller in marketplace transactions. For the nine months endedSeptember 30, 2022 , Go Green assurance revenue increased to$42.2 million from$33.4 million in the nine months endedSeptember 30, 2021 . Revenue increases were primarily a result of an increase in the estimated fair value per unit.
Operating Expenses
Marketplace and Service Cost of Revenue
Nine months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Marketplace and service cost of
revenue (excluding
depreciation & amortization) $ 143,400 $ 113,844 $ 29,556 26 %
Percentage of revenue 44 % 44 %
Marketplace and service cost of revenue was $143.4 million for the nine months
ended September 30, 2022 , compared to $113.8 million for the nine months ended
September 30, 2021 . The increase of $29.6 million , or 26%, consisted of
increases in the cost of generating auction marketplace revenue, other
marketplace services revenue, and data services revenue. For the nine months
ended September 30, 2022 , total cost attributed to generating auction
marketplace revenue increased to $21.7 million from $15.1 million in the nine
months ended September 30, 2021 , the total cost of generating other marketplace
services revenue increased to $104.8 million from $85.8 million in the nine
months ended September 30, 2021 , and the total cost of generating data services
revenue increased to $16.9 million from $12.9 million in the nine months ended
September 30, 2021 . For the nine months ended September 30, 2022 , direct and
allocated personnel-related costs included in auction marketplace cost of
revenue increased to $8.7 million from $6.2 million in the nine months ended
September 30, 2021 and direct and allocated personnel-related costs decreased to
$9.8 million from $10.1 million in the nine months ended September 30, 2021 . The
amount of personnel-related costs in other marketplace cost of revenue is not
material.
33
--------------------------------------------------------------------------------Customer Assurance Cost of Revenue
Nine months ended September 30, $ Change % Change
2022 2021
- (in thousands)Customer assurance cost of revenue (excluding
depreciation & amortization)$ 40,432 $ 32,886 $ 7,546 23 % Percentage of revenue 12 % 13 % Customer assurance cost of revenue was$40.4 million for the nine months endedSeptember 30, 2022 , compared to$32.9 million for the nine months endedSeptember 30, 2021 . The increase of$7.5 million , or 23%, primarily consisted of costs attributable to our Go Green and other assurance offerings. The increased costs incurred to settle guarantees were due in part to higher value vehicles, on average, being subject to the guarantees. For the nine months endedSeptember 30, 2022 , Go Green assurance cost of revenue increased to$36.3 million from$29.5 million in the nine months endedSeptember 30, 2021 , and other assurance cost of revenue increased to$4.1 million from$3.4 million .
Operations and Technology Expenses
Nine months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Operations and technology $ 103,877 $ 71,489 $ 32,388 45 %
Percentage of revenue 32 % 28 %
Operations and technology expenses were $103.9 million for the nine months ended
September 30, 2022 , compared to $71.5 million for the nine months ended
September 30, 2021 . The increase of $32.4 million , or 45%, primarily consisted
of an increase in personnel-related costs and software and technology expenses.
For the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 , personnel-related costs increased to $90.1 million from
$60.3 million as a result of headcount increases and increases in stock based
compensation in 2022, and software and technology expenses increased to $10.2
million from $7.6 million as a result of continued investment in our technology
and infrastructure.
Selling, General, and Administrative Expenses
Nine months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Selling, general, and administrative $ 106,897 $ 85,275 $ 21,622 25 %
Percentage of revenue 33 % 33 %
Selling, general, and administrative expenses were $106.9 million for the nine
months ended September 30, 2022 , compared to $85.3 million in for the nine
months ended September 30, 2021 . The increase of $21.6 million , or 25%,
primarily consisted of increases in personnel related costs and other expenses.
For the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 , personnel related costs increased to $87.5 million from
$73.6 million primarily as a result of headcount increases and increases in
stock based compensation in 2022, and other expenses increased to $16.3 million
from $8.9 million driven primarily by higher bad debt provisions, insurance
expenses, and advertising and marketing costs.
Depreciation and Amortization
Nine months ended September 30, $ Change % Change
2022 2021
(in thousands)
Depreciation and amortization $ 7,868 $ 5,877 $ 1,991 34 %
Percentage of revenue 2 % 2 %
34-------------------------------------------------------------------------------- Depreciation and amortization costs were$7.9 million for the nine months endedSeptember 30, 2022 , compared to$5.9 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , amortization of acquired intangibles increased to$3.7 million from$2.8 million in the nine months endedSeptember 30, 2021 and amortization of internal use software increased to$2.4 million from$1.4 million . Depreciation of fixed assets remained relatively flat over the comparative period. Interest Income Nine months ended September 30, $ Change % Change 2022 2021 (in thousands) Interest income $ 2,618$ 100 $ 2,518 2518 % Percentage of revenue 1 % 0 % Interest income was$2.6 million for the nine months endedSeptember 30, 2022 and$0.1 million for the nine months endedSeptember 30, 2021 . The increase of$2.5 million is the result of rising market interest rates and our increased investment of cash into marketable securities.
Interest Expense
Nine months ended September 30 , $ Change % Change
2022 2021
(in thousands)
Interest expense $ (683 ) $ (582 ) $ (101 ) 17 %
Percentage of revenue (0 )% (0 )%
Interest expense on revolving lines of credit was $0.7 million for the nine
months ended September 30, 2022 and $0.6 million for the nine months ended
September 30, 2021 . The increase of $0.1 million is the result of increased
borrowings.
Provision for Income Taxes
Nine months ended September 30, $ Change % Change
2022 2021
(in thousands)
Provision for income taxes $ 695 $ 275 $ 420 153 %
Percentage of revenue 0 % 0 %
Provision for income taxes was approximately $0.7 million for the nine months
ended September 30, 2022 up from approximately $0.3 million for the nine months
ended September 30, 2021
Non-GAAP Financial MeasuresAdjusted EBITDA
We report our financial results in accordance with GAAP. However, management
believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors
with additional useful information in evaluating our performance.
Adjusted EBITDA is a financial measure that is not presented in accordance with
GAAP. We believe that Adjusted EBITDA, when taken together with our financial
results presented in accordance with GAAP, provides meaningful supplemental
information regarding our operating performance and facilitates internal
comparisons of our historical operating performance on a more consistent basis
by excluding certain items that may not be indicative of our business, results
of operations or outlook. In particular, we believe that the use of Adjusted
EBITDA is helpful to our investors as it is a measure used by management in
assessing the health of our business and evaluating our operating performance,
as well as for internal planning and forecasting purposes.
35
--------------------------------------------------------------------------------
Adjusted EBITDA is presented for supplemental informational purposes only, has
limitations as an analytical tool and should not be considered in isolation or
as a substitute for financial information presented in accordance with GAAP.
Some of these limitations include that: (i) it does not properly reflect capital
commitments to be paid in the future; (ii) although depreciation and
amortization are non-cash charges, the underlying assets may need to be replaced
and Adjusted EBITDA does not reflect these capital expenditures; (iii) it does
not consider the impact of stock-based compensation expense; (iv) it does not
reflect other non-operating expenses, including interest expense; (v) it does
not consider the impact of any contingent consideration liability valuation
adjustments; (vi) it does not reflect tax payments that may represent a
reduction in cash available to us; and (vii) it does not reflect other one-time,
non-recurring items of a material nature, when applicable, such as
acquisition-related and restructuring expenses. In addition, our use of Adjusted
EBITDA may not be comparable to similarly titled measures of other companies
because they may not calculate Adjusted EBITDA in the same manner, limiting its
usefulness as a comparative measure. Because of these limitations, when
evaluating our performance, you should consider Adjusted EBITDA alongside other
financial measures, including our net loss and other results stated in
accordance with GAAP.
The following table presents a reconciliation of Adjusted EBITDA to net loss,
the most directly comparable financial measure stated in accordance with GAAP,
for the periods presented:
Three months ended September 30 ,
Nine months ended
2022 2021 2022 2021
Adjusted EBITDA
Reconciliation
Net loss $ (23,668 ) $ (24,803 ) $ (77,678 ) $ (51,870 )
Depreciation and
amortization 3,110 2,493 8,211 6,221
Stock-based compensation 9,594 9,787 25,887 16,417
Interest (income)
expense (1,701 ) 92 (1,935 ) 482
Provision for income
taxes 279 61 695 275
Other (income) expense,
net 542 (10 ) 941 48
Adjusted EBITDA $ (11,844 ) $ (12,380 ) $ (43,879 ) $ (28,427 ) Non-GAAP Net income (loss)
We report our financial results in accordance with GAAP. However, management
believes that Non-GAAP Net loss, a financial measure that is not presented in
accordance with GAAP, provides investors with additional useful information to
measure operating performance and current and future liquidity when taken
together with our financial results presented in accordance with GAAP. By
providing this information, we believe management and the users of the financial
statements are better able to understand the financial results of what we
consider to be our organic, continuing operations.
In the calculation of Non-GAAP Net loss, we exclude stock-based compensation
expense because of varying available valuation methodologies, subjective
assumptions and the variety of equity instruments that can impact our non-cash
expense. We believe that providing non-GAAP financial measures that exclude
stock-based compensation expense allows for more meaningful comparisons between
our operating results from period to period.
We exclude amortization of acquired intangible assets from the calculation of
Non-GAAP Net loss. We believe that excluding the impact of amortization of
acquired intangible assets allows for more meaningful comparisons between
operating results from period to period as the underlying intangible assets are
valued at the time of acquisition and are amortized over several years after the
acquisition.
We exclude contingent consideration liability valuation adjustments associated
with the purchase consideration of transactions accounted for as business
combinations. We also exclude certain other one-time, non-recurring items of a
material nature, when applicable, such as acquisition-related and restructuring
expenses, because we do not consider such amounts to be part of our ongoing
operations nor are they comparable to prior periods nor predictive of future
results.
36
--------------------------------------------------------------------------------
Non-GAAP net loss is presented for supplemental informational purposes only, has
limitations as an analytical tool and should not be considered in isolation or
as a substitute for financial information presented in accordance with GAAP.
Some of these limitations include that: (i) it does not consider the impact of
stock-based compensation expense; (ii) although amortization is a non-cash
charge, the underlying assets may need to be replaced and Non-GAAP Net loss does
not reflect these capital expenditures; (iii) it does not consider the impact of
any contingent consideration liability valuation adjustments; and (iv) it does
not consider the impact of other one-time charges, such as acquisition-related
and restructuring expenses, which could be material to the results of our
operations. In addition, our use of Non-GAAP Net loss may not be comparable to
similarly titled measures of other companies because they may not calculate
Non-GAAP Net loss in the same manner, limiting its usefulness as a comparative
measure. Because of these limitations, when evaluating our performance, you
should consider Non-GAAP Net loss alongside other financial measures, including
our net loss and other results stated in accordance with GAAP.
The following table presents a reconciliation of Non-GAAP Net loss to net loss,
the most directly comparable financial measure stated in accordance with GAAP,
for the periods presented:
Three months ended September 30 ,
Nine months ended
2022 2021 2022 2021
Non-GAAP Net loss
Reconciliation
Net loss $ (23,668 ) $ (24,803 ) $ (77,678 ) $ (51,870 )
Stock-based compensation 9,594 9,787 25,887 16,417
Amortization of acquired
intangible
assets 1,189 1,223 3,718 2,815
Amortization of
capitalized stock
based compensation 147 - 310 -
Contingent losses (gains) - - 200 -
Other 469 - 469 -
Non-GAAP Net loss $ (12,269 ) $ (13,793 ) $ (47,094 )$ (32,638 ) Liquidity and Capital Resources We have financed operations since our inception primarily through our marketplace revenue and the net proceeds we have received from sales of equity securities as further detailed below. InMarch 2021 , we completed our initial public offering, or IPO, which resulted in aggregate net proceeds of$388.9 million , after deducting underwriting discounts and commissions. As ofSeptember 30, 2022 , our principal sources of liquidity were cash and cash equivalents totaling$294.8 million , and investments in marketable securities totaling$207.6 million . We believe that our existing cash and cash equivalents, marketable securities, and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months and for the long-term. Our future capital requirements will depend on many factors, including volume of sales with existing customers, expansion of sales and marketing activities to acquire new customers, timing and extent of spending to support development efforts and introduction of new and enhanced services. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.
As of
In order to compete successfully and sustain operations at current levels over the next 12 months, we will be required to devote a significant amount of operating cash flow to our human capital in the form of salaries and wages. Additionally, we enter into purchase commitments for goods and services made in the ordinary course of business. These purchase commitments include goods and services received and recorded as liabilities as ofSeptember 30, 2022 as well as goods 37 -------------------------------------------------------------------------------- and services which have not yet been delivered or performed and have, therefore, not been reflected in our unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Operations. These commitments typically become due after the delivery and completion of such goods or services. Although the COVID-19 pandemic has not materially impacted our liquidity to date, we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments in 2022. We have considered the impact of the COVID-19 pandemic on our liquidity and capital resources to date, and we do not currently expect it to impact our ability to meet future liquidity needs or affect our ability to comply with debt covenants. We believe we are well-positioned to manage our business and have the ability and sufficient capacity to meet our cash requirements using available cash and equivalents, investments in marketable securities, and borrowings under our revolving credit facilities. A substantial amount of our working capital is generated from the payments received for services which we provide. We settle transactions among buyers and sellers using the Marketplace, and as a result the value of the vehicles passes through our balance sheet. Because our receivables typically have been, on average, settled faster than our payables, our cash position at each balance sheet date has been bolstered by marketplace float. Changes in working capital vary from quarter-to-quarter as a result of GMV and the timing of collections and disbursements of funds related to auctions completed near period end.
Our Debt Arrangements
We currently have a revolving credit facility with Credit Suisse AG,New York Branch, or the 2019 Revolver, which we entered into inDecember 2019 . We entered into an amendment to the 2019 Revolver onJune 25, 2021 . We also entered into a revolving credit facility withJP Morgan Chase Bank, N.A. , or the 2021 Revolver, onAugust 24, 2021 . One of our wholly-owned indirect subsidiaries,ACV Capital Funding LLC , is the borrower under the 2019 Revolver, which provides for a revolving line of credit in the aggregate amount of up to$50.0 million , with borrowing availability subject to a borrowing base calculated as a percentage ofACV Capital Funding LLC's eligible receivables. The 2019 Revolver is secured by the borrowing base of eligible receivables. In addition, we entered into a separate indemnity agreement in connection with the 2019 Revolver under which we provided an unsecured guaranty of (a) 10% of the outstanding loans under the 2019 Revolver at the time of any event of default and (b) any losses, damages or other expenses incurred by the lenders under the 2019 Revolver, payable in the event of certain specified acts byACV Capital Funding LLC . The interest rate on any outstanding borrowings is at LIBOR plus 3.75%, subject to a LIBOR floor of 1.00%, and interest payments are payable monthly. The 2019 Revolver has a maturity date ofJune 25, 2024 . The 2019 Revolver also contains customary covenants that limitACV Capital Funding LLC's ability to enter into indebtedness, make distributions and make investments, among other restrictions. The 2019 Revolver contains a liquidity covenant based on cash on hand, a tangible net worth covenant based onACV Capital's consolidated net worth, a tangible net worth covenant based on our consolidated net worth, a leverage covenant based on our consolidated leverage and certain other financial covenants tied toACV Capital's eligible receivables. We are the borrower under the 2021 Revolver, which provides for a revolving line of credit in the aggregate principal amount of up to$160.0 million . The 2021 Revolver also includes a sub facility that provides for the issuance of letters of credit up to$20.0 million outstanding at any time. The 2021 Revolver is guaranteed by substantially all of our material domestic subsidiaries and is secured by substantially all of our and such subsidiaries' assets. The interest rate applicable to the 2021 Revolver is, at our option, either (a) LIBOR (or a replacement rate established in accordance with the terms of the credit agreement for the 2021 Revolver) (subject to a 0.00% LIBOR floor), plus a margin of 2.75% per annum or (b) the Alternate Base Rate plus a margin of 1.75% per annum. The Alternate Base Rate is the highest of (a) theWall Street Journal prime rate, (b) the NYFRB rate plus 0.5% and (c)(i) 1.00% plus (ii) the adjusted LIBOR rate for a one-month interest period. The 2021 Revolver has a maturity date ofAugust 24, 2026 . The 2021 Revolver contains customary covenants that limit our ability to enter into indebtedness, make distributions and make investments, among other restrictions. The 2021 Revolver also contains financial covenants that require us to maintain a minimum liquidity level and achieve specified trailing four quarter revenue targets. We were in compliance with all such applicable covenants as ofSeptember 30, 2022 , and believe we are in compliance as of the date of this Quarterly Report on Form 10-Q. As ofSeptember 30, 2022 , we had$0.5 million drawn under the 2019 Revolver,$70.0 million drawn under the 2021 Revolver, and there was an outstanding letter of credit issued under the 2021 Revolver in the amount of$1.1 million . 38 -------------------------------------------------------------------------------- Cash Flows from Operating, Investing, and Financing Activities The following table shows a summary of our cash flows for the periods presented: Nine months endedSeptember 30, 2022 2021 (in thousands)
Net cash provided by (used in) operating activities $ (75,309 )
(264,331 ) (97,646 )
Net cash provided by (used in) financing activities 68,454 377,155
Effect of exchange rates (33 ) -
Net increase (decrease) in cash and equivalents $ (271,219 ) $ 367,926
Operating Activities
Our largest source of operating cash is typically cash collection from auction
fees earned on our marketplace services. Our primary uses of cash from operating
activities are for personnel expenses, marketing expenses and overhead expenses.
We settle transactions in cash among buyers and sellers that use the
marketplace, and accordingly, the magnitude and timing of settlement impacts
cash flow from operations. Receivables from marketplace buyers typically have
been, on average, settled faster than payables to marketplace sellers. This
settlement sequencing has typically benefited our cash balances, creating
marketplace float. Changes in the amount of marketplace float in a period may
occur due to the magnitude of Marketplace GMV transacted in auctions completed
near the reporting date, or due to other factors. In periods when we have
generated negative operating cash flows, we have supplemented, and may continue
to supplement, working capital requirements through net proceeds from the sale
of equity securities and net proceeds from financing activities.
In the nine months ended September 30, 2022 , net cash used in operating
activities of $75.3 million was primarily related to our net loss of $77.7
million , adjusted for net cash outflows of $39.2 million due to changes in our
operating assets and liabilities, and for non-cash charges of $41.5 million .
Non-cash charges primarily consisted of stock-based compensation, depreciation
and amortization of property and equipment and intangible assets, and bad debt
expense. The change in operating assets and liabilities were the result of a
$4.4 million increase in other operating assets and a $98.4 million decrease in
accounts payable, and a 0.7 million decrease in other current and non-current
liabilities, which was partially offset by a $64.3 million decrease in accounts
receivable. In the nine months ended September 30, 2022 , marketplace float
decreased by $26.3 million , primarily due to the decreased Marketplace GMV being
transacted near the reporting date as compared to the end of the previous
reporting date.
In the nine months ended September 30, 2021 , net cash provided by operating
activities of $88.4 million was primarily related to our net loss of $51.9
million , adjusted for net cash inflow of $114.6 million due to changes in our
operating assets and liabilities, and for non-cash charges of $25.7 million .
Non-cash charges primarily consisted of stock-based compensation, and
depreciation and amortization of property and equipment and intangible assets.
The change in operating assets and liabilities were the result of a $112.0
million increase in accounts receivable and a $4.3 million increase in other
operating assets, which were offset by a $223.5 million increase in accounts
payable and a $7.4 million increase in other current and non-current
liabilities. In the nine months ended September 30, 2021 , marketplace float
increased by $107.7 million , primarily due to the increased Marketplace GMV
being transacted near the reporting date as compared to the end of the previous
reporting date.
Investing Activities
In the nine months ended September 30, 2022 , net cash used in investing
activities was $264.3 million and primarily related to increases in purchases of
marketable securities, increases in financing receivables, our acquisition of
Monk SAS, capital expenditures to purchase property and equipment to support
field and site operations, and capitalized software development costs to support
continued technology innovation.
In the nine months ended September 30, 2021 , net cash used in investing
activities was $97.6 million and primarily related to capital expenditures to
purchase property and equipment to support field and site operations, along with
capitalized software development costs to support continued technology
innovation, increases in financing receivables, and the use of cash for the
acquisition of a business.
39
--------------------------------------------------------------------------------Financing Activities
In the nine months ended
In the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$377.2 million and was primarily the result of proceeds from our issuance of Class A common stock pursuant to our IPO, which were offset by net repayments of long term debt during the period, and payments for debt issuance and other financing costs. Acquisitions In the first quarter of 2022, we completed an acquisition of all of the outstanding shares of Monk SAS for approximately$19.1 million . The total purchase price was paid in cash. The transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in our results of operations from the acquisition date. In connection with the acquisition, we incurred approximately$0.6 million of transaction costs. The acquisition of Monk SAS enabled us to expand our position in the used vehicle industry and enhance our service offerings with dealers and commercial partners. In the third quarter of 2021, we completed an acquisition of the outstanding shares ofMax Digital LLC , Max Digital, for approximately$61.4 million . The total purchase price was paid in cash. The transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in our results of operations from the acquisition date. In connection with the acquisition, we incurred approximately$1.1 million of transaction costs. The acquisition of Max Digital enabled us to expand our position in the used vehicle industry and enhance our service offerings with dealers and commercial partners. Seasonality The volume of vehicles sold through our auctions generally fluctuates from quarter to quarter. This seasonality is caused by several factors, including holidays, weather, the seasonality of the retail market for used vehicles and the timing of federal tax returns, which affects the demand side of the auction industry. As a result, revenue and operating expenses related to volume will fluctuate accordingly on a quarterly basis. In the fourth quarter, we typically experience lower used vehicle auction volume as well as additional costs associated with the holidays. Seasonally depressed used vehicle auction volume typically continues during the winter months through the first quarter. Typical seasonality trends may not be observed in periods where other external factors more significantly impact the industry. Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe are reasonable under the circumstances, however, our actual results could differ from these estimates.
There have been no material changes to our critical accounting estimates as compared to those disclosed in the Annual Report.
Recently Adopted Accounting Pronouncements
For information on recently issued accounting pronouncements, refer to Note 1.
Nature of Business and Summary of Significant Accounting Policies in our
condensed consolidated financial statements included in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups, or the JOBS Act. We will remain an emerging growth company until the
end of our fiscal year ending
40
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qualify as a "large accelerated filer," with at least $700 million of equity
securities held by non-affiliates. The JOBS Act provides that an emerging growth
company can take advantage of an extended transition period for complying with
new or revised accounting standards. This provision allows an emerging growth
company to delay the adoption of some accounting standards until those standards
would otherwise apply to private companies. We have elected to use the extended
transition period under the JOBS Act for the adoption of certain accounting
standards until the earlier of the date we (1) are no longer an emerging growth
company or (2) affirmatively and irrevocably opt out of the extended transition
period provided in the JOBS Act. As a result, our financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
As a large accelerated filer, we will be subject to certain disclosure and
compliance requirements that apply to other public companies but did not
previously apply to us due to our status as an emerging growth company. These
requirements include, but are not limited to: the requirement that our
independent registered public accounting firm attest to the effectiveness of our
internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act of 2002; compliance with requirements that may be adopted by
the Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditors' report providing additional
information about the audit and the financial statements; the requirement that
we provide full and more detailed disclosures obligations regarding executive
compensation in our periodic reports and proxy statements; and, the requirement
that we hold a non-binding advisory vote on executive compensation and obtain
shareholder approval of any golden parachute payments not previously approved.
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