Q4 2023 ACV Auctions Inc Earnings Call

Participants

Tim Fox; Investor Relations; ACV Auctions LLC

George Chamoun; Chief Executive Officer, Director; ACV Auctions LLC

Bill Zerella; Chief Financial Officer; ACV Auctions LLC

Michael Graham; Analyst; Canaccord Genuity

Chris Pierce; Analyst; Needham & Company Inc.

Pete Lukas; Analyst; CJS Securities

Eric Sheridan; Analyst; Goldman Sachs

Ron Josey; Analyst; Citigroup

Rajat Gupta; Analyst; JPMorgan Chase & Co.

Gary Prestopino; Analyst; Barrington Research

Presentation

Operator

Good day, and thank you for standing by. Welcome to the ACV fourth quarter and full-year earnings call. (Operator Instructions)
Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker for today, Tim Fox. Please go ahead.

Tim Fox

Good afternoon, and thank you for joining ACV's conference call to discuss our fourth quarter and full-year 2023 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill Zerella, Chief Financial Officer.
Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and of all factors that could cause actual results to differ materially from those expressed or implied by such statements for a discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website.
During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website.
And with that, let me turn the call over to George.

George Chamoun

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are pleased with our fourth quarter performance, which capped off another strong year of execution by the ACV team. We delivered 21% revenue growth in Q4 and adjusted EBITDA once again exceeded our guidance. For the full year, revenue grew 14%. We gained market share and exited the year with over 28,000 dealer partners buying and selling on our marketplace. We launched new innovation that expanded our competitive moat and drove operating efficiency, resulting in approximately 70% year over year improvement in adjusted EBITDA, along with our continued momentum in dealer wholesale, we expanded our TAM with the launch of ACVs consumer sourcing solutions, cleared car and by building the foundation for our commercial wholesale strategy, we are pleased to announce that our expansion into commercial wholesale will benefit from securing access to the auto IMS. software platform and also by growing our remarketing center footprint more on our commercial efforts later in the call.
As we turn to 2024, ACE is focused on accelerating top line growth, continued margin expansion and achieving an important milestone with adjusted EBITDA profitability in 2024. We're confident that executing on this profitable growth strategy will result in creating long-term shareholder value.
With that, let's turn to a brief recap of fourth quarter and full year 2023 results on Slide 4. Fourth quarter revenue of 118 million was in line with guidance and grew 21% year over year. Gmv increased 6% year over year, despite a 9% decrease in GMV per unit. As wholesale prices continued to normalize, we sold 144,000 vehicles in our marketplace growth of 15% year over year, reflecting solid listings growth and improved conversion. For the full year, revenue of 481 million increased 14% as unit growth rebounded year over year, along with strong attach rate for ACV, transport and ACV. Capital. Gmv for the year declined modestly to $8.8 billion due to a 10% decrease in GMV per unit, largely offset by a 10% increase in unit growth, just under 600,000 units.
On slide 5, I will again frame the rest of today's discussion around the three pillars of our strategy to maximize long-term shareholder value growth, innovation and scale. I will begin with growth.
Turning to Slide 7, I'll share our observation of our automotive market trends as context for dealer wholesale volumes in 2023, new retail sales increased 8% year over year, recovering from a 10-year low in 2022, while volumes continue to lag 2019 levels, inventories improved in OEM incentives increase. These are key factors in supporting a recovery in retail sales, trade and therefore, dealer wholesale supply, the Hughes retail environment with a different story. Yields declined 1% year over year in 2023, down from what was also a 10-year low in 2022 as affordability issues continued to pressure consumer demand in terms of vehicle sourcing, dealers continued to retain a higher than normal percentage of trades for retail inventory, creating a headwind for dealer wholesale supply. The trade wholesale mix is expected to normalize over time as new and used inventory recovers from depressed levels, which are currently about 30% below normal. While the supply picture remains muted and a positive note, price, depreciation and conversion rates across the industry recovered in 2023 following very challenging operating conditions in 2022. On balance, we believe that end markets are showing early signs of improvement. And while the shape of the dealer wholesale recovery is difficult to predict at this stage in the cycle. We do believe the market will post modest growth in 2024.
Moving to Slide 8. After declining 20% in 2022, we estimate that the dealer wholesale market declined 7% in 2023 as new retail sales recovered from depressed levels year over year. Given our 10% unit growth, this implies 17% market share growth for ACV, which is in line with our midterm target model. As I mentioned earlier, while there are crosscurrents still impacting the broader automotive market, we continue to believe that 2023 will be the trough for the dealer wholesale.
Next, I would like to provide highlights on our value-added services. First, on slide 9, the ACV transportation team delivered very strong results in 2020. Great attach rates for the year were in the mid 50% range, in line with our midterm target model. And our carrier network delivered over 325,000 views. Our tech investments yielded a greater than 20% improvement in cycle times, which is a key element of ACV value proposition for our dealers. Ai optimized pricing which we introduced in early 2023, expanded significantly during the year, and we achieved 90% lane coverage in Q4. By leveraging AI, our transport team drove growth and operating efficiency, resulting in a 900 basis point year-over-year increase in revenue margin reaching the high 10s. As a reminder, our midterm target model assumes transport revenue margin in the high 10s while margins may fluctuate modestly over time. The fact that we already achieved our target speaks to the value we're delivering to our dealer partners and our strong execution.
Turning to Slide 10. Our ACE Capital team also delivered very strong results in 2023. Attach rates in the low double digits resulted in 50% loan volume growth year over year and combined with strong RPU expansion resulted in over 80% revenue growth year over year. We are continuing to invest in new ACE capital capabilities, including bundled offerings with clear car and we remain confident to ACV capital will be an important long-term growth and profit driver.
Next, I would like to wrap up the growth section by updating our progress on penetrating adjacent markets to grow ACV with additional growth lever.
On Slide 11, I'll begin with a clear car ACVs consumer sourcing solution that leverages AI and real-time market data to deliver highly accurate condition based pricing. As a reminder, the consumer peer-to-peer market is large with about 10 million vehicles transacting each year outside the dealership ecosystem. Given ongoing inventory challenges facing our dealer partners the peer-to-peer market is an attractive vehicle sourcing opportunity. Acv of addressing this challenge with clear car adoption has been impressive with about 600 dealer rooftops live today, and we have a robust pipeline of new prospects based on dealer feedback, lead generation and conversion rates are significantly higher than competitive sourcing tools. This speaks to the power of Claire car in driving qualified leads and ultimately increasing overall dealer supply. We are excited about the momentum for this value added solution, which adds another growth lever to our business.
Next on slide 12, I'm pleased to highlight some exciting news related to our commercial wholesale strategy. At our Analyst Day last June, we shared our rationale for expanding into commercial wholesale, why we believe ACV is well positioned to capture commercial market share and the investments required to service commercial consignors. And it turns out our timing could not have been better commercial volumes in the rental repo and fleet categories are recovering at a strong pace. Off-lease will take a few years to normalize. The overall commercial opportunity is very attractive. We believe that ACV is uniquely positioned to address this market with our deep data moat and vibrant marketplaces, along with a growing nationwide buyer base looking to secure commercial inventory, and we have expanded our remarketing center footprint with a recent acquisition of a Texas-based auction group that provides additional locations for vehicle storage and light reconditioning service commercial.
Yes, lastly, we are thrilled to announce that ACV has secured licensing to auto IMA. This technology platform connects wholesale auction to nearly all 1,300 commercial consignors in the US. Our agreement enables ACV to deploy auto Eimac in a way that supports our remarketing centers and our digital focus business model, which will be an industry first capability to ramp up and growth. We continue to execute on our playbook to capture dealer wholesale market share. Our transport and capital offerings are gaining significant traction, and we are well positioned to expand our TAM by executing on our consumer sourcing and commercial market expansion Turning to the second element of our strategy to drive long-term shareholder value innovation.
On slide 14, I will first recap some of our growth oriented product innovation. We began with the dealer buying experience. We leaned in with tech to increase conversion rates by launching new auction format and improved user interface, better inventory notification and enhanced pricing data. Our private marketplace solutions experienced strong traction with some of the largest dealer groups in the country, enabling dealers to both easily auction inventory within their network and leverage ACVs open marketplace. We launched new capabilities in our advanced fire solution, Sam, which enhances the buying experience through intelligent notification and auto bidding capabilities. And as I discussed earlier, our clear car solution is gaining significant market traction and our transfer team is leveraging AI to drive growth and operating efficiency.
On Slide 15, we highlight examples of tech investments that extend into our operations, delivering customer success while reducing costs. One of the key drivers is inspection accuracy. Just as a reminder, each vehicle is unique with its own imperfections. We believe AI in our structured data is a massive competitive advantage. Our field team equipped with technology such as copilot, our guard, Apex and our AI powered imaging apps to deliver high quality inspection, copilot in our guard leveraged machine learning, predictive analytics and sensor data to inform our VCIM. vehicles specific issues before and after conducting inspections. This is an industry-first iPAQ delivers significant transparency into vehicle operating condition while also increasing the inspection productivity of our VCIT. dealers often observed and you can smell a car over the Internet. This is no longer true, thanks to Apex, it's now being one of the many sensors It enables. And we continue to expand our AI imaging capability to identify specific important conditions like the presence of damage and rocks together. These innovations contributed to a 10% reduction in customer assurance costs in 2023, incredible performance in the current market.
Next, I'd like to share some of the key focus areas of our tech road map for 2024 and five 17st, we plan to continue driving increased conversion rate by further Telering the dealer experience on our market. What with MAX digital is now ACV max. This is more than a name change. We integrated ACVs proprietary data moat from our million annual inspection to enable dealers to make smarter sourcing decisions we introduce cutting edge recon alerts by leveraging our guard and build a seamless integration with clear car to help dealers source more vehicles from consumers. Dealers now have a way to elevate their brand by becoming more consistent at all their stores, ultimately enabling them to source more inventory and drive gross profit. Given the strong adoption of ACV transfer in our marketplace, we are extending these services to vehicles transactive off-platform, enabling our dealer partners to further leverage our best in class transport service. We recently implemented a loan management system to support our growing ACV capital business, which enables us to offer a broader set of finance offerings and drive scale across the platform, for example, expanding our finance to dealers looking to source consumer vehicles accelerate. Our commercial strategy will be focused on integrating our remarketing centers with ACVs digital marketplace to create a range of cross-sell and upsell opportunities. And we are well underway.
Selling vehicles from our remarketing centers and ACV is marketplace.
Lastly, we are planning to leverage our industry leading inspection technology to create dealer self inspection solutions for two use cases, private marketplaces and live appraisal. These are examples of dealers directly using ACVs inspection and auction capability.
To wrap up on innovation, ACE remains committed to delivering industry-leading technology to our dealer partners and to our own operation, driving both growth and scale, and we look forward to sharing more details with you next quarter.
With that, let me hand over to Bill and take you through our financial results and how we're driving growth at scale.

Bill Zerella

Thanks, George, and thank you, everyone, for joining us today. We are very pleased with our Q4 and 2023 financial performance along with delivering accelerating revenue growth in the back half of the year, we had meaningful revenue margin and adjusted EBITDA margin expansion, which demonstrated the strength of our business model.
Turning to Slide 18. I'll begin with a recap of our fourth quarter results. Revenue of $118 million was at the midpoint of our guidance range and grew 21% year over year. Adjusted EBITDA loss of $5 million beat our guidance range and adjusted EBITDA margin improved approximately 800 basis points versus Q4 22. This demonstrates both the operating leverage in our model and continued strong OpEx management.
Next, on slide 19, I will cover additional revenue details. Option and assurance revenue, which was 56% of total revenue increased 19% year over year. This performance reflects 15% year over year unit growth, an auction and assurance RPU of $456, which grew 3% year over year. Note that RPU increased year over year despite a 9% decline in GMV per unit, reflecting our Q3 price increase. And we believe we will still have pricing headroom going forward.
Marketplace services revenue, which was 38% of total revenue, grew 29% year over year. Results were driven by strong ACTV transport performance, another record revenue quarter for ACV capital. Our SaaS and data services products comprise 7% of total revenue and revenue was flat year over year. For ECV. max revenue grew modestly year over year. Recall that we have been taking a measured approach to customer acquisition while making significant improvements to the ACV Max platform. As George discussed earlier, we recently launched the upgraded ACV Mac suite, and we're confident these improvements will drive long-term growth.
Turning now to slide 20, I will cover costs in the quarter. Q4 cost of revenue as a percentage of revenue decreased approximately 300 basis points year over year. The improvement was driven by strong auction and assurance results and by ACV transport, as George mentioned, we delivered high 10s transport revenue margins, which is in line with our midterm target model. We continue to focus on expense discipline as we optimize our scale our business. Non-gaap operating expense, excluding cost of revenue as a percentage of revenue decreased 4% year over year in Q4. This reflects a more metered approach to growing OpEx relative to our revenue as we march towards profitability moving to Slide 21, let me frame our investment strategy and path to profitability. Our focus on spending discipline and operating efficiency resulted in a material decrease in OpEx growth in 2023, resulting in adjusted EBITDA losses declining by approximately 70% year over year. And as you've seen reflected in our Q4 results, we delivered margin expansion while preserving our go-to-market and technology investments to ensure ACV is in a strong position as market conditions improve.
On slide 22, I would like to provide an update to regional profitability that we shared at our Analyst Day last June, demonstrating why we're confident in our midterm target of achieving 25% adjusted EBITDA margins in 2023, 35% of our regions comprising about 50 territories achieved adjusted breakeven or better of those regions. Three were in the 15% to 25% adjusted EBITDA range. Additionally, we had three territories exceeding 25% adjusted EBITDA margins. We believe that this performance demonstrates the inherent leverage and scale of our business model as we continue to drive top line growth.
Next, I will highlight our strong capital structure on slide 23, we ended Q4 with 411 million in cash and equivalents and marketable securities and 115 million of debt on our revolver. Note that our cash balance includes $134 million of flow in our auction business. The amount of float on our balance sheet will continue to fluctuate meaningfully based on business trends in the final two weeks of each quarter, which has a corresponding impact on operating cash flow.
Cash flow from operations in 2023 improved significantly year over year, a 75% reduction in burn, reflecting the strong margin improvements and OpEx management we delivered and the leverage in our business model.
Now I will turn to guidance on Slide 24. For the first quarter of 2024, we're expecting revenue in the range of 141 to $146 million. Adjusted EBITDA is expected to be in the range of two to $4 million, consistent with our commitment to achieve a full quarter of profitability in Q1 for the full year 2024, we are expecting revenue in the range of 610 to $625 million, representing growth of 27% to 30% year over year. Adjusted EBITDA is expected to be in the range of 20 to $25 million, reflecting operating improvements in our core business and integration investments in our remarketing centers. As it relates to our guidance, we are assuming that the dealer wholesale market grows modestly in 2024 and conversion rates and wholesale price depreciation follow normal seasonal patterns. We're expecting the Texas based option Group acquisition to contribute approximately 5% of annual revenue in 2024 and be accretive to full year adjusted EBITDA revenue growth is expected to outpace non-GAAP OpEx growth, excluding cost of revenue and depreciation and amortization by approximately 10 percentage points.
And finally, moving to slide 25. We remain committed to achieving our midterm target model, which is underpinned by sustaining market share, gain, penetrating adjacent markets and expanding margins, revenue mix and scale, all of which we've clearly demonstrated in our performance. Our midterm targets are primarily predicated on the dealer wholesale market recovering to historical volumes over time. But in addition, we are expanding our TAM and consistently taking share, which will drive long-term growth. And with that, let me turn it back to George.

George Chamoun

Thanks, Bill. Before we take your questions, I'll summarize. We are very pleased with our strong execution in 2023 we are especially proud of our ACE team that delivered these results. We continue to gain market share by attracting new dealer and commercial partners to our market. We are expanding our addressable market, which positions ACV for attractive growth. As market conditions improve, we are delivering an exciting product road map to further differentiate ACV and drive operating efficiency. We are on track to achieve our near term adjusted EBITDA targets and deliver on our midterm targets that we believe will drive significant shareholder value, and we are committed to achieving these results while building a world-class team to deliver on our goals.
With that, I'll turn the call over to the operator to begin the Q&A.

Question and Answer Session

Operator

(Operator Instructions) Michael Graham, Canaccord.

Michael Graham

Thanks a lot for all the detail. And congrats on the quarter.I just wanted to ask on the 2024 guide. We understand that it includes about EUR30 million from the acquisition. You mentioned them expecting some recovery in Nepal in the wholesale market underpinning that guidance. Just wonder if you go into a little more depth about what you're seeing on the macro and how you handicap sort of whether the market might perform better or worse than and what's embedded in your guide?

George Chamoun

Hey, Michael, it's George. I'll start first and then Bill, can I read that and but so yes, thank you. Thanks for your comments on the quarter yet with another strong quarter and great execution by the team. Appreciate you saying that that we we had some comments earlier that we discussed that we believe 23 would be the trough on overall dealer wholesale, our supply. When you look at the broad trends we saw even in Q4 on others for the year-over-year decline in overall wholesale supply, right. We do think things will marginally better this year. I would commit to give much more detail than that, but now we're expecting this year to be the market to improve significantly. So we've been marginally up and earlier on the call, we're speaking to your new car supply is coming back nicely. Used Car year-over-year retail is still a little lower. Obviously, with interest rates and everything, we're still taking environment until the top line used to recount overall cars cars on dealers' lots are about 30% lower than 2019. So when you look at overall supply on dealers' lots, we're still seeing versus it's still going to take some time for the market to kind of get back to normal. But we're thinking this year things marginally improve, though. I'm not sure if there's anything more to communicate this.
But yes, I would just say the only other thing I would add, Michael, is that if you subtract out on this Texas-based acquisition by that at the midpoint results in about 22% revenue growth versus 14% for last year. So think of that as a combination of both an improvement in RPU and then it's a modest improvement in the market along with share gains. So Tom, just to frame out the math for you.

Michael Graham

That makes sense. Thank you, guys.

George Chamoun

Thank you, Michael.

Operator

Chris Pierce, Needham & Company.

Chris Pierce

Kind of talk about the sequential downtick in AFP. on the platform. Is that a concerted effort to kind of attack a different part of the market? Or is it just the market itself and wholesale prices kind of moving lower consistently? And then should that inform lower retail prices or you just you're still not kind of baking at it?

Bill Zerella

Yes, credit as we predicted and fees decline somewhat consistently with used car values declining, we've been seeing of just about two years in a row overall used cars and going down in value, you've been seeing a pretty consistent decline. But I think you also noted our Q2 our revenue per unit has gone up. So we've done a great job of mitigating over, you know, over the last year, kind of facing a piece of our overall GMV going down. But our who are staying very strong. So we're in a really good spot, but that was as we predicted. If you look back last year, we had predicted used car values would continue to decline. And we also predicted we should be fine from a revenue per unit perspective. And I think both of those that are being tracked.

Chris Pierce

Okay, okay. And then on the call you framed 1 million options per year and you did 600,000 a year. I mean, is it right to think about that conversion rate at 60% because that roughly 1,000 basis points ahead of industry sources. So that's sort of part of the go to market or do I kind of have the math wrong?

Bill Zerella

Our conversion rates are a little lower in that there's a few options in their credit that are done for ARM and dealers are retail hires and also eliminated a few thousand units a month and then, you know, in addition, others a few others like commercial cars where we're expecting conversion a little bit lower than that 60% range. But it's in the ballpark figures.
We're showing the mid 50s, which is pretty consistent with historical trends with your historical trends or industry historical trends, if you actually go into more detail of both our historical and yes, okay.

Chris Pierce

Perfect. Thank you.

Bill Zerella

Thank you.

Operator

Bob Labick, CJS Securities.

Pete Lukas

Yes, hi, thank you. It's Pete Lukas for Bob. You guys covered a lot in the prepared remarks. Thank you for that. I guess just one for me.
In terms of innovation, you guys have introduced a lot of cool tech over the years and you discussed innovation. What has you the most excited from that? And where do you see the biggest impact coming from in 2024 in terms of the new stuff?

Bill Zerella

Yes, the same area area, great question where ACV like many companies out there are faced with artificial intelligence changing really how we all operate changing our intelligence. I'm changing how we think about them and everything from how much time it should take it to inspect the car so that we will hit it this year, but we're investing in capabilities to help us inspect cars faster yet with more accuracy that wasn't possible last year or the year before with our focus on artificial intelligence. We are focused on the acquisitions we've made, like Mong with our R&D team and balancing things like our guard and other areas where we can approach a vehicle and know the economy issues we've had on that vehicle going into next year. Our investment this year will help us, we believe, both take the time down in inspections. But yes, improve accuracy now could ultimately make us more efficient. So we're really excited about that.
So I think one I can go on on take the whole call, but I did have a one-time that would drive you to one where generally our inspection capabilities are just improving dramatically and artificial intelligence is going to help.

Pete Lukas

Great. Thank you. I'll jump back in the queue. Thanks.

Operator

Eric Sheridan, Goldman Sachs.

Eric Sheridan

Thank you so much for taking the question. Can you reflect a little bit on the key investments you see necessary to make it that are putting some pressure on margins in 2024 and how to bridge that to sort of what you've talked about at prior analyst days in terms of the exit velocity 24 against your more medium term EBITDA margin guidance to be super helpful. Thank you.
And once you started that all added?

George Chamoun

Sure. Yes. Yes, I think there were if I could list a few of them. And I think we're in track with really each of these I just spoke a few minutes ago that our ability to inspect the car both deliver on buyer satisfaction but also hit our medium-term arbitration objective. We're really doing a great job. So that's one area where we're doing a fantastic job on conversion rate and what we're doing on our platform to keep improving conversion rate. If you look at what we're doing with selling vehicles on our platform against lit up market. You could see with our peers never and how it's been a tough market and our conversion rates have held up really well, that's been holding up improvement as we've gone on our marketplace to keep including enhancing conversion rate. We look at where Rapid Transport we're already at our attach rate and we're great at our margin profile for TransCore capital. Take rate is really humming along nicely. We're pacing basically at plans that ACV capital and that will also improve overall margins and then really just growth from growth markets, many of the areas across the country continuing to take market share allow for that one by territory or region, then Bill shared some data on the call, we are reorienting our regional profile has been where you would expand on that.

Bill Zerella

Yes, I think maybe first, I'll just take a step back, Eric, at a high level. So some based on the modeling we've done for this year. If we look at revenue and margin dollar growth year on year, we're going to take about 45% of that down to adjusted EBITDA, right? So on.
So we will be growing OpEx this year, but we feel pretty good about the amount of margin that we're going to take down to the bottom line.
So further, just again, it's just taking a step back on.
I would just add everything that George said, we're also going to be making platform investments to further our commercial strategy, and that's baked into our guidance in our OpEx envelope as well on. So it's kind of all of everything that George described, specifically driving the commercial strategy. And then outside of that, it's just really scaling the business from.
Yes, as we continue to grow. So hopefully, that gives you a little more context.

Eric Sheridan

That's helpful context. Thanks, guys.

Bill Zerella

Thank you.

Operator

Ron Josey, Citigroup.

Ron Josey

Thanks for taking the question. George, I wanted to ask about on clear car and then maybe another attractive EBITDA. Long-term guidance. Still unclear car. George talked about security dealer rooftops and higher conversion rates relative to the market talk to us about just the tie between for your car in the core auction marketplace and how that's helping to improve, call it, dealer integration, if you will. And then just on EBITDA, I know to Eric's question, we talked about maybe how we get there, but still really helpful to see the regional breakout again, an update on that post Analyst Day today. So talk to us about the expected ramp in regional profitability at 35%. Now that ACV is, call it 20 regions. And I just want to understand how we sort of ramp to that number over time, given we're at mid-single EBITDA margins at a company today?

George Chamoun

Yes. Thanks, Ron. I'll tackle the clarifier line. So if you take a step back. I think we mentioned even though we had a fantastic quarter 2023, we had a great growth year. Dealers are still struggling to get the right inventory and with clear are we are helping dealers with that core problem, 10 million cars, Sally are peer-to-peer those many of those cars, if you just if you assume over 50% of those dealer credit purchase, then whether it's 50% or 60%, that would be massive TAM expansion for dealers buying cars from consumers. And in a lot of these cars or meet the profile of car dealers would like to recap and going after that for car. That core problem is in part. And I mentioned earlier that there's still 30% of inventory on dealers' websites, but you want to look at all inventory at the dealers should be retailing the right inventory and wholesaling part, I don't match their inventory and the only reason why they're retailing some of these cars right now. And now I'm speaking to franchise dealers because they don't have the right mix. And our franchise dealers are ecstatic that with the fact that we're not here to complain, we're here to help them fix that problem. And we offer them two business models. They can pass a monthly subscription or even preferably they can give us a fair share of their own data. So we offer them more of a partnership model or a fee model. The majority of our partners are choosing a wholesale model, meaning that by taking their car and leveraging it on their website on their other channels, creating separate landing pages using billboard on their service drives. So think about it when the consumer comes in and change their Royal element of, hey, we want we want to buy your car. Yes, now dealer to have an effective tool to do that it focuses on their brand, their cars like a co-brand, and we're helping them with this really key problem. So that's why we're ecstatic really about just using our technology using our machine learning using our massive database we have over the next few years, we're going to help dealers buy more cars from consumers, trade partner, more effectively online and ultimately help them have the right supply on their lots. And what it will mean to us is we'll go back over the next few years will go back to wholesaling. The percentage they were wholesaling in 2019 and prior and the only one that we have all the elements.
And the second question, Ron said. So Tom, again, just to kind of review the the territory data that we just put out earlier our prepared remarks, right? So we had approximately 50 territories, which is about a little more to roughly a third of the country are already at breakeven or better right on. And we've got a number of 22 after a number of territories over 20 could have double double digit adjusted EBITDA margins and several that are already north of 25%. So the way we get from here to our midterm targets is really twofold. Number one, growing our margins to around 50 from around 50%, which is where they are now to 60%. And you can expect to see some progress that's baked into our 2024 guidance as part of that path so that's one component. And the other component really is the OpEx leverage we will get on on the engineering sales and marketing and G&A side. So if you go back to our materials for our Analyst Day last June, you're roughly 75% to 80% of those costs are are very fixed in nature versus variable. So it's all about continuing to gain scale, gain market share, increase our unit volume and then getting that leverage in the model. So that's ultimately how we'll get there. But again, we've got some territories that are already in today's cost structure already hitting double digits, which gives us comfort in knowing that we can get there over time as the rest of our territories scaled.

Ron Josey

Thank you, George. Thank you.

George Chamoun

Thank you.

Operator

Rajat Gupta, JPMorgan Chase.

Rajat Gupta

Great. Thanks for taking the question and congrats on good quarter here. Just a couple of questions on the 2024 guidance methodology on. Firstly, are there any meaningful assumptions baked in from the commercial business or any assumptions in the revenue from, you know, the off-platform transportation product. Okay. Just a clarification and I have just a quick follow up.

George Chamoun

Thanks for staying with great quarter appreciate the commercial. I'll start and then Bill can chime in and commercial for this year. We're not assuming like a significant ramp. We will start winning some business, but just to be just the sort of levels that we just got Auto IMS done like England at 24 hours. So we still need to interact with Amazon that might take a few quarters. And then on the where we're having land to help us and commercial, it's great that we're a bit in oh eight locations. But as we mentioned, I would take for your patience to get to 80% of the population. So we will have some wins this year a we don't have a huge ramp expectation for this year just so we don't get over our skis from a how fast that will be. But when we think out over the next couple of years that we're investing now really for the next few years, and we're really excited about that TAM. It's convenient, we think, very significant TAM expansion for us and both for the commercial accounts, some accounts, don't me land some past due either way, we're here to help support them. They're getting auto. I imagine the way was was huge.
And then on the transport side, hot. So yes, look, we're really pleased with the progress the team is making that's ramping really nicely, but the numbers are still relatively small. So it's not going to materially change on our expected results in terms of transport revenue, we're still assuming that attach rates are in the mid 50s. So there will be some incremental revenue there, but it's really not going to move the needle yet on yield potentially as we go into next year, it might be more meaningful, but we'll cross that bridge when we get to it.

Rajat Gupta

Dan, I had a quick follow-up. I know you mentioned in your prepared remarks and the slide deck around how like 2023 even prior years were impacted by that delay, low trade to wholesale ratio. I'm curious why in your expectation of modest recovery you're expecting in dealer wholesale this year. Is it I mean what's kind of like in that is in terms of like trying to wholesale mix in that guidance, are you expecting a meaningful change in behavior or for are there other factors that's giving you comfort around that low-single or that modest growth outlook?

Bill Zerella

Yes, we're seeing modest improvement over in out really kind of coming into this quarter. And we are starting to see dealers on the whole, I would say the overall supply and improved material yet, but we are seeing some signs. Our dealers are a little bit more willing to hold out. So very small. And I would say our assumptions for this year is just continued small improvements we're not assuming a significant improvement, but just I would say consistent with the trends we've already been observing, and I think we're being very reasonable. And I would say the majority of the growth comes from taking market share. So that's where the majority is coming from and which we've been doing very consistently. And then I said a very a small additional gains in commercial. But I would say the overall market improvements, we're assuming very, very modest improvement.

Rajat Gupta

Got it. Got it. Great. Thanks for the color. I'll jump back in queue. Thank you.

Operator

Gary Prestopino, Barrington Research.

Gary Prestopino

And good afternoon, gentlemen. I have a couple of questions surrounding auto OEM s number.
First of all, as you prepare to utilize this license, what do you have to do? Do you have to sell the consignors on your services for the fact that the dealers already have your product, they can just once you hook into you, click in whatever integrate, they can just use it. Two of them buy these cars that are offered by Autohome?

Bill Zerella

Yes. Again, thank you for the question. I'll take a step back and just explain our auto OEM. That is a middleware in the industry between commercial consignors. So these are folks like banks who have repos our fleet account fleet accounts like company own cars, government vehicles and other sort of fleet lease type accounts. So there's about 1,300 of these commercial consignors who use auto, I imagine to go in automatic and they sign a vehicle today to a physical auction and that it's been in that role for many years, it really doesn't touch the dealer, if at all and in that ecosystem of and there's many commercial accounts that exclusively use Auto IMS, meaning they only wait for them to provision a vehicle if they go through Auto IMS. And so the way they are provision is there was okay, I'm going to send this specific vehicle to this specific auction and the auction company that would be responsible to auction that vehicle off the dealers. So this is a middleware. It doesn't really touch the end dealer. It's just these commercial accounts who send their vehicles to auction. We are we had access to auto, I imagine only in a few locations up until recently like things like literally three or four locations across the whole country. And only we're in it where we had one and now with this loss to be behind us in the center will be in Hyannis, we will aid in collaboration with auto biomass doing integration that is to allow for two different ways for commercial consignor. Again, when I say that I think bank think a fleet company when they have, are they either sign at one of our locations or other locations wherever the vehicle may be other first, meaning sending it to a like an offset that they've already been doing this other, which is more suitable for our digital my model, they've never done this before and it would take us. I'm not exactly sure, yes, that's going to take us three months or six months or nine months. But again, we just got the lives lost we've done, but we will work in good faith on the digital side where they can have on a commercial consignor side of the vehicle wherever that vehicle.
Maybe.
So again, to summarize, that is a middleware for wire up the methodology program for our consignors us a car today to where we have landed and hopefully in the very near future, I think when we get into this year to support our digital model.

Gary Prestopino

Okay, but it does open up a market of a couple of million vehicles a year or two?

Bill Zerella

You are eventually right, Gary, and I appear quite a pretty significant cutbacks.

Gary Prestopino

Okay. Thank you.

Bill Zerella

Well, thank you. We appreciate it.

Operator

Naved Khan, B. Riley Securities. And when the first line to open up. Is he still there? One moment, please. Okay, well, let's just turn the call back over to Tim Fox for closing remarks. Thank you.

Tim Fox

Great. Thank you, and thanks, Lisa, and thanks for everybody for joining us on the call today. We look forward to see you on the conference circuit this quarter. Again, thank you for your interest in ACV and have a great evening.

Operator

This concludes today's conference call. You may all disconnect.