ACV Auctions(ACVA) - 2021 Q4 - Annual Report

PART I Item 1. Business ACV Auctions operates a digital marketplace for wholesale used vehicles, enhancing transparency and efficiency through data services Overview ACV Auctions aims to build trusted, efficient digital marketplaces for used vehicles, leveraging transparency and data - ACV Auctions' mission is to create the most trusted and efficient digital marketplaces for buying and selling used vehicles, utilizing transparency and comprehensive data[18] - The platform offers a digital marketplace for wholesale vehicle transactions and data services, empowering dealers and commercial partners with technology-enabled capabilities for buying, selling, and valuing vehicles[19] Our Platform The platform integrates a digital marketplace, value-added services, and data services, leveraging detailed vehicle inspections and predictive analytics - The platform integrates a digital marketplace (20-minute live auction, Run List for pre-screening), value-added services (ACV Transportation, ACV Capital for financing, Customer Assurance 'Go Green'), and data services (True360 Report, ACV Market Report, MAX Digital for inventory management)[23][24][25][26] - Core technology includes detailed vehicle inspections (100+ details, Virtual Lift for undercarriage, Audio Motor Profile 'AMP' for engine sound analysis), vehicle intelligence for predictive analytics, and marketplace enablement tools like MyACV and Private Marketplaces[27][28] Key Advantages to our Platform Key advantages include a transparent, digital approach with seller assurance, significant marketplace scale, and a growing technology moat - Key advantages include a transparent, digital approach with seller assurance (Go Green), an industry-leading digital marketplace with significant scale (14,064 active buyers, 9,025 active sellers, $7.9 billion GMV in 2021), a comprehensive suite of products and services, a growing technology and data moat, and attractive territory economics[29][30][31][32] Our Growth Strategies Growth strategies focus on increasing buyer/seller numbers, expanding service offerings, pursuing targeted acquisitions, and potential international expansion - Strategies include increasing Marketplace Buyers and Sellers through targeted sales and marketing, driving greater share of wholesale transactions from existing customers, introducing new data-powered products (e.g., programmatic buying), pursuing targeted acquisitions (TrueFrame, ASI, MAX Digital), and thoughtful international expansion[34][35][36][37][38] Sales The sales team is responsible for onboarding, customer success, and proactively sourcing new customers, especially in nascent territories - The sales team, including account managers and territory managers, is responsible for onboarding, ensuring customer success, and proactively sourcing new customers, particularly in nascent territories[39][40] - Vehicle Condition Inspectors (VCIs) also play a sales support role by building relationships through frequent customer visits[40] Marketing Marketing initiatives drive brand awareness, incentivize existing partners, and attract new dealers through digital and direct channels - Marketing initiatives focus on driving brand awareness, incentivizing existing partners, and attracting new dealers and commercial partners through digital channels (paid search, social) and direct marketing[41][42] Competition ACV competes with large national offline auction companies expanding online, smaller digital marketplaces, and independent auctions - ACV primarily competes with large, national offline vehicle auction companies like Manheim and KAR Auction Services, which are also expanding online, as well as smaller digital marketplace companies and independent auctions[43][44] Human Capital and Culture ACV emphasizes a mission-driven culture focused on employee development, diversity, inclusion, and professional growth - ACV emphasizes a mission-driven culture focused on employee development, diversity, inclusion, and professional growth, with a leadership team of seasoned executives[45][46] - As of December 31, 2021, the company had over 1,910 teammates, including more than 790 Vehicle Condition Inspectors (VCIs)[46] Intellectual Property ACV protects its intellectual property through legal rights and contractual restrictions, including confidentiality agreements - ACV protects its intellectual property (trademarks, domain names, copyrights, trade secrets, patents) through legal rights and contractual restrictions, including confidentiality agreements with employees and third parties[47][48] Our Government Regulations The company operates in highly regulated industries, subject to extensive U.S. federal, state, and local laws - The company operates in highly regulated industries, subject to extensive U.S. federal, state, and local laws concerning wholesale, financing, and transportation of used vehicles, as well as internet, e-commerce, data privacy, and consumer protection regulations[49][50] Corporate Information ACV Auctions Inc. was incorporated in Delaware in December 2014, with its principal executive offices in Buffalo, New York - ACV Auctions Inc. was incorporated in Delaware in December 2014, with its principal executive offices in Buffalo, New York[51] Available Information The company's SEC filings and other information are available free of charge on its investor relations and the SEC's websites - The company's SEC filings (10-K, 10-Q, 8-K) and other information are available free of charge on its investor relations website (www.investors.acvauto.com) and the SEC's website (www.sec.gov)[52](index=52&type=chunk) - ACV Auctions' mission is to build the most trusted and efficient digital marketplaces for buying and selling used vehicles, leveraging transparency and comprehensive data[18] - The platform includes a Digital Marketplace (20-minute live auction, transportation, financing, assurance), Data Services (True360 Reports, ACV Market Report, MAX Digital for inventory management), and underlying Data and Technology (inspections, vehicle intelligence, operations automation)[19][20][23] Key Operating Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | Change | % Change | | :------------------ | :---------- | :---------- | :-------- | :------- | | Active Marketplace Buyers | 14,064 | 12,373 | +1,691 | +13.7% | | Active Marketplace Sellers| 9,025 | 7,152 | +1,873 | +26.2% | | Marketplace GMV | $7.9 billion| $3.3 billion| +$4.6 billion| +139.4% | - Growth strategies include increasing Marketplace Buyers and Sellers, driving greater share of wholesale transactions from existing customers, introducing new data-powered products (e.g., programmatic buying), pursuing targeted acquisitions (TrueFrame, ASI, MAX Digital), and international expansion[34][35][36][37][38] Item 1A. Risk Factors This section outlines significant risks that could materially affect ACV Auctions' business, financial condition, and results of operations Risks Related to Our Growth and Capital Requirements Rapid growth may not be sustainable, with a history of operating losses and uncertainty about future profitability - Rapid growth may not be sustainable, and the company has a history of operating losses ($78.2 million in 2021, $41.0 million in 2020) with no assurance of future profitability, requiring substantial investments in platform, products, sales, and expansion[56][62][63] - Future results are difficult to forecast due to limited operating history and potential fluctuations from factors like customer demand, retention, competition, and macroeconomic conditions[65][66] - Additional debt or equity capital may be required for business objectives, but availability and acceptable terms are not guaranteed, potentially leading to dilution or restrictive covenants[68][69][70] - The phaseout of LIBOR may adversely affect interest rates on existing debt, requiring renegotiation of terms[71][72] Risks Related to Our Business, Our Brand and Our Industry The ability to expand products and services may be limited, incurring losses or failing to successfully enter new markets - The ability to expand products and services may be limited, incurring losses or failing to successfully enter new markets due to competitive and regulatory challenges[73] - The company operates in a highly competitive industry, facing large national offline auction companies (Manheim, KAR Auction Services) and smaller digital marketplaces, requiring constant adaptation to evolving trends and technologies[75][76] - Business is sensitive to changes in used vehicle prices and supply, with decreases potentially impacting sales volumes, revenue, and profitability[77][80] - Failure to accurately inspect vehicles or effectively deal with fraudulent activities could damage customer confidence and lead to financial losses, especially under the Go Green assurance program[86][87][88] - Reliance on third-party carriers for vehicle transportation exposes the company to risks like weather, traffic, and driver shortages, potentially affecting customer experience[93] Risks Related to Socioeconomic Factors Health crises, economic conditions, and changes in the automotive ecosystem could significantly impact business operations and profitability - Health crises like the COVID-19 pandemic can disrupt operations, impact customer demand, and create market turmoil, making future performance unpredictable[103][104][106] - General business and economic conditions, including consumer demand, credit availability, and changes in the automotive ecosystem (e.g., autonomous vehicles, ride-sharing), could reduce auto sales and profitability[107][108][110] - Dealer closures or consolidations could reduce demand for ACV's products, and the influence of industry parties (associations, regulators) could negatively impact business relationships[111][112] - The business is subject to risks from natural disasters, adverse weather events, and other catastrophic events, which could interrupt operations and affect financial results[113] Risks Related to Information Technology and Intellectual Property Failure to leverage technology, maintain platform reliability, or comply with data privacy laws could harm the business - Failure to properly leverage technology advancements or provide a compelling user experience on web and mobile platforms could lead to a decline in customer engagement and harm the business[114][116][117] - Reliance on third-party technology and information systems for critical business functions (e.g., AWS, Google Cloud) exposes the company to risks of disruption, security breaches, and performance issues[119][120][121] - The company is subject to stringent and changing privacy and data security laws (e.g., CCPA, CPRA), with non-compliance potentially leading to enforcement actions, fines, litigation, and reputational harm[123][124] - Failure to adequately obtain, maintain, protect, and enforce intellectual property rights (trademarks, trade secrets, patents) could harm the business, as could claims of infringement or misappropriation by third parties[138][139][140][148] Risks Related to Government Regulation and Litigation ACV operates in highly regulated industries, facing risks from non-compliance, legal proceedings, and limitations on tax benefits - ACV operates in highly regulated industries (wholesale, financing, transportation of used vehicles, internet, e-commerce, data privacy), with laws varying significantly by state and federal agencies[157][159] - Non-compliance with licensing requirements or other regulations could result in punitive fines, operational changes, and adverse effects on financial condition[158][160] - The company is subject to legal proceedings and claims in the ordinary course of business, including a putative class action alleging federal antitrust and New York State law violations related to bid-setting[161][195] - The ability to utilize net operating loss carryforwards (NOLs) to reduce future tax liability may be limited by their duration or restrictions under U.S. tax law (e.g., Sections 382 and 383 of the Code)[163][164][165] Risks Related to Being a Public Company Operating as a public company incurs increased costs and requires substantial management time for compliance - Operating as a public company incurs increased costs (finance, legal, accounting, D&O insurance) and requires substantial management time for compliance with Sarbanes-Oxley Act, Dodd-Frank, and Nasdaq listing requirements[166] - Failure to develop and maintain effective internal controls over financial reporting, or the reoccurrence of material weaknesses, could adversely affect investor confidence and stock value[167][168][169] - As an 'emerging growth company,' ACV utilizes reduced reporting and disclosure requirements, which may make its Class A common stock less attractive to some investors due to non-comparable financial statements[171][173] Risks Related to Ownership of Our Class A Common Stock The dual-class stock structure concentrates voting control, limiting Class A holders' influence, and the stock price may be volatile - The dual-class structure (Class B has 10 votes/share, Class A has 1 vote/share) concentrates voting control (82.4% with Class B holders, 67.8% with directors/executives and affiliates as of December 31, 2021), limiting Class A holders' influence[174] - The stock price may be volatile due to financial performance fluctuations, competitive announcements, litigation, future stock sales, and general economic conditions[177][178][179] - The company does not intend to pay dividends in the foreseeable future, requiring investors to rely on stock price appreciation for gains[185] - Anti-takeover provisions in charter documents and Delaware law could make company acquisition more difficult and limit stockholders' ability to influence management or receive a premium for their shares[186][188] - ACV's rapid growth may not be indicative of future performance, and the company has a history of operating losses, with no guarantee of future profitability[56][62] - The business is highly sensitive to changes in used vehicle prices and supply, and faces intense competition from both traditional and digital auction companies[77][80][75] - Operations are vulnerable to health crises (e.g., COVID-19), general economic downturns, and disruptions in the broader automotive ecosystem, including shifts in consumer demand and dealer consolidations[103][107][111] - Significant risks exist related to information technology, including the need to leverage advancements, maintain platform reliability, and comply with stringent and evolving data privacy and security laws (e.g., CCPA, CPRA)[114][119][123][124] - The company's dual-class stock structure concentrates voting control with executive officers, directors, and affiliates, potentially limiting the influence of Class A common stock holders[174] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report Item 2. Properties ACV Auctions Inc. leases its corporate headquarters in Buffalo, New York and other offices across multiple states and Canada - ACV leases its corporate headquarters (25,000 sq ft in Buffalo, NY, lease expires November 2022 with a 5-year extension option) and other offices (over 49,000 sq ft) in multiple US states and Canada[193] - The company does not own any real property and believes current facilities are suitable, with additional space obtainable if required[193] Item 3. Legal Proceedings ACV Auctions Inc. is generally subject to various legal proceedings, with one putative class action currently pending - ACV is generally subject to ordinary course legal proceedings but currently faces no material adverse litigation, except for a specific class action[194] - A putative class action was filed on March 19, 2021, alleging federal antitrust and New York State law violations related to an alleged conspiracy to set bids on the marketplace from one seller[195] - In January 2022, federal claims in the class action were dismissed with leave to amend. ACV intends to vigorously defend the case and believes its resolution will not materially affect its consolidated financial position[195] Item 4. Mine Safety Disclosures This item is not applicable to ACV Auctions Inc PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ACV Auctions' Class A common stock trades on Nasdaq, while Class B is unlisted but convertible, with no dividends planned Market Information and Holders of Record ACV's Class A common stock trades on Nasdaq, while Class B is unlisted but convertible, with 61 Class A and 71 Class B holders of record - ACV's Class A common stock is traded on The Nasdaq Global Select Market under the symbol 'ACVA'[198] - Class B common stock is not listed but is convertible into Class A common stock[198] - As of February 15, 2022, there were 61 holders of record for Class A common stock and 71 for Class B common stock[198] Dividend Policy The company has never declared dividends and intends to retain all funds for business operations and expansion - The company has never declared or paid dividends on its common stock and intends to retain all available funds for business operations and expansion in the foreseeable future[199] Use of Proceeds In March 2021, ACV completed its IPO, raising $385.0 million in net proceeds for general corporate purposes - In March 2021, ACV completed its IPO, selling 16,550,000 shares of Class A common stock at $25.00 per share, generating $385.0 million in net proceeds after deducting underwriting discounts and offering expenses[200] - There has been no material change in the planned use of proceeds from the IPO[200] Recent Sales of Unregistered Securities In November 2021, ACV issued 182,813 shares of Class A common stock for the TruePartners USA LLC acquisition - On November 1, 2021, ACV issued 182,813 shares of Class A common stock as consideration for the TruePartners USA LLC acquisition, exempt from registration under Section 4(a)(2) of the Securities Act[201] Issuer Purchases of Equity Securities The company made no issuer purchases of equity securities - The company made no issuer purchases of equity securities[201] Stock Performance Graph A graph compares ACV's Class A common stock return to the Nasdaq Composite and Nasdaq-100 Technology Sector Indices - A graph compares the cumulative total return of ACV's Class A common stock to the Nasdaq Composite Index and Nasdaq-100 Technology Sector Index from March 24, 2021, through December 31, 2021[202] - ACV's Class A common stock trades on Nasdaq under 'ACVA'; Class B common stock is convertible to Class A but not listed[198] - As of February 15, 2022, there were 61 holders of record for Class A common stock and 71 for Class B common stock[198] - The company does not intend to pay cash dividends in the foreseeable future, retaining funds for operations and expansion[199] IPO Proceeds (March 2021) | Item | Amount (Millions) | | :------------------------------------ | :---------------- | | Gross Proceeds from Class A IPO | $413.8 | | Underwriting Discounts & Commissions | ($24.8) | | Net Offering Expenses | ($3.9) | | Net Proceeds to Company | $385.0 | - In November 2021, 182,813 shares of Class A common stock were issued as consideration for the TruePartners USA LLC acquisition, exempt from registration[201] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews ACV Auctions' financial performance, highlighting growth in its digital marketplace and data services, and the impact of COVID-19 Overview ACV Auctions aims to be the most trusted and efficient digital marketplace for used vehicles, providing transparent data and technology-enabled services - ACV Auctions aims to be the most trusted and efficient digital marketplace for used vehicles, providing transparent data and technology-enabled services to dealers and commercial partners[206][207] - Revenue is primarily generated from auction and ancillary fees on successful marketplace transactions, with additional revenue from data services (True360, MAX Digital) and short-term inventory financing[208][209] Financial Performance (2021 vs. 2020) | Metric | 2021 | 2020 | | :------------------ | :--------------- | :--------------- | | Revenue | $358.4 million | $208.4 million | | Net Loss | $(78.2) million | $(41.0) million | | Adjusted EBITDA | $(44.1) million | $(30.8) million | Impact of COVID-19 on Our Business COVID-19 initially disrupted operations but later drove increased demand for used vehicles and a shift to digital transactions - COVID-19 initially caused significant disruption to customer operations and a sharp decline in wholesale transaction demand in March-April 2020[211][212][213] - Marketplace activity rebounded strongly from May 2020, driven by increased demand for used vehicles, higher valuations, and a shift to digital transactions as traditional auctions faced disruptions[214] - The semiconductor supply shortage and COVID-related production disruptions continued to impact supply and demand into 2021, leading to short-term volatility and historic lows in dealer inventories by Q4 2021[215][216] Key Operating and Financial Metrics Key operating metrics show significant growth in Marketplace Units, GMV, buyers, and sellers, alongside increased Adjusted EBITDA losses Key Operating and Financial Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | YoY Change | | :------------------ | :--------------- | :--------------- | :--------- | | Marketplace Units | 560,959 | 391,466 | +43.3% | | Marketplace GMV | $7.9 billion | $3.3 billion | +139.4% | | Marketplace Buyers | 14,064 | 12,373 | +13.7% | | Marketplace Sellers | 9,025 | 7,152 | +26.2% | | Adjusted EBITDA | $(44.1) million | $(30.8) million | -43.2% | - Marketplace Units (vehicles transacted) are a key indicator of growth potential, driving revenue from auction and ancillary fees[219] - Marketplace GMV (total dollar value of vehicles transacted) indicates marketplace success and business health, but future GMV could decline if used vehicle values normalize, even with unit growth[220] - Growth in Marketplace Buyers and Sellers is driven by the value proposition of ACV's offerings and sales/marketing efforts, promoting a vibrant marketplace[223] - Adjusted EBITDA is a non-GAAP measure used to assess operating performance, expected to fluctuate in the near term due to investments but improve long-term with scale[224] Factors Affecting Our Performance Performance is driven by increasing marketplace units, growing customer share, adding new buyers/sellers, and expanding value-added services - Key performance drivers include increasing Marketplace Units, growing the share of wholesale transactions from existing customers, and adding new Marketplace Buyers and Sellers[226][227][229] - Success depends on growing awareness for ACV's offerings and brand through trusted supply, deepening relationships with partners, driving customer loyalty, and targeted marketing[231][232] - Growing value-added and data services (e.g., ACV Transportation, ACV Capital, True360 Reports, MAX Digital) is crucial for enhancing the platform and driving revenue[233] - Continued investment in growth (sales, marketing, technology) is expected to increase operating expenses, potentially delaying profitability in the near term[235] - Performance is significantly affected by used car demand, which has been impacted by the semiconductor shortage and new car supply constraints, leading to short-term volatility[236] Components of Results of Operations Revenue primarily stems from Marketplace and Service fees and Customer Assurance, while operating expenses cover various operational costs - Revenue is primarily from Marketplace and Service (auction and ancillary fees, transportation, data services) and Customer Assurance (Go Green and other price guarantees)[238][239][240] - Operating expenses include Marketplace and Service Cost of Revenue (third-party transportation, inspection costs), Customer Assurance Cost of Revenue (claims against guarantees), Operations and Technology (inspections, processing, product/engineering), Selling, General and Administrative (sales, marketing, legal, HR), and Depreciation and Amortization[242][243][244][245][246] - Other income (expense) primarily consists of interest income and expense, while Provision for Income Taxes covers U.S. federal, state, and foreign income taxes[247][248] Results of Operations ACV experienced substantial revenue growth in 2021, primarily from marketplace and service fees, but also incurred increased operating expenses, resulting in continued net losses Consolidated Statements of Operations (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | YoY Change (thousands) | % Change | | :---------------------------------------------- | :------------------ | :------------------ | :--------------------- | :------- | | Revenue: | | | | | | Marketplace and service revenue | $308,350 | $173,120 | $135,230 | 78% | | Customer assurance revenue | $50,085 | $35,237 | $14,848 | 42% | | Total Revenue | $358,435 | $208,357 | $150,078 | 72% | | Operating Expenses: | | | | | | Marketplace and service cost of revenue | $159,405 | $83,553 | $75,852 | 91% | | Customer assurance cost of revenue | $45,348 | $29,496 | $15,852 | 54% | | Operations and technology | $101,056 | $64,998 | $36,058 | 55% | | Selling, general, and administrative | $121,167 | $64,882 | $56,285 | 87% | | Depreciation and amortization | $8,264 | $6,075 | $2,189 | 36% | | Total Operating Expenses | $435,240 | $249,004 | $186,236 | 75% | | Loss from Operations | $(76,805) | $(40,647) | -$(36,158) | -89% | | Net Loss | $(78,182) | $(41,021) | -$(37,161) | -91% | - Marketplace and service revenue increased by 78% YoY, driven by higher auction marketplace revenue and increased transportation, data, and other service revenue, correlating with higher per unit GMV and buyer fee increases in December 2021[257][258] - Customer assurance revenue increased by 42% YoY, primarily from Go Green assurance offerings, due to increased sales unit volume and market penetration, partially offset by a decline in fair value per assurance[260] - Operating expenses saw significant increases across all categories, notably Marketplace and Service Cost of Revenue (+91%), Operations and Technology (+55%), and Selling, General, and Administrative (+87%), primarily due to increased sales volume, headcount, and technology investments[261][263][264][265] Non-GAAP Financial Measures Adjusted EBITDA is a non-GAAP measure used to assess operating performance, expected to fluctuate in the near term due to investments - Adjusted EBITDA is a non-GAAP financial measure used by management to assess operating performance and leverage, excluding depreciation, stock-based compensation, interest, other income/expense, and taxes[271][272] - Adjusted EBITDA is expected to fluctuate in the near term due to business investments but improve long-term with scale and operating efficiencies[224] Adjusted EBITDA Reconciliation (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Net income (loss) | $(78,182) | $(41,021) | | Depreciation and amortization | $8,753 | $7,244 | | Stock-based compensation | $23,692 | $5,705 | | Interest (income) expense | $653 | $(115) | | Provision for income taxes | $724 | $489 | | Other (income) expense, net | $223 | $(3,054) | | Adjusted EBITDA | $(44,137) | $(30,752) | Liquidity and Capital Resources ACV's liquidity is strong, with substantial cash and marketable securities, primarily from IPO proceeds, deemed sufficient for future needs - ACV's primary liquidity sources are marketplace revenue, debt facilities, and equity sales, including $388.9 million net proceeds from the March 2021 IPO[275] - As of December 31, 2021, the company had $566.0 million in cash and cash equivalents and $13.8 million in marketable securities, deemed sufficient for at least the next 12 months and long-term needs[276] - Future capital requirements depend on sales volume, marketing expansion, development efforts, and potential acquisitions. The company may seek additional financing if needed[276] - Working capital is significantly bolstered by 'marketplace float,' where receivables are settled faster than payables[280] Our Debt Arrangements ACV maintains two revolving credit facilities, a $50.0 million 2019 Revolver and a $160.0 million 2021 Revolver - ACV has a $50.0 million 2019 Revolver (secured by receivables, LIBOR + 3.75%, matures June 2024) and a $160.0 million 2021 Revolver (secured by company assets, LIBOR + 2.75%, matures August 2026)[281][282][283] - As of December 31, 2021, $0.5 million was drawn under the 2019 Revolver, and a $1.1 million letter of credit was outstanding under the 2021 Revolver, with no other amounts drawn[284] - The company was in compliance with all applicable financial and non-financial covenants for both revolving credit facilities as of December 31, 2021[284] Cash Flows from Operating, Investing, and Financing Activities Cash flows reflect significant increases from operating and financing activities, offset by increased investing activities Summary of Cash Flows (2021 vs. 2020) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------ | :------------------ | :------------------ | | Net cash provided by (used in) operating activities | $85,290 | $10,368 | | Net cash provided by (used in) investing activities | $(129,266) | $(19,673) | | Net cash provided by (used in) financing activities | $376,245 | $60,755 | | Net increase in cash and equivalents | $332,269 | $51,450 | - Net cash from operating activities increased significantly in 2021 to $85.3 million (from $10.4 million in 2020), primarily driven by a $119.2 million increase in marketplace float[288][289][290] - Net cash used in investing activities increased to $129.3 million in 2021 (from $19.7 million in 2020), mainly due to $59.0 million in business acquisitions, a $31.7 million increase in finance receivables, and $13.8 million in marketable securities purchases[291] - Net cash from financing activities was $376.2 million in 2021, primarily from IPO proceeds, offset by debt repayments and RSU tax withholdings[292] Acquisitions ACV completed several acquisitions, including ASI Services in Q2 2020 and Max Digital in Q3 2021, expanding its offerings - In Q2 2020, ACV acquired assets from ASI Services LLC for $11.2 million, expanding inspection services for off-lease vehicles[293] - In Q3 2021, ACV acquired Max Digital LLC for approximately $61.4 million, expanding its product offerings with an inventory management system leveraging predictive analytics[294] - Other business combinations in 2021 totaled approximately $6.9 million, further enhancing service offerings[295] Seasonality Vehicle sales typically peak in late Q1 and early Q2, with lowest volumes in Q4, influenced by various market factors - Vehicle sales typically peak late in Q1 and early Q2, with lowest volumes in Q4, influenced by holidays, weather, retail market seasonality, and tax returns[237][296] - Used vehicle pricing depreciates faster in the last two quarters and slower in the first two quarters of each year[237] - Due to rapid growth, ACV's sales patterns have not fully reflected general seasonality but are expected to normalize as the business matures[237] Critical Accounting Estimates Revenue recognition, general guarantees, stock-based compensation, internal-use software, and goodwill impairment are critical accounting estimates - Revenue recognition involves significant judgment in determining performance obligations, principal vs. agent roles, and allocating transaction prices based on stand-alone selling prices[298][299] - General guarantees, including vehicle condition guarantees (Go Green) and other price guarantees, are accounted for under ASC 460, with fair value estimated based on historical results and qualitative factors[301][302] - Stock-based compensation is measured at fair value using the Black-Scholes model, requiring subjective assumptions for expected term, risk-free interest rate, expected volatility, and dividend rate[303][304] - Internal-use software costs are capitalized during development and amortized straight-line over an estimated useful life of three years[306] - Goodwill is not amortized but tested for impairment annually (or more frequently if indicators exist) as a singular reporting unit, using qualitative and quantitative assessments[307][308] Recently Adopted Accounting Pronouncements ACV early adopted ASU 2019-12 on January 1, 2021, with no material impact, and is evaluating ASU 2016-13 for January 1, 2023 adoption - ACV early adopted ASU 2019-12 (Simplifying the Accounting for Income Taxes) on January 1, 2021, on a prospective basis, with no material impact[375] - The company is currently evaluating the impact of ASU 2016-13 (Measurement of Credit Losses on Financial Instruments), which is required for adoption on January 1, 2023[375] Emerging Growth Company Status ACV is an 'emerging growth company,' allowing it to use an extended transition period for new accounting standards - ACV is an 'emerging growth company' under the JOBS Act, allowing it to use an extended transition period for complying with new or revised accounting standards, adopting them when private companies do[311][340] - This election means ACV's financial statements may not be comparable to other public companies that comply with public company effective dates for new standards[340] - ACV's mission is to build a trusted and efficient digital marketplace for used vehicles, offering data services and leveraging technology to empower dealers and commercial partners[206][207] - COVID-19 initially disrupted operations in March-April 2020, but subsequently drove increased demand for online transactions, leading to a strong rebound in marketplace activity and higher used vehicle valuations[211][213][214] Key Operating and Financial Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | Change | % Change | | :------------------ | :--------------- | :--------------- | :--------------- | :------- | | Marketplace Units | 560,959 | 391,466 | +169,493 | +43.3% | | Marketplace GMV | $7.9 billion | $3.3 billion | +$4.6 billion | +139.4% | | Marketplace Buyers | 14,064 | 12,373 | +1,691 | +13.7% | | Marketplace Sellers | 9,025 | 7,152 | +1,873 | +26.2% | | Revenue | $358.4 million | $208.4 million | +$150.0 million | +72.0% | | Net Loss | $(78.2) million | $(41.0) million | -$(37.2) million | -90.7% | | Adjusted EBITDA | $(44.1) million | $(30.8) million | -$(13.3) million | -43.2% | - The company's liquidity is strong, with $566.0 million in cash and cash equivalents as of December 31, 2021, largely due to $385.0 million in net proceeds from its March 2021 IPO[275][276] - ACV completed significant acquisitions, including Max Digital in Q3 2021 for $61.4 million (expanding inventory management software) and ASI Services in Q2 2020 for $11.2 million (enhancing inspection services)[293][294] Item 7A. Quantitative and Qualitative Disclosures About Market Risk ACV Auctions Inc. is exposed to market risk primarily from fluctuations in interest rates - ACV's primary market risk exposure is from interest rate fluctuations[313] - As of December 31, 2021, the company had $566.0 million in cash and cash equivalents (short-term interest-bearing investments) and $0.5 million in variable-rate borrowings (indexed to LIBOR or a replacement rate)[314] - A hypothetical 10% change in interest rates is not expected to have a material impact on the consolidated financial statements[314] Item 8. Financial Statements and Supplementary Data This section presents ACV Auctions Inc.'s audited consolidated financial statements for 2021, 2020, and 2019, along with extensive accompanying notes Notes to Consolidated Financial Statements The notes provide extensive disclosures on ACV's business, accounting policies, equity structure, and details of business acquisitions - ACV operates in a single reporting segment, providing a digital wholesale auction marketplace and data services for business-to-business used vehicle sales[334][341] - The IPO in March 2021 resulted in $388.9 million net proceeds and the conversion of all outstanding convertible preferred stock into Class B common stock, establishing a dual-class structure[337][407][408] - Key accounting estimates include allowance for doubtful receivables, fair value of guarantees, impairment of goodwill, stock-based awards, and income taxes[336] - The company holds marketable securities (commercial paper, corporate bonds, U.S. treasury securities) totaling $13.765 million as of December 31, 2021, primarily due within one year[378][379] - Goodwill increased to $78.8 million in 2021 (from $21.8 million in 2020) due to acquisition activity, with acquired intangible assets (customer relationships, developed technology) totaling $18.1 million[452][454] - In February 2022, ACV acquired Monk S.A.S. for approximately $19.0 million cash, further expanding its position in the used vehicle industry[461] - The section includes audited consolidated financial statements for 2021, 2020, and 2019, along with the Independent Registered Public Accounting Firm's report[315][317] Consolidated Statements of Operations (2021, 2020, 2019) | Metric | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :---------------------------------------------- | :------------------ | :------------------ | :------------------ | | Total Revenue | $358,435 | $208,357 | $106,847 | | Total Operating Expenses | $435,240 | $249,004 | $186,129 | | Loss from Operations | $(76,805) | $(40,647) | $(79,282) | | Net Loss | $(78,182) | $(41,021) | $(77,216) | | Net Loss per Share - Basic and Diluted | $(0.62) | $(1.90) | $(4.20) | Consolidated Balance Sheets (as of Dec 31, 2021 vs. 2020) | Asset/Liability | Dec 31, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :------------------------------ | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $565,994 | $233,725 | | Total current assets | $857,413 | $354,405 | | Total assets | $982,960 | $404,550 | | Accounts payable | $395,972 | $151,967 | | Total current liabilities | $423,362 | $166,701 | | Total liabilities | $426,863 | $177,910 | | Total stockholders' equity (deficit) | $556,097 | $(139,692) | Consolidated Statements of Cash Flows (2021, 2020, 2019) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | 2019 (in thousands) | | :------------------------------ | :------------------ | :------------------ | :------------------ | | Net cash provided by (used in) operating activities | $85,290 | $10,368 | $(72,460) | | Net cash provided by (used in) investing activities | $(129,266) | $(19,673) | $(24,681) | | Net cash provided by (used in) financing activities | $376,245 | $60,755 | $161,526 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $332,269 | $51,450 | $64,385 | | Cash, cash equivalents, and restricted cash, end of period | $565,994 | $233,725 | $182,275 | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report Item 9A. Controls and Procedures ACV Auctions' management evaluated its disclosure controls and procedures as effective, noting inherent limitations of control systems Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021[463] Management's Annual Report on Internal Control Over Financial Reporting This 10-K does not include a management report or auditor attestation on internal control due to a transition period - This 10-K does not include a management report or auditor attestation report on internal control over financial reporting due to a transition period for newly public companies[464] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting were identified during the period covered by this report - No material changes in internal control over financial reporting were identified during the period covered by this report[465] Inherent Limitations on Effectiveness of Controls Management acknowledges that controls provide reasonable assurance but have inherent limitations, meaning they may not prevent all errors - Management believes controls provide reasonable assurance but acknowledge inherent limitations, meaning they may not prevent or detect all errors and fraud[466] - As of December 31, 2021, ACV's disclosure controls and procedures were evaluated as effective at the reasonable assurance level by management, including the CEO and CFO[463] - The company is in a transition period for Section 404 of the Sarbanes-Oxley Act, thus management's assessment and auditor attestation report on internal control over financial reporting are not included in this 10-K[464] - Management acknowledges that all control systems have inherent limitations and can only provide reasonable assurance, not absolute, that objectives are met and errors/fraud are prevented or detected[466] Item 9B. Other Information This item is not applicable and contains no other information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable and contains no disclosure regarding foreign jurisdictions that prevent inspections PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[469] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2022 Annual Meeting of Stockholders Proxy Statement - Information on executive compensation is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[470] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's 2022 Proxy Statement - Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[471] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's 2022 Proxy Statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[472] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2022 Annual Meeting of Stockholders Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[473] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all documents filed as part of the report, including financial statements, schedules, and an extensive Exhibit Index - The section includes an Index to Consolidated Financial Statements, comprising the auditor's report and various financial statements for 2019-2021[474] - Financial Statement Schedules are omitted as required information is included in the consolidated financial statements or notes[474] - An Exhibit Index provides a detailed list of corporate documents, including the Amended and Restated Certificate of Incorporation, Bylaws, Equity Incentive Plans, Lease Agreements, and various certifications[476][477] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided SIGNATURES The report is duly signed on behalf of ACV Auctions Inc. by its Chief Executive Officer and Chief Financial Officer, along with other directors - The Annual Report on Form 10-K is signed by George Chamoun (CEO) and William Zerella (CFO), and other directors, on February 23, 2022[481][483] - A Power of Attorney grants George Chamoun and William Zerella authority to sign and file amendments to the report[482]