10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-40256

 

ACV Auctions Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2415221

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

640 Ellicott Street, #321

Buffalo, New York

14203

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 553-4070

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, par value $0.001 per share

 

ACVA

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☐    No  ☒    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  ☒

As of May 7, 2021, there were 19,032,500 shares of the registrant's Class A common stock, and 135,497,249 shares of Class B common stock, each with a par value of $0.001, outstanding.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

 

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

 

Condensed Consolidated Balance Sheets

6

 

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit

7

Condensed Consolidated Statements of Cash Flows

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

58

Item 6.

Exhibits

59

Signatures

61

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

our expectations regarding our revenue, operating expenses and other operating results, including our key metrics;
our ability to effectively manage our growth;
our ability to grow the number of Marketplace Participants on our platform;
our ability to acquire new customers and successfully retain existing customers and capture a greater share of wholesale transactions from our existing customers;
our ability to increase usage of our platform and generate revenue from our value-added services;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
our ability to achieve or sustain our profitability;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
the costs and success of our marketing efforts, and our ability to promote our brand;
our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
our ability to obtain, maintain, protect and enforce our intellectual property rights and any costs associated therewith;
the effect of COVID-19 or other public health crises on our business and the global economy;
our ability to compete effectively with existing competitors and new market entrants;
our ability to expand internationally;
our ability to identify and complete acquisitions that complement and expand our reach and platform;
our ability to comply or remain in compliance with laws and regulations that currently apply or become applicable to our business in the United States and other jurisdictions where we elect to do business; and
the growth rates of the markets in which we compete.

 

You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under the header “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our

 

1


 

statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

 

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made, and we undertake no obligation to update them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

 

Unless the context otherwise indicates, references in this report to the terms “ACV Auctions,” “ACV,” “the Company,” “we,” “our” and “us” refer to ACV Auctions Inc. and its subsidiaries.

 

We may announce material business and financial information to our investors using our investor relations website (www.investors.acvauto.com). We therefore encourage investors and others interested in ACV to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.

 

 

2


 

SUMMARY RISK FACTORS

 

Investing in our Class A Common Stock involves numerous risks, including the risks described in “Part II—Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Below are some of our principal risks, any one of which could materially adversely affect our business, financial condition, results of operations and prospects

Our recent, rapid growth may not be indicative of our future growth.
We have a history of operating losses and we may not achieve or maintain profitability in the future.
We have a limited operating history, and our future results of operations may fluctuate significantly due to a wide range of factors, which makes it difficult to forecast our future results of operations.
Our ability to expand our products and services may be limited, which could negatively impact our growth rate, revenue and financial performance.
We participate in a highly competitive industry, and pressure from existing and new companies may adversely affect our business and results of operations.
Our business is sensitive to changes in the prices of used vehicles.
Decreases in the supply of used vehicles coming to the wholesale market may impact sales volumes, which may adversely affect our revenue and profitability.
The loss of sellers could adversely affect our results of operations and financial position, and an inability to increase our sources of vehicle supply could adversely affect our growth rates.
We may experience seasonal and other fluctuations in our quarterly results of operations, which may not fully reflect the underlying performance of our business.
Prospective purchasers of vehicles may choose not to shop online, which would prevent us from growing our business.
Failure to properly and accurately inspect the condition of vehicles sold through our marketplace, or to deal effectively with fraudulent activities on our platform, could harm our business.
Our operations and employees face risks related to health crises, such as the ongoing COVID-19 pandemic, that could adversely affect our financial condition and operating results.
General business and economic conditions, and risks related to the larger automotive ecosystem, including customer demand, could reduce auto sales and profitability, which may harm our business.
We may not properly leverage or make the appropriate investment in technology advancements, which could result in the loss of any sustainable competitive advantage in products, services and processes.
We rely on third-party technology and information systems to complete critical business functions and such reliance may negatively impact our business.
A significant disruption in service of, or other performance or reliability issues with, our platform could damage our reputation and result in a loss of customers, which could harm our brand or our business.
Failure to adequately obtain, maintain, protect and enforce our intellectual property rights, including our technology and confidential information, could harm our business.
We operate in highly regulated industries and either are or may be subject to a wide range of federal, state and local laws and regulations and our failure to comply with these laws and regulations may force us to change our operations or harm our business.
We previously identified a material weakness in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

 

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ACV AUCTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

Marketplace and service revenue

$

58,392

 

 

$

34,596

 

Customer assurance revenue

 

10,694

 

 

 

7,641

 

Total revenue

 

69,086

 

 

 

42,237

 

Operating expenses:

 

 

 

 

 

Marketplace and service cost of revenue (excluding
   depreciation & amortization)

 

29,509

 

 

 

21,607

 

Customer assurance cost of revenue (excluding
   depreciation & amortization)

 

9,386

 

 

 

7,280

 

Operations and technology

 

21,591

 

 

 

16,946

 

Selling, general, and administrative

 

23,965

 

 

 

23,071

 

Depreciation and amortization

 

1,768

 

 

 

1,209

 

Total operating expenses

 

86,219

 

 

 

70,113

 

Loss from operations

 

(17,133

)

 

 

(27,876

)

Other income (expense):

 

 

 

 

 

Interest income

 

26

 

 

 

509

 

Interest expense

 

(210

)

 

 

(111

)

Total other income (expense)

 

(184

)

 

 

398

 

Loss before income taxes

 

(17,317

)

 

 

(27,478

)

Provision for income taxes

 

58

 

 

 

47

 

Net loss

$

(17,375

)

 

$

(27,525

)

Weighted-average shares - basic and diluted

 

34,288,035

 

 

 

21,197,244

 

Net loss per share - basic and diluted

$

(0.51

)

 

$

(1.30

)

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

ACV AUCTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Net loss

$

(17,375

)

 

$

(27,525

)

Other comprehensive income (loss):

 

 

 

 

 

Foreign currency translation (loss) gain

 

50

 

 

 

(7

)

Comprehensive loss

$

(17,325

)

 

$

(27,532

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

ACV AUCTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

March 31,
2021

 

 

December 31,
2020

 

Assets

 

 

 

 

 

 

Current Assets :

 

 

 

 

 

 

Cash and cash equivalents

 

$

659,688

 

 

$

233,725

 

Trade receivables (net of allowance of $2,591 and $2,093)

 

 

188,524

 

 

 

104,138

 

Finance receivables (net of allowance of $61 and $40)

 

 

16,044

 

 

 

8,501

 

Other current assets

 

 

12,846

 

 

 

8,041

 

 Total current assets

 

 

877,102

 

 

 

354,405

 

Property and equipment, net

 

 

5,499

 

 

 

4,912

 

Goodwill

 

 

21,820

 

 

 

21,820

 

Acquired intangible assets, net

 

 

10,673

 

 

 

11,491

 

Internal-use software costs, net

 

 

9,652

 

 

 

7,775

 

Operating lease right-of-use assets

 

 

1,823

 

 

 

2,000

 

Other assets

 

 

1,280

 

 

 

2,147

 

Total assets

 

 

927,849

 

 

 

404,550

 

Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)

 

 

 

 

 

 

Current Liabilities :

 

 

 

 

 

 

Accounts payable

 

 

293,395

 

 

 

151,967

 

Accrued payroll

 

 

11,858

 

 

 

8,109

 

Accrued other liabilities

 

 

7,455

 

 

 

4,375

 

Deferred revenue

 

 

3,785

 

 

 

1,504

 

Operating lease liabilities

 

 

766

 

 

 

746

 

 Total current liabilities

 

 

317,259

 

 

 

166,701

 

Long-term operating lease liabilities

 

 

1,122

 

 

 

1,323

 

Long-term debt

 

 

6,582

 

 

 

4,832

 

Other long-term liabilities

 

 

5,137

 

 

 

5,054

 

Total liabilities

 

$

330,100

 

 

$

177,910

 

Commitments and Contingencies (Note 6)

 

 

 

 

 

 

Convertible Preferred Stock :

 

 

 

 

 

 

Convertible preferred stock; $0.001 par value; 0 and 230,538,501 shares authorized;
   
0 and 115,269,221 shares issued and outstanding at March 31, 2021 and
   December 31, 2020, respectively

 

 

-

 

 

 

366,332

 

Stockholders' Equity (Deficit) :

 

 

 

 

 

 

Preferred Stock; $0.001 par value; 20,000,000 and 0 shares authorized;
   
0 and 0 shares issued and outstanding at March 31, 2021 and
   December 31, 2020, respectively

 

 

-

 

 

 

-

 

Common stock; $0.001 par value; 0 and 311,100,000 shares authorized; 0 and
   
22,331,842 shares issued and outstanding at March 31, 2021 and
   December 31, 2020, respectively

 

 

-

 

 

 

22

 

Common stock - Class A; $0.001 par value; 2,000,000,000 and 0 shares authorized;
   
19,032,500 and 0 shares issued and outstanding at March 31, 2021 and
   December 31, 2020, respectively

 

 

19

 

 

 

-

 

Common Stock - Class B; $0.001 par value; 160,000,000 and 0 shares authorized;
   
135,494,653 and 0 shares issued and outstanding at March 31, 2021 and
   December 31, 2020, respectively

 

 

135

 

 

 

-

 

Additional paid-in capital

 

 

781,956

 

 

 

27,322

 

Accumulated deficit

 

 

(184,354

)

 

 

(166,979

)

Accumulated other comprehensive loss

 

 

(7

)

 

 

(57

)

Total stockholders' equity (deficit)

 

 

597,749

 

 

 

(139,692

)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

 

$

927,849

 

 

$

404,550

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

ACV AUCTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Common Stock Class A

 

 

Common Stock Class B

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Stockholders'

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

 

 

 

Par

 

 

 

 

 

Par

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

(Deficit)

 

Balance, December 31, 2020

 

 

115,269,221

 

 

$

366,332

 

 

 

 

22,331,842

 

 

$

22

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

27,322

 

 

$

(166,979

)

 

$

(57

)

 

$

(139,692

)

Issuance of common stock in
    connection with initial public
    offering, net of underwriting
    discounts and commissions and
    other offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,550,000

 

 

 

17

 

 

 

 

 

 

 

 

 

385,001

 

 

 

 

 

 

 

 

 

385,018

 

Issuance of common stock from the
   exercise of stock options

 

 

 

 

 

 

 

 

 

375,971

 

 

 

-

 

 

 

 

 

 

 

 

 

119

 

 

 

-

 

 

 

549

 

 

 

 

 

 

 

 

 

549

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,867

 

 

 

 

 

 

 

 

 

2,867

 

Conversion of redeemable convertible
   preferred stock to Class B common
   stock in connection with initial
   public offering

 

 

(115,269,221

)

 

$

(366,332

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

115,269,221

 

 

 

115

 

 

 

366,217

 

 

 

 

 

 

 

 

 

366,332

 

Sale of Class B common stock to
   underwriters

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,482,500

 

 

 

2

 

 

 

(2,482,500

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

0

 

Reclassification of common stock to
   class B common stock

 

 

 

 

 

 

 

 

 

(22,707,813

)

 

 

(22

)

 

 

 

 

 

 

 

 

22,707,813

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

0

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

50

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,375

)

 

 

 

 

 

(17,375

)

Balance as of March 31, 2021

 

 

-

 

 

$

-

 

 

 

 

-

 

 

$

-

 

 

 

19,032,500

 

 

$

19

 

 

 

135,494,653

 

 

$

135

 

 

$

781,956

 

 

$

(184,354

)

 

$

(7

)

 

$

597,749

 

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Common Stock Class A

 

 

Common Stock Class B

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

Stockholders'

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

 

 

 

Par

 

 

 

 

 

Par

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

(Deficit)

 

Balance, December 31, 2019

 

 

110,627,173

 

 

$

311,468

 

 

 

 

21,078,342

 

 

$

22

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

19,796

 

 

$

(125,959

)

 

$

(1

)

 

$

(106,142

)

Issuance of common stock from the
   exercise of stock options

 

 

 

 

 

 

 

 

 

243,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

89

 

 

 

 

 

 

 

 

 

89

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,097

 

 

 

 

 

 

 

 

 

2,097

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,525

)

 

 

 

 

 

(27,525

)

Balance as of March 31, 2020

 

 

110,627,173

 

 

$

311,468

 

 

 

 

21,321,873

 

 

$

22

 

 

 

-

 

 

$

-

 

 

 

-

 

 

 

-

 

 

$

21,982

 

 

$

(153,484

)

 

$

(8

)

 

$

(131,488

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


 

ACV AUCTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

(17,375

)

 

$

(27,525

)

Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,891

 

 

 

1,445

 

Stock-based compensation expense

 

 

2,867

 

 

 

2,097

 

Provision for bad debt

 

 

777

 

 

 

2,161

 

Non-cash operating lease costs

 

 

(3

)

 

 

2

 

Other non-cash, net

 

 

165

 

 

 

90

 

Changes in operating assets and liabilities, net of effects from purchases of
   businesses:

 

 

 

 

 

 

Trade receivables

 

 

(85,136

)

 

 

18,867

 

Other current assets

 

 

(4,805

)

 

 

(1,636

)

Accounts payable

 

 

138,430

 

 

 

(26,549

)

Accrued payroll

 

 

3,750

 

 

 

2,232

 

Accrued other liabilities

 

 

3,078

 

 

 

(1,531

)

Deferred revenue

 

 

2,281

 

 

 

(1,469

)

Other long-term liabilities

 

 

80

 

 

 

25

 

Other assets

 

 

(136

)

 

 

(111

)

Net cash provided by (used in) operating activities

 

 

45,864

 

 

 

(31,902

)

Cash Flows from Investing Activities

 

 

 

 

 

 

Net increase in finance receivables

 

 

(7,570

)

 

 

(2,515

)

Purchases of property and equipment

 

 

(692

)

 

 

(1,486

)

Capitalization of software costs

 

 

(2,296

)

 

 

(1,042

)

Net cash provided by (used in) investing activities

 

 

(10,558

)

 

 

(5,043

)

Cash Flows from Financing Activities

 

 

 

 

 

 

Proceeds from issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions and other offering costs

 

 

388,359

 

 

 

-

 

Proceeds from long term debt

 

 

1,750

 

 

 

3,387

 

Proceeds from exercise of common stock options

 

 

548

 

 

 

89

 

Other financing activities, net

 

 

-

 

 

 

(22

)

Net cash provided by (used in) financing activities

 

 

390,657

 

 

 

3,454

 

Net increase (decrease) in cash and cash equivalents

 

 

425,963

 

 

 

(33,491

)

Cash and cash equivalents, beginning of period

 

 

233,725

 

 

 

182,275

 

Cash and cash equivalents, end of period

 

$

659,688

 

 

$

148,784

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

Interest expense

 

$

74

 

 

 

21

 

Income taxes

 

$

(10

)

 

 

1

 

Cash paid included in the measurement of operating lease liabilities

 

$

219

 

 

 

148

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Stock issuance costs in accounts payable

 

$

2,673

 

 

 

-

 

Purchase of property and equipment in accounts payable

 

$

594

 

 

 

78

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8


 

ACV Auctions Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business—ACV Auctions Inc. (“the Company”) was formed on December 31, 2014. The Company operates in one industry segment, providing a digital 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 our Marketplace, which help dealerships, their end customers, and commercial partners make more informed decisions to transact with confidence and efficiency. Customers using data services are licensed automotive dealerships or other commercial automotive enterprises. All services are provided in the United States and are supported by the Company’s operations which are in both the United States and Canada.

Basis of Consolidation The consolidated financial statements include the accounts of ACV Auctions Inc. and all of its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of PreparationThe accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission ("SEC"). The Company has condensed or omitted certain information and notes normally included in complete annual financial statements prepared in accordance with GAAP. These financial statements have been prepared on the same basis as the Company's annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company's financial information. The unaudited interim consolidated financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes included in Form 424B4 ("Prospectus"), filed with the SEC on March 24, 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Initial Public OfferingOn March 26, 2021, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 16,550,000 shares of its Class A common stock at a public offering price of $25.00 per share, which resulted in net proceeds of $388.9 million after deducting underwriting discounts and commissions. On March 26, 2021, the underwriters exercised their option to purchase an additional 2,482,500 shares of Class A common stock at $25.00 per share from selling stockholders identified in the Prospectus. The Company did not receive any of the proceeds from the sale of any shares of Class A common stock by the selling stockholders upon such exercise. Immediately prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock and all shares of the convertible preferred stock then outstanding automatically converted into 115,269,221 shares of Class B common stock.  

Prior to the IPO, deferred offering costs, which consist of direct incremental legal, accounting, and consulting fees relating to the IPO, were capitalized in prepaid expenses and other current assets in the condensed consolidated balance sheets. Upon the consummation of the IPO, $3.9 million of net deferred offering costs were reclassified into stockholders’ equity as an offset against IPO proceeds.

Emerging Growth Company—The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the "Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

9


 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Stock-Based Compensation—The Company uses the fair value recognition provisions of ASC 718, Compensation – Stock Compensation. The estimated fair value of each Common Stock option award is calculated on the date of grant using the Black-Scholes option pricing model. Application of the Black-Scholes option pricing model requires significant judgment, and involves the use of subjective assumptions including:

Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the simplified method was used to determine the expected term for awards issued to employees.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term.

Expected Volatility—Since the Company is newly public and does not have a trading history of common stock, the expected volatility is derived from the average historical volatilities of the common stock of several public companies considered to be comparable to the Company over a period equivalent to the expected term of the stock-based awards.

Dividend Rate—The expected dividend rate is zero as the Company has not paid and does not anticipate paying any dividends in the foreseeable future.

Fair Value of Common Stock—Prior to the IPO, the Company estimated the fair value of common stock. The Board of Directors, with input from management, considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved. Subsequent to the IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of the Company’s Class A common stock, which is traded publicly on the Nasdaq Global Select Market.

The Company measures all stock options and other stock-based awards granted to employees, directors, consultants and other nonemployees based on the fair value on the date of the grant. The options vest based on a graded scale over the stated vesting period, and compensation expense is recognized based on their grant date fair value on a straight-line basis over the vesting period. Forfeitures are recognized as they occur.

The fair value of restricted stock awards and units are determined based on the estimated market price of the Company’s Common Stock on the grant date. The awards and units vest over time and compensation expense is recognized based on their grant date fair value ratably over the vesting period.

The Company classifies stock-based compensation expense in its Condensed Consolidated Statements of Operations in the same way the payroll costs or service payments are classified for the related stock-based award recipient.

 

10


 

Accounting Pronouncements—The following table provides a description of accounting standards that were adopted by the Company as well as standards that are not yet adopted that could have an impact to the consolidated financial statements upon adoption.

 

Accounting Standard Update

Description

Required
date of
adoption

Effect on consolidated
financial statements

Accounting Standards Adopted

 

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15)

 

This guidance outlines the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract, along with clarified presentation guidance.

 

 

January 1, 2021

 

Early adoption permitted

 

This guidance was early adopted as of January 1, 2018 utilizing the retrospective method and did not have a material impact to the consolidated financial statements.

 

Leases (ASU 2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01)

 

The new guidance requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets and eliminates certain real estate-specific provisions.

 

 

January 1, 2021

 

Early adoption permitted

 

The guidance was early adopted as of January 1, 2019 utilizing the modified retrospective method, and elected the practical expedients listed in ASC 842-10-65-1(f).

 

 

Simplifying the Test for Goodwill Impairment (ASU 2017-04)

 

This guidance simplifies the goodwill impairment test by eliminating Step 2.

 

 

January 1, 2023

 

Early adoption permitted

 

The guidance was early adopted as of January 1, 2019 and did not have a material impact on the consolidated financial statements.

 

 

Simplifying the Accounting for Income Taxes (ASU 2019-12)

 

The guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

 

January 1, 2022

 

Early adoption permitted

 

The guidance was early adopted on January 1, 2021 on a prospective basis and did not have a material impact to the consolidated financial statements.

Accounting Standards Not Yet Adopted

 

Measurement of Credit Losses on Financial Instruments (ASU 2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03)

 

 

The guidance changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.

 

 

January 1, 2023

 

Early adoption permitted

 

The Company is currently evaluating the impact this guidance may have on the consolidated financial statements.

 

The Company reviewed all other recently issued accounting standards and concluded that they were not applicable to the consolidated financial statements. 

 

11


 

2. Accounts Receivables & Allowance for Doubtful Receivables

The Company maintains an allowance for doubtful receivables that in management’s judgement reflects losses inherent in the portfolio. Changes in the allowance for doubtful trade receivables for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Beginning balance

$

2,093

 

 

$

1,352

 

Provision for bad debt

 

750

 

 

 

2,118

 

Net write-offs

 

 

 

 

 

Write-offs

 

(1,754

)

 

 

(1,985

)

Recoveries

 

1,502

 

 

 

336

 

Net write-offs

 

(252

)

 

 

(1,649

)

Ending balance

$

2,591

 

 

$

1,821

 

 

Changes in the allowance for doubtful finance receivables for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Beginning balance

$

40

 

 

$

65

 

Provision for bad debt

 

27

 

 

 

43

 

Net write-offs

 

 

 

 

 

Write-offs

 

(6

)

 

 

(8

)

Recoveries

 

-

 

 

 

-

 

Net write-offs

 

(6

)

 

 

(8

)

Ending balance

$

61

 

 

$

100

 

 

3. 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 $226.6 million and $95.7 million at March 31, 2021 and December 31, 2020, respectively. The carrying amount of the liability presented in Accrued other liabilities was $1.7 million and $1.0 million at March 31, 2021 and December 31, 2020, respectively.

The recognized probable loss contingency, in excess of vehicle condition guarantees recognized, presented in Accrued other liabilities was $1.3 million and $1.1 million at March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020.

 

12


 

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 for 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.

On March 19, 2021, a putative class action was filed against ACV Auctions Inc., et al. in the U.S. District Court for the Western District of New York, alleging violations of the federal antitrust laws and New York State law related to an alleged conspiracy to set bids on our marketplace from transactions that originated from one seller. The complaint seeks statutory damages under such laws and other relief. The Company intends to vigorously defend itself in this case. Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome and cannot estimate the range of any potential loss at this time. However, the Company believes that the resolution of this matter will not have a material adverse effect on its consolidated financial position.

4. Borrowings

The Company’s outstanding long-term debt consisted of the following at March 31, 2021 (in thousands):

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

Interest Rate

 

Maturity Date

 

2021

 

 

2020

 

Revolving credit facility

 

LIBOR + 5%

 

June 20, 2022

 

$

6,582

 

 

$

4,832

 

Total long-term debt

 

 

 

 

 

$

6,582

 

 

$

4,832

 

As of March 31, 2021 and December 31, 2020, the Company had outstanding $6.6 million and $4.8 million, respectively, of indebtedness, consisting entirely of outstanding borrowings under the revolving credit facility.

Revolving credit facility

On December 20, 2019, the Company entered into a revolving credit facility with a maximum principal amount of $50.0 million and a maturity date of June 20, 2022. The revolving credit facility was established to provide debt financing in support of the short-term finance receivable product offered to eligible customers purchasing vehicles through the Marketplace and is fully secured by the underlying finance receivable assets. The amount available for borrowing under the revolving credit facility is based on the size of the finance receivable portfolio. As of March 31, 2021, $43.4 million of the revolving line of credit was unused.

The revolving feature on the facility ends on June 20, 2021. Amounts owed at that time will amortize and be due on or before June 20, 2022, depending on the collection of the outstanding finance receivables securing the facility. The facility carried an interest rate of 6% as of March 31, 2021.

The Company’s ability to borrow under the credit facility is subject to ongoing compliance with a combination of financial covenants and non-financial collateral performance metrics. As of March 31, 2021, the Company was in compliance with all of its covenants and collateral performance metrics.

 

13


 

5. Convertible Preferred Stock and Stockholders' Deficit

Convertible Preferred Stock

Upon closing of the IPO on March 26, 2021, all of the then-outstanding shares of convertible preferred stock automatically converted into 115,269,221 shares of Class B common stock on a one-for-one basis. There were no shares of convertible preferred stock outstanding subsequent to the closing of the IPO.

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 to one vote per share and the Class B common stock is entitled to ten 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. The Class B common stock converts to Class A common stock at any time at the option of the holder.

6. Revenue

The following table summarizes the primary components of 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 (in thousands):

 

 

Three months ended

 

 

March 31,

 

 

2021

 

 

2020

 

Auction marketplace revenue

$

34,257

 

 

$

17,843

 

Transportation, data, and other services revenue

 

24,135

 

 

 

16,753

 

Marketplace and service revenue

$

58,392

 

 

$

34,596

 

 

Revenue presented in the table above, including the subsequent cash flows, could be negatively impacted by fluctuations in the supply or demand of used vehicles, especially in the case of an economic downturn in the United States.

7. Stock-Based Employee 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 2015 Plan. The 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.

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 our IPO, and no further grants were made under the 2015 Plan. Employees, outside directors, consultants and advisors of the Company are eligible to participate in the 2021 Plan. The Plan allows the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, and other forms of awards. As of March 31, 2021, 13,886,646 shares were available for future grants of the Company's common stock.

 

14


 

The following table summarizes the stock option activity for the three months ended March 31, 2021 (in thousands, except for share and per share amounts):

 

 

 

Number of
Options

 

 

Weighted-
Average
Exercise
Price Per
Share

 

 

Intrinsic
Value

 

 

Weighted-
Average
Remaining
Contractual
Term (in years)

 

Outstanding, December 31, 2020

 

 

9,933,348

 

 

$

2.16

 

 

$

129,358

 

 

 

7.80

 

Granted

 

 

633,700

 

 

 

8.10

 

 

 

 

 

 

 

Exercised

 

 

(376,090

)

 

 

1.46

 

 

 

 

 

 

 

Forfeited

 

 

(83,129

)

 

 

4.61

 

 

 

 

 

 

 

Expired

 

 

(18,652

)