ACV Auctions(ACVA) - 2022 Q4 - Annual Report

Part I Business ACV Auctions operates a digital marketplace for wholesale used vehicle transactions, offering comprehensive data services and value-added solutions like transportation and financing - ACV's mission is to create the most trusted and efficient digital marketplace for buying and selling used vehicles, leveraging comprehensive and transparent data[17] - The platform is built on three core pillars: a Digital Marketplace, Data Services, and underlying Data and Technology[18] - Key value-added services include ACV Transportation, ACV Capital (financing), and Go Green (customer assurance)[19][23] 2022 Marketplace Activity | Metric | Value | | :--- | :--- | | Active Marketplace Buyers | 14,453 | | Active Marketplace Sellers | 10,285 | | Marketplace GMV (billions) | $9.0 | - The company primarily competes with large, national physical auction companies like Manheim and Adesa, which have also expanded online[38][70] - As of December 31, 2022, the company had over 2,000 employees, including more than 760 Vehicle Condition Inspectors nationwide[40] Risk Factors The company faces significant risks including operating losses, intense competition, dependence on vehicle supply, data security, regulatory compliance, and its dual-class stock structure Risks Related to Growth and Capital The company faces risks from its history of net losses, uncertain future profitability, limited operating history, and potential need for additional capital to support growth Financial Performance (2021-2022) (in millions) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $421.5 | $358.4 | | Net Loss | $102.2 | $78.2 | - The company had an accumulated deficit of $347.4 million as of December 31, 2022, expecting continued substantial resource expenditure[56] - The company entered a $160.0 million senior secured revolving credit facility (2021 Revolver) in August 2021, with restrictive covenants potentially limiting future indebtedness[65][66] Risks Related to Business and Industry ACV faces intense competition, sensitivity to used vehicle price fluctuations, and operational risks related to inspection accuracy, fraud prevention, and third-party transportation carriers - The company faces intense competition from established players like Manheim, Adesa, and KAR Auction Services, possessing greater financial resources[70] - The business is sensitive to changes in used vehicle prices, impacting transaction volumes and revenue per unit[72] - Failure to accurately inspect vehicles or manage fraudulent activities could harm the business and its reputation[84][86] - The company bears settlement risk for vehicles sold through auctions and credit risk from dealer borrowers on floorplan loans[96][97] Risks Related to IT and Intellectual Property The company relies heavily on its data platform and third-party tech, facing risks from system disruptions, cyber threats, data privacy law compliance, and intellectual property protection challenges - The business depends on its data-driven platform and may lose competitive advantage if new technology advancements are not leveraged[110] - ACV is subject to stringent data privacy laws like CCPA and GDPR, with non-compliance potentially leading to fines and liability[117][118][119] - The company faces threats from security breaches and cyber-attacks, potentially causing operational disruption, data loss, and significant financial and reputational harm[126][127] - The use of open-source software could expose the company to litigation and require proprietary source code disclosure[145] Risks Related to Government Regulation and Litigation ACV operates in highly regulated industries, facing risks from non-compliance with federal, state, and local laws, and potential limitations on utilizing net operating loss carryforwards - The business is subject to extensive regulation from agencies like the FTC and state authorities, with non-compliance potentially harming operations[148][149] - As of December 31, 2022, the company had significant U.S. federal ($299.8 million) and state ($241.2 million) net operating loss carryforwards, potentially limited by ownership changes under Section 382[153][155] Risks Related to Being a Public Company As a public company, ACV faces increased legal, accounting, and compliance costs, particularly after losing its "emerging growth company" status and becoming a "large accelerated filer" - The company is now a "large accelerated filer" and no longer an "emerging growth company" as of December 31, 2022, increasing compliance costs and requiring auditor attestation of internal controls[157] Risks Related to Ownership of Class A Common Stock The dual-class stock structure concentrates voting power with Class B shares, potentially affecting stock price and index eligibility, while anti-takeover provisions and exclusive forum clauses limit stockholder influence - The dual-class structure grants Class B common stock holders (10 votes per share) approximately 75% of total voting power as of December 31, 2022, concentrating control with insiders[160] - The company does not intend to pay dividends in the foreseeable future, requiring investors to rely on stock price appreciation for returns[172] - The company's charter includes anti-takeover provisions and an exclusive forum provision for most stockholder disputes, potentially limiting stockholders' ability to bring claims elsewhere[173][175] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[179] Properties ACV Auctions leases all its facilities, including its Buffalo, New York headquarters and other offices in the U.S. and Canada, owning no real property - The company leases its corporate headquarters in Buffalo, New York, and other office spaces, owning no real property[179] Legal Proceedings The company may be involved in ordinary course legal proceedings, with a putative class action alleging antitrust violations settled and dismissed as of January 31, 2023 - A putative class action filed against the company in March 2021 alleging conspiracy to set bids was settled and dismissed as of January 31, 2023[181] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[182] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on Nasdaq under "ACVA", while Class B is not public; the company retains earnings for growth and does not anticipate paying dividends - The company's Class A common stock is traded on The Nasdaq Global Select Market under the symbol "ACVA"[184] - ACV has never paid dividends on its common stock and does not intend to pay any in the foreseeable future, retaining funds for business operations and expansion[185] - The report includes a stock performance graph comparing ACV's Class A common stock cumulative total return against Nasdaq Composite and Nasdaq-100 Technology Sector Indices[188] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, including a 17.6% revenue increase to $421.5 million in 2022, a widening net loss to $102.2 million, key operating metrics, liquidity, and critical accounting estimates Key Operating and Financial Metrics Key metrics for 2022 show Marketplace GMV growth to $9.0 billion, a slight decrease in Marketplace Units, increased buyers and sellers, and a larger Adjusted EBITDA loss Key Metrics (2021 vs. 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Marketplace Units | 546,088 | 560,959 | | Marketplace GMV (billions) | $9.0 | $7.9 | | Active Marketplace Buyers | 14,453 | 14,064 | | Active Marketplace Sellers | 10,285 | 9,025 | | Adjusted EBITDA (millions) | $(56.4) | $(44.1) | Results of Operations Total revenue increased by 17.6% to $421.5 million in 2022, but operating expenses grew by 21.2% to $527.7 million, resulting in an increased operating loss of $106.2 million and a net loss of $102.2 million Consolidated Statement of Operations Highlights (in thousands) | Line Item | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenue | $421,529 | $358,435 | | Total Operating Expenses | $527,737 | $435,240 | | Loss from Operations | $(106,208) | $(76,805) | | Net Loss | $(102,192) | $(78,182) | - Marketplace and service revenue increased by 17% year-over-year, driven by higher transportation services revenue and increased buyer fees implemented in October 2022[232] - Operations and technology expenses increased by 35% to $136.5 million, primarily due to increased headcount and continued investment in technology and infrastructure[236] Liquidity and Capital Resources As of December 31, 2022, primary liquidity sources were $280.8 million in cash and $215.9 million in marketable securities, supplemented by $50.0 million and $160.0 million debt facilities, with $75.5 million drawn - As of December 31, 2022, principal liquidity sources were cash and cash equivalents of $280.8 million and marketable securities of $215.9 million[256] - The company has two primary debt facilities: the 2019 Revolver (up to $50.0 million) and the 2021 Revolver (up to $160.0 million), with $0.5 million and $75.0 million drawn respectively as of December 31, 2022[260][261][262][263] - Net cash used in operating activities was $75.2 million in 2022, a significant change from $85.3 million provided in 2021, primarily due to working capital changes from marketplace transactions[266][267][268] Critical Accounting Estimates Management identifies critical accounting estimates including revenue recognition (principal vs. agent), accounting for seller guarantees, capitalization of internal-use software, and goodwill and intangible asset valuation - Revenue recognition requires significant judgment in distinguishing performance obligations and determining principal versus agent status[277] - The company capitalizes internal-use software costs during development and amortizes them over an estimated three-year useful life[282] - Goodwill is evaluated for impairment annually on October 1, with no impairment identified for the years ended 2020, 2021, or 2022[284][337] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with $280.8 million in cash and $75.5 million in borrowings as of December 31, 2022, and a 10% interest rate change is not expected to be material - The company's main market risk is from interest rate fluctuations on its cash equivalents and variable-rate debt[287] - As of December 31, 2022, the company had $280.8 million in cash and cash equivalents and $75.5 million in borrowings, with a hypothetical 10% interest rate change not expected to have a material impact[288] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including statements of operations, balance sheets, and cash flows, along with notes detailing accounting policies, acquisitions, and debt - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on financial statements and internal control effectiveness, identifying capitalized internal-use software development costs as a critical audit matter[291][292][295] Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $280,752 | $565,994 | | Total current assets | $754,774 | $857,413 | | Goodwill | $91,755 | $78,839 | | Total Assets | $914,922 | $982,960 | | Liabilities & Equity | | | | Accounts payable | $323,661 | $395,972 | | Long-term debt | $75,500 | $500 | | Total Liabilities | $429,198 | $426,863 | | Total Stockholders' Equity | $485,724 | $556,097 | Consolidated Statement of Cash Flows Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(75,175) | $85,290 | | Net cash used in investing activities | $(282,979) | $(129,266) | | Net cash provided by financing activities | $72,933 | $376,245 | - In February 2022, the company acquired Monk SAS for approximately $18.6 million, and in 2021, it acquired MAX Digital LLC for approximately $60.0 million[272][274][431] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable, indicating no changes in or disagreements with the company's accountants - Not applicable[443] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the period - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[444] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[445] Other Information This item is not applicable - Not applicable[449] Part III This part, covering directors, executive officers, governance, compensation, security ownership, and related matters, is incorporated by reference from the company's 2023 Proxy Statement Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference to the company's Proxy Statement for its 2023 Annual Meeting of Stockholders[450] Executive Compensation Information required by this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference to the company's Proxy Statement for its 2023 Annual Meeting of Stockholders[451] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference to the company's Proxy Statement for its 2023 Annual Meeting of Stockholders[452] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference to the company's Proxy Statement for its 2023 Annual Meeting of Stockholders[453] Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference to the company's Proxy Statement for its 2023 Annual Meeting of Stockholders[454] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed as part of the Annual Report, with schedules omitted as information is included elsewhere - This section lists all financial statements, notes, and exhibits filed with the Form 10-K[455] Form 10-K Summary The company indicates there is no Form 10-K summary - None[458]