ACV Auctions Inc

8. Guarantees, Commitments and Contingencies

The Company provides certain guarantees to Sellers in the Marketplace in the ordinary course of business, which are accounted for under ASC 460 as a general guarantee.

Vehicle Condition Guarantees – Sellers must attach a vehicle condition report in the Marketplace for every auction; this vehicle condition report is used by Buyers to inform bid decisions. The Company offers guarantees to Sellers in qualifying situations where the Company performed a vehicle inspection and prepared the vehicle condition report. Sellers must pay an additional fee in exchange for this guarantee. The guarantee provides Sellers protection from paying remedies to Buyers related to a Buyer’s claim that the vehicle condition report did not accurately portray the condition of the vehicle purchased on the Marketplace. The guarantee provides the Company with the right to retain proceeds from the subsequent liquidation of the vehicle covered under the guarantee. The guarantee is typically provided for 10 days after the successful sale of the vehicle on the Marketplace. The fair value of vehicle condition guarantees issued is estimated based on historical results and other qualitative factors. The vehicle condition guarantee revenue is recognized on the earlier of the guarantee expiration date or the guarantee settlement date. The maximum potential payment is the sale price of the vehicle. The total sale price of vehicles for which there was an outstanding guarantee was $161.7 million and $142.8 million at December 31, 2024 and 2023, respectively. The carrying amount of the liability presented on the Consolidated Balance Sheets was $1.4 million and $1.2 million at December 31, 2024 and 2023, respectively.

The recognized probable loss contingency, in excess of vehicle condition guarantees recognized, presented in Accrued other liabilities was $1.7 million and $1.8 million at December 31, 2024 and 2023, respectively.

Other Price Guarantees – The Company provides Sellers with a price guarantee for vehicles to be sold on the Marketplace from time to time. If a vehicle sells below the guaranteed price, the Company is responsible for paying the Seller the difference between the guaranteed price and the final sale price. The term of the guarantee is typically less than one week. No material unsettled price guarantees existed at December 31, 2024 and 2023.

Litigation – The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and matters in which claims for monetary damages are asserted. On an on-going basis, management, after consultation with legal counsel, assesses the Company's liabilities and contingencies in connection with such proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent pending or threatened litigation could result in exposure in excess of the recorded liability, the amount of such excess is not currently estimable.

9. Borrowings

2021 Revolver

On August 24, 2021, ACV Auctions Inc. entered into a revolving credit facility (the “2021 Revolver”). The 2021 Revolver was established to provide general financing to the Company. The 2021 Revolver is secured by substantially all of the Company's assets except for ACV Capital receivables. The maximum borrowing principal amount of the 2021 Revolver is $160.0 million and includes a sub facility that provides for the issuance of letters of credit up to $20.0 million outstanding at any time. The 2021 Revolver matures on August 24, 2026 and is subject to a commitment fee of 0.25% per annum of the average daily undrawn portion of the revolving credit facility.

On June 1, 2023, the Company entered into Amendment No. 1 (the "First Amendment"), which modified the rate to which interest payments are indexed to the Secured Overnight Financing Rate, or SOFR. The interest rate applicable to the 2021 Revolver is, at the Company's option, either (a) SOFR (or a replacement rate established in accordance with the terms of the credit agreement for the 2021 Revolver) (subject to a 0.00% SOFR floor), plus a margin of 2.75% per annum plus an additional credit spread adjustment of 0.11% for daily andone-month terms,0.26% forthree-month terms and 0.43% forsix-month terms or (b) the Alternate Base Rate plus a margin of 1.75% per annum. The Alternate Base Rate is the highest of (a) the Wall Street Journal prime rate, (b) the NYFRB rate plus 0.5% and (c)(i)1.00% plus (ii) the adjusted SOFR rate for a one-month interest period. The First Amendment maintains a maximum borrowing principal amount of $160.0 million.

On June 20, 2024, the Company entered into Amendment No. 2 (the "Second Amendment") to permit the Company, ACV Capital and ACV Capital Funding II LLC ("ACV Funding"), a wholly owned, bankruptcy-remote, special-purpose subsidiary of ACV Capital, to enter into the transactions contemplated by the Warehouse Facility.

On October 7, 2024, the Company entered into Amendment No. 3 on the 2021 Revolver which allows the Company to make investments and other acquisitions (i) if Total Liquidity (as defined therein) immediately prior to the consummation of such investment or acquisition and after giving pro forma effect to such investment or acquisition is equal to or greater than $200.0 million, in an unlimited amount or (ii) if Total Liquidity immediately prior to the consummation of such investment or acquisition and after giving pro forma effect to such investment or acquisition is less than $200.0 million, in an amount not to exceed $25.0 million in the aggregate for any fiscal year of the Company.

As of December 31, 2024 and December 31, 2023, outstanding borrowings under the 2021 Revolver were $56.5 million and $115.0 million, respectively, and there were outstanding letters of credit issued under the 2021 Revolver in the amount of $3.3 million and $2.1 million, respectively decreasing the availability under the 2021 Revolver by a corresponding amount. As of December 31, 2024, the interest rate on the outstanding borrowing was 9.25%.

Warehouse Facility

On June 20, 2024, ACV Funding entered into a revolving credit and security agreement, providing for a revolving warehouse facility (the "Warehouse Facility") with a maximum principal amount of $125.0 million. The Warehouse Facility was established to provide liquidity to fund new originations of auto floorplan loans by ACV Capital. The facility is secured by all assets of ACV Funding, including the auto floorplan loans owned by it. The revolving feature on the facility ends on June 20, 2026. The facility matures twelve months later, unless sooner terminated or extended in accordance with its terms.

Advances under the Warehouse Facility funded by asset-backed commercial paper conduit through the issuance of commercial paper notes will bear interest generally at a rate equivalent to the weighted average annual rate of all commercial paper notes issued by the commercial paper conduit to fund its advances, plus a margin of 3.00%. Advances funded by lenders that are not commercial paper conduits, or by commercial paper conduits funded through means other than the issuance of commercial paper notes, will bear interest generally at a rate equal to (i) Term SOFR for a period ofone-month (subject to a 0.00% floor), plus 0.11448% or, in certain circumstances, the Alternate Base Rate, plus (ii) a margin of 3.00%. The Alternate Base Rate is the highest of (a) the prime rate quoted in the Wall Street Journal, (b) the NYFRB rate plus 0.50% and (c)(i)1.00% plus (ii) the Term SOFR rate for a one-month interest period. The interest rate may be increased under certain circumstances, including upon the occurrence of an early amortization event or event of default under the warehouse documentation. ACV Funding must also pay upfront any unused fees in connection with the facility. As of December 31, 2024 borrowings under the Warehouse Facility were $66.5 million with an interest rate of 7.72%.

As of December 31, 2024, the Company was in compliance with all of its financial covenants and non-financial covenants.

10. Leases

The Company leases office space under operating leases expiring at various dates through 2038. For the years ended December 31, 2024, 2023 and 2022, the Company incurred operating lease costs of $7.3 million, $2.5 million, and $1.7 million respectively. For operating leases, the weighted-average remaining term is 10.4,12.3, and 7.2 years with a weighted-average discount rate of 10%,10%, and 5% for the years ended December 31, 2024, 2023, and 2022 respectively.

Maturities of lease liabilities as of December 31, 2024 were as follows (in thousands):

The following amounts relate to operating leases that were recorded on the Company's Consolidated Balance Sheets at December 31, 2024 and 2023 (in thousands):

The Company recorded right of use assets in exchange for new lease liabilities of $25.9 million, $15.3 million, and $2.7 million during the years ended December 31, 2024, 2023, and 2022, respectively.

11. Stockholders' Equity

Common Stock

On March 11, 2021, the Board of Directors and the stockholders of the Company approved an amended and restated certificate of incorporation that implemented a dual class common stock structure where all existing shares of common stock converted to Class B common stock and a new class of common stock, Class A common stock, became authorized. The amended and restated certificate of incorporation became effective immediately prior to the closing of the IPO on March 26, 2021. The authorized share capital of Class A common stock of the Company is 2,000,000,000 and the authorized share capital for Class B common stock is 160,000,000. The Class A common stock is entitled toone vote per share and the Class B common stock is entitled toten votes per share. The Class A and Class B common stock have the same rights and privileges and rank equally, share ratably, and are identical in all respects for all matters except for the voting, conversion, and transfer rights. Holders of the Company's common stock are entitled to receive dividends as may be declared by the Company's Board of Directors. No cash dividends had been declared or paid during the years ended December 31, 2024 and 2023. The Class B common stock converts to Class A common stock at any time at the option of the holder. During the years ended December 31, 2024, and 2023,24,088,310 and 14,349,368 Class B common stock converted to an equal number of Class A common stock, respectively.

During the fourth quarter of 2024, the number of outstanding shares of our Class B common stock declined such that the total number of outstanding shares of our Class B common stock represented less than 5% of the aggregate number of outstanding shares of our Class A common stock and our Class B common stock. Under the terms of our amended and restated certificate of incorporation, our Class B common stock automatically converted to Class A common stock effective as of December 31, 2024. This resulted in 3,550,142 shares of Class A common stock being issued on December 31, 2024 with the related shares of Class B common stock being cancelled.

12. Revenue

The following table summarizes the primary components of Marketplace and service revenue. This level of disaggregation takes into consideration how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors for the years ended December 31, 2024, 2023 and 2022 (in thousands):

Contract liabilities represent consideration collected prior to satisfying performance obligations. The Company had $4.5 million and $4.2 million of contract liabilities included in Accrued other liabilities on the Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023, respectively. Revenue recognized for the year ended December 31, 2024 from amounts included in deferred revenue as of December 31, 2023 was $4.2 million. All the remaining performance obligations for contracts are expected to be recognized within one year.

13. Stock-Based Compensation

Effective March 20, 2015, the Company adopted the ACV Auctions Inc. 2015 Long-Term Incentive Plan (the “2015 Plan”). Employees, outside directors, consultants and advisors of the Company were eligible to participate in the Plan. The 2015 Plan allowed for the grant of incentive or nonqualified common stock options to purchase shares of the Company’s common stock and also to issue restricted shares of the common stock. Each common stock option or restricted stock agreement stipulates the terms of the grant, including vesting, contractual life, exercise price, and other provisions.

Effective March 23, 2021, the Company adopted the ACV Auctions Inc. 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan became effective on the date of the underwriting agreement related to the IPO, and no further grants were made under the 2015 Plan. All shares that remained available for issuance under the 2015 Plan at that time were transferred to the 2021 Plan. Employees, outside directors, consultants and advisors of the Company are eligible to participate in the 2021 Plan. The 2021 Plan allows the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units ("RSUs"), performance awards, and other forms of awards.

Common stock options generally vest and become exercisable over afour-year service period with 25% vestingone year from the date of grant or service-inception date and ratably vesting monthly over the remaining three-year period. RSUs generally vest and become exercisable over athree orfour-year service period. There were 27,568,628 shares available for future grants under the 2021 Plan at December 31, 2024.

Effective March 23, 2021, the Company adopted the ACV Auctions Inc. 2021 Employee Stock Purchase Plan (the "2021 ESPP"), which became effective on the date of the underwriting agreement related to the IPO. The 2021 ESPP authorizes the issuance of shares of the Company's Class A common stock pursuant to purchase rights granted to employees ("employee stock purchase rights"). As of December 31, 2024,5,096,479 shares of the Company's Class A common stock have been reserved for future issuance under the 2021 ESPP. The price at which Class A common stock is purchased under the 2021 ESPP is equal to 85% of the fair market value of the Company's Class A common stock on the first or last day of the offering period, whichever is lower. During the year ended December 31, 2024,265,729 shares were issued under the 2021 ESPP. As of December 31, 2024, unrecognized compensation expense related to the 2021 ESPP was $0.8 million and is expected to be recognized over the remaining term of the current offering period.

During the second quarter of 2024, the Company's Board of Directors approved long-term incentive awards to certain of the Company's executive officers which comprised performance share units (“PSUs”), which may only be settled in shares of the Company’s Class A Common Stock. The PSUs are subject to both service-based vesting conditions and a requirement that the average closing price of the Company’s Class A Common Stock, as measured over a period of 30 trading days commencing at the grant date and ending July 1, 2027, equal or exceed a designated level (the “Stock Price Condition”). The PSUs will vest in one-third installments on each of July 1, 2025, 2026 and 2027, provided that the Stock Price Condition has been satisfied prior to the relevant date. If the Stock Price Condition has not yet been satisfied prior to the relevant date, then the PSUs that otherwise would have vested on such date will remain unvested unless and until the Stock Price Condition has been satisfied. If the Stock Price Condition has not been satisfied by July 1, 2027, then the PSUs will be forfeited on that date. In each circumstance, vesting is subject to the executive’s continued service with the Company until the time of vesting.

The following table summarizes the stock option activity for the year ended December 31, 2024 (in thousands, except for share data):

Stock options exercised during the years ended December 31, 2023 and 2022 were 1,369,588 and 664,643, respectively.

The following table summarizes the RSU activity for the year ended December 31, 2024 (in thousands, except for share data):

The weighted-average grant-date fair value of RSU's granted during the years ended December 31, 2023 and 2022 was $14.04 and $10.49, respectively.

The fair value of stock awards vested and the intrinsic value from the exercise of options for the years ended December 31, 2024, 2023 and 2022 are as follows (in thousands):

Total stock-based compensation expense recognized for restricted stock units and common stock options has been reported in the Consolidated Statements of Operations as follows (in thousands):

The compensation expense related to the unvested portion of common stock options and restricted stock units was approximately $110.2 million at December 31, 2024. The unvested portion of compensation expense for common stock options and restricted stock units is expected to be recognized over a weighted-average period of 0.6 and 2.4 years, respectively.

During the first quarter of 2024, the Company entered intotwo contingently returnable share agreements (the "2024 Agreements") for certain compensatory share-based service awards. The 2024 Agreements authorized 773,099 shares of common stock to be issued. Shares will be released and distributed to the employee award recipients with the final vesting date during the first quarter of 2028. At December 31, 2024, there was approximately $9.0 million of compensation expense related to the unvested portion of the contingently returnable shares that will be recognized over 3.1 years.

14. Employee Benefit Plan

The Company sponsors a 401(k) Profit Sharing Plan covering eligible employees. The Company may contribute to this plan on a discretionary basis. No discretionary contributions were made during the years ended December 31, 2024, 2023 and 2022.

15. Income Taxes

The Company’s management evaluates its tax positions to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the tax position. Management has analyzed the Company’s tax positions, and concluded that, as of December 31, 2024 , 2023 and 2022 there areno uncertain tax positions taken or expected to be taken that would require recognition or disclosure in the consolidated financial statements. The Company recordedno material interest expense or penalties in its Consolidated Statements of Operations during the years ended December 31, 2024, 2023 and 2022. The Company believes it is no longer subject to examination by United States federal and state taxing authorities for years prior to December 31, 2021 and December 31, 2020, respectively. The Company believes it is no longer subject to examination by foreign taxing authorities for years prior to December 31, 2020.

The components of loss from continuing operations before income taxes for the years ended December 31, 2024, 2023 and 2022 are summarized below (in thousands):

The components of income tax expense for the years ended December 31, 2024, 2023 and 2022 are summarized below (in thousands):

The Company’s deferred tax assets (liabilities) consisted of the following at December 31, 2024 and 2023 (in thousands):

The Company measures deferred tax assets and liabilities using enacted tax rates that apply in the year in which the temporary differences are expected to be recovered or paid. A valuation allowance is provided for deferred tax assets (excluding certain deferred tax liabilities related to indefinite lived intangibles) if management believes that it is more likely than not that these items will either expire before the Company is able to realize their benefit or that future realizability is uncertain. The Company recorded a valuation allowance of $116.2 million and $100.5 million at December 31, 2024 and 2023, respectively against its net deferred tax assets due to the uncertainty surrounding the recoverability of such net deferred tax assets, which is an increase of $15.7 million and $15.7 million in the total valuation allowance during 2024 and 2023, respectively. The Company recognized an income tax benefit of $0.2 million from changes in its valuation allowance for its previously existing deferred tax assets as a result of acquisitions.

A reconciliation of income taxes at the federal statutory rate of 21% to actual income taxes for the years ended December 31, 2024, 2023 and 2022 is as follows (in thousands):

For the year ended December 31, 2024, the provision for income taxes includes a non-cash tax charge of approximately $0.6 million relating to changes in the Company's long-term deferred tax liability for indefinite-lived intangibles that are not available to offset certain deferred tax assets in determining changes to the Company's income tax valuation allowance.

At December 31, 2024, the Company had US federal, state, and Foreign net operating loss ("NOL") carryforwards for income tax purposes of approximately $348.0 million, $302.4 million and $17.8 million respectively. These carryforwards may be used to offset future taxable income, with a portion of the federal carryforwards starting to expire in 2035 and the remainder of the US federal carryforwards and foreign carryforwards available indefinitely. A portion of state carryforwards will expire in 2024 and the remainder expiring in future periods or available indefinitely.

Utilization of the net operating loss and credit carryforwards may be subject to an annual limitation due to the ownership limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization.

At December 31, 2024, any undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no deferred taxes have been provided thereon.

16. Acquisitions

The Company completed four business acquisitions during the twelve months ended December 31, 2024, andtwo business acquisitions during the twelve months ended December 31, 2023. These acquisitions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company's results of operations from the respective acquisition dates. Goodwill acquired in connection with acquisitions represents expected synergies from the combined operations, is deductible for tax purposes in the United States, and is amortized on a straight-line basis over 15 years.

Indiana Auto Auction

On June 17, 2024 the Company completed its acquisition of all of the ownership interest of Indiana Auto Auction for total cash consideration of $51.5 million, which included $5.0 million of acquired cash and $14.1 million of acquired real estate. The aggregate purchase price was allocated to $16.2 million of goodwill, $13.9 million of intangible assets, and $21.4 million of net tangible assets assumed. The Company completed a sale of the real estate to a third party on August 6, 2024. Indiana Auto Auction offers wholesale and commercial car auction and reconditioning services and enabled the Company to expand its range of offerings to dealers and commercial partners.

March 13, 2024 Acquisition

On March 13, 2024 the Company completed its acquisition of all of the ownership interest of a business (the "March 13, 2024 acquisition") for total cash consideration of $19.1 million. The aggregate purchase price was allocated to $14.2 million of goodwill, $5.7 million of intangible assets, and of $0.8 million net tangible liabilities assumed. The business acquired the March 13, 2024 acquisition offers wholesale car auction services and enabled the Company to expand its range of offerings to dealers and commercial partners.

166 Auto Auction

On March 8, 2024 the Company completed its acquisition of all of the ownership interest of 166 Auto Auction for total cash consideration of $27.4 million. The aggregate purchase price was allocated to $7.4 million of goodwill, $16.3 million of intangible assets, and of $3.6 million net tangible assets assumed. 166 Auto Auction offers wholesale car auction services and enabled the Company to expand its range of offerings to dealers and commercial partners.

Alliance Auto Auctions

On January 30, 2024 the Company completed its acquisition of all of the ownership interest of Alliance Auto Auctions for total cash consideration of $66.9 million and 639,976 common shares of the Company's Class A common stock. The fair value of the consideration shares of $8.6 million was determined based upon the closing market price of the Company's Class A common shares on January 30, 2024.

The aggregate purchase price for the Alliance Auto Auctions acquisition was allocated to the assets and liabilities assumed as follows (in thousands):

August 2023 Acquisition

On August 22, 2023, the Company completed its acquisition of all of the ownership interests of a business (“the August 2023 acquisition”) for cash consideration of $16.9 million. The aggregate purchase price was allocated to $6.2 million of goodwill, $14.2 million of intangible assets, and $3.6 million of net liabilities assumed.

The business acquired in the August 2023 acquisition offers wholesale car auction services and enabled the Company to expand its range of offerings to dealers and commercial partners. The August 2023 acquisition was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company's results of operations from the acquisition date.

April 2023 Acquisition

On April 24, 2023, the Company completed its acquisition of all of the ownership interests of a business (“the April 2023 acquisition”) for total cash consideration of $12.5 million. The aggregate purchase price was allocated to $5.3 million of goodwill, $6.0 million of intangible assets and $1.2 million of net assets assumed.

The business acquired in the April 2023 acquisition offers wholesale and commercial car auction services and enabled the Company to expand its range of offerings to dealers and commercial partners. The April 2023 acquisition was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company's results of operations from the acquisition date.

17. Goodwill and Acquired Intangibles

Changes to the carrying amount of goodwill are as follows (in thousands):

Acquired intangible assets, net consisted of the following (in thousands):

At December 31, 2024, customer relationships, developed technology, and other acquired intangibles had weighted-average remaining useful lives of 10.1 years,3.1 years, and 4.3 years, respectively. Amortization expense relating to acquired intangible assets was $11.7 million, $5.5 million, and $4.9 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Estimated amortization expense on acquired intangible assets for the next five years and thereafter is as follows (in thousands):

18. Net Income (Loss) Per Share

The numerators and denominators of the basic and diluted net income (loss) per share computations for the Company's common stock are calculated as follows (in thousands, except share data):

The following table presents the total weighted-average number of potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share attributable to common stockholders because their effect would have been anti-dilutive for the period presented:

19. Segment Information

The Company’s Chief Executive Officer is the chief operating decision maker (“CODM”) and is responsible for reviewing financial information presented on a segment basis for purposes of making operating decisions and assessing financial performance. The CEO reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company’s financial performance. Accordingly, the Company has determined that it operates in a single reporting segment (the “ACV segment”).

The ACV segment provides a wholesale auction marketplace (the “Marketplace”) to facilitate business-to-business used vehicle sales between a selling dealership (“Seller”) and a buying dealership (“Buyer”). Customers using the Marketplace are licensed automotive dealerships or other commercial automotive enterprises. At the election of the customer purchasing a vehicle, the Company can arrange third-party transportation services for the delivery of the purchased vehicle through its wholly owned subsidiary, ACV Transportation LLC. The Company can also provide the customer financing for the purchased vehicle through its wholly owned subsidiary, ACV Capital LLC. ACV also provides data services that offer insights into the condition and value of used vehicles for transactions both on and off the Company's Marketplace. The ACV segment provides a wholesale auction marketplace to dealers and derives its revenues primarily from North America. The CODM assesses performance for the ACV segment and decides how to allocate resources based on net income (loss) that also is reported on the income statement as consolidated net income (loss).

The following is the information used by the CODM in assessing segment performance:

For the years ended December 31, 2024, 2023 and 2022, revenue outside of the United States, based on the billing address of the customer, was not material. As of December 31, 2024 and 2023, long-lived assets located outside of the United States were not material.