E Automotive Inc

TSX:EINC

Earnings Call Transcript 2021-Q4

[Operator]

Welcome to the E INC 2021 Fourth Quarter and Year-End Financial Results Conference Call.

[Operator Instructions]

Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect management's current views with respect to future events. Any such statements are based on certain assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected. For more information on the assumptions, risks and uncertainties related to these forward-looking statements, please refer to the cautionary statements in the company's MD&A for the period ending December 31, 2021, and its supplemented PREP prospectus dated November 2, 2021, which are publicly available on SEDAR.

During this call, representatives of E INC will refer to certain non-IFRS financial measures. Although management believes that these measures provide useful supplementation and information about the company's financial performance, these are not recognized measures and do not have standardized meanings under the IFRS. Please see the company's fourth quarter MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures. As a final item, please note that all dollar amounts cited on this call are denominated in U.S. dollars. This afternoon's call is being recorded on Tuesday, March 22, 2022, at 5:00 p.m. Eastern Time.

I would now like to turn the call over to Jason McClenahan, President and Chief Executive Officer of E INC. Please go ahead, sir.

[Jason McClenahan, executive]

Good afternoon, and thank you for joining us today. This afternoon, we released our 2021 fourth quarter and year-end results, which you can find on our website at e.inc. We finished the year strong. Q4 was a record quarter with more than $23 million in revenue, up 149% from the same period in 2020. We finished the year with revenue of more than $80 million compared to $30 million in 2020, up 164%. Organic growth was 93% year-over-year with the remainder coming from acquisitions. Gross transaction value was $705 million in Q4 and $2.2 billion in fiscal 2021.

This represents growth of 265% and 225%, respectively. Vehicles transacted were 45,500 in Q4 and 163,500 in fiscal 2021, which represents growth of 149% and 143%, respectively. The market continues to experience extremely tight inventory conditions due to the chip shortage. You can see the impact inventory dynamics are having on the value per vehicle as gross transaction value grew faster than transactions. We do not expect the inventory dynamics to normalize in the near term as supply chain constraints and the uncertainty from the war in Ukraine persist.

During Q4, we were able to outgrow these inventory challenges as evidenced by our KPIs. Q4 is normally a seasonally slower period for volumes, but that wasn't the case in 2021. We continue to add new marketplace participants, up 70% as of December 31, with more than 10,000 participants on our wholesale marketplaces in the last 12 months. The underlying reasons driving our performance is our unique platform and our relentless focus on the customer experience. EBlock is purpose-built and designed from the ground up for customers to acquire and sell more vehicles in less time with our set time and live auction events.

Our structure allows buyers to get organized ahead of time to plan for the event, show up to the auction and compete for the assets, which enable us to attract a wider and growing audience, which creates more liquidity through our platform. We have successfully built a leading market share position in Canada, which if it was a stand-alone business today, it would be a profitable one. At approximately $61 million in revenue in Canada, we've generated strong contribution margin from that region. This point helps to demonstrate the fundamentals of the platform are working well, is evidence of the operating leverage in our go-to-market strategy and why we continue to invest ahead for growth in this large addressable market.

In 2021, we made our first significant push into the U.S. market with the acquisition of ABS, which established a beachhead for us in the Western U.S. market. Their customer base and infrastructure span throughout Arizona, Nevada and Oregon, with the majority of business being performed within California. ABS consisted of 10 physical locations and completed sales digitally on their own platform. I'm excited to announce that the integration of that business on the EBlock platform is now complete. There is no remaining technology from ABS on either the front end or the back end. We have transitioned the entire customer base over to the EBlock platform. This now sets the stage for growth. Investments will be made in this large region to expand to new territories and attract more marketplace participants.

Our strategy in the U.S. is to have coast-to-coast coverage by the end of 2023. We made great progress on this strategy so far in 2022 with 2 initiatives, the launch of the EBlock platform in the Southeast United States market and the acquisition of Fast Lane Auto Exchange in Michigan. Earlier this year, we announced the expansion of the EBlock platform in the Southeast U.S. market, which represents our second market in the U.S. in addition to our West Coast operations. This is a greenfield opportunity for us. We are investing in the team, attracting the right people, focusing on training, getting our product in front of dealers, building the brand and their awareness of our marketplace.

For us, it's about doing the right things every single day, working hard to engage new dealers, training them on the platform to make them comfortable to participate and earning more market share from each new dealer over time as they recognize the benefits and efficiency of our platform. We're investing in the region and building out the infrastructure, including sales and inspectors, and then over time, increasing the amount of transactions that we earn per head and growing our marketplace participant count.

We have a proven playbook on how we built a leading market share position in Canada. It is early days for us in the Southeast market. Based on the success of our strategy in Canada, we believe in 18 to 24 months, we will achieve a position of scale where the team is optimized and the flywheel effect of vehicles transacted shows through.

Turning to Fast Lane. It represents a very strategic acquisition in a sense that it benefits both our Canadian and U.S. market strategies. Fast Lane is located approximately 75 miles from Detroit and the Canadian border. It transacted approximately 24,000 vehicles in 2021. The Fast Lane team and physical infrastructure will help to empower our digital growth. The acquisition provides access to an important port of entry for vehicles that are sold in Canada and then imported into the United States for resale. Prior to this acquisition, roughly 20% of our transactions in Canada were sold to U.S. buyers and shipped into the United States. This acquisition will provide us with the opportunity to allow our customers to leverage our end-to-end importing process and resell the vehicle once it crosses the border.

This sets us up to provide more U.S. customers with a streamlined process to acquire much-needed inventory from Canada, more efficiently than ever before. Fast Lane state-of-the-art physical auction facility, consisting of 70 acres and their existing customer base, strengthen our end-to-end solution for cross-border buyers. It fits our overall strategy of offering dealers the optionality to buy and sell how they want through our digital dealer-to-dealer auctions. We expect to expand the geographical reach of Fast Lane's business because they currently don't have technology to service dealers outside of their immediate marketplace. We believe it will serve as the beachhead for our expansion into the U.S. Midwest region.

This is an example of our strategy of land meets technology to drive superior results and experience. It's consistent across both the wholesale and digital retailing channels. Our end-to-end solution provides dealers the optionality of doing business the way that best fits them with a superior digital marketplace that is supported by land and infrastructure to provide them a great experience. We believe the land-meets-technology strategy is critical to our long-term growth. What is interesting is that there are 2 distinct views in the market. The recent Carvana and Adesa transaction really shows this divide.

Adesa, which is owned by KAR Global., sold their U.S.-based wholesale property assets to Carvana, signaling a shift to an entirely digital model for their wholesale business in the U.S. Meanwhile, Carvana is going in the other direction. As a disruptor in the used retail vehicle market, Carvana is now looking to do business with U.S. dealers across the wholesale market and audience they are competing with today. We believe this is a great opportunity for us to provide our dealer partners with an experience and solution that has never been done in automotive. We're going to combine our market-leading technology with our physical auction infrastructure and help dealers compete with the direct-to-consumer model. We will continue to be a technology leader in this space, while innovating connections between wholesale and retail, ultimately in support of our dealer partners.

I couldn't be more excited by our position in the market and a market share opportunity that I believe this presents to our company. With the Fast Lane acquisition complete, we continue to manage a robust pipeline of acquisition opportunities. Given the dynamics in the capital markets and the cost of raising new capital at present, we are going to be disciplined in our acquisition strategy. We are looking at assets in key markets that will support our growth opportunities and accelerate our entry into new markets or bolster our footprint in existing ones.

On the EDealer side of the business, we continue to arm our dealers more every day to compete in the digital transformation of the industry. The volume of consumer vehicles that we're providing dealers to purchase is evidence of that.

Our platform enables dealers to acquire inventory directly from consumers to help defend some of the inventory challenges they're facing and provide a better and more transparent experience for the consumer at the same time. It's something we've been doing for many years. It speaks to the end-to-end solution we offer, how we value and serve our dealers and OEM partners. We provide technology and logistics that enable them to compete in the digital world together.

On the product side, earlier this month, we beta launched our next-generation digital retailing platform for a small subset of independent dealers in the Canadian market. The new platform enables the unification of EBlock and EDealer across one connected platform. This is a critical first step towards our long-term product vision of bringing digital retail and digital wholesale together to deliver greater value and insights for dealers and their inventory management strategies. It is very early days, with the feedback we've received from this beta launch will be extremely helpful as we continue development on the next-gen platform.

With that, I'll turn it over to Andy Bohlin to highlight the financial performance. Andy?

[Andy Bohlin, executive]

Thanks, Jason, and good afternoon, everyone. We earn revenue in primarily 2 ways. First, the fees we charge for vehicles transacted on EBlock, our digital wholesale platform as well as ancillary fees post auction for products and services that complement our auction services like transport and assurance; and second, from a standard subscription-based offering for EDealer, our digital retail and advertising solutions offering. As Jason mentioned, our vehicles transacted on EBlock grew to 45,500 in Q4 and 163,500 in fiscal 2021, up 149% and 143%, respectively, compared to the same periods in 2020.

This drove gross transaction value across our EBlock platform of $705 million in Q4 and $2.2 billion in fiscal 2021, up 265% and 225%, respectively, compared to the same periods in 2020. Vehicle transaction volume, GTV per vehicle drove auction fee revenue of $12.5 million and $45.2 million in Q4 and 2021, respectively, or growth of 175% and 196%, respectively, compared to prior year periods in 2020.

While ancillary service revenue grew 263% and 280% over the same comparable time periods, driven by increased attach rates for ancillary services like transportation. On the EDealer side, we finished 2021 with more than 1,050 subscribers, up 14% from the end of 2020. This growth drove total revenue of more than $23 million in Q4 and more than $80 million in fiscal 2021. This represents growth of 149% and 164%, respectively, compared to the same periods in 2020. Organic growth was approximately 93% during fiscal 2021, excluding the contributions from acquisitions. Gross profit was $9.8 million in the fourth quarter, up 135% and $37.2 million in fiscal 2021, up 169% compared to the corresponding periods in 2020.

Gross margin came in at 43% and 47% in the fourth quarter in fiscal 2021, respectively, which is in line with our expectations. Investors can expect normal seasonality within our business. Historically, vehicle transactions are typically strongest in Q2 and Q3 and lighter in Q4 and Q1. Despite the strong Q4 in 2021, we expect these historical trends to hold true in 2022. Gross margin will move based on revenue mix and the seasonal nature of the volume of transactions as the fixed cost component within cost of revenue is consistent across the 4 quarters.

In the 2021 fourth quarter, growth in ancillary service revenue, which carry higher cost of revenue such as transport and assurance, outpaced other categories, resulting in a 600 basis point increase to account for 32% of total revenue as compared to 26% through the first 9 months of 2021. We anticipate gross margin to fluctuate from quarter-to-quarter for a few reasons: First, we continue to invest in and grow the team to capitalize on the opportunity in front of us. Second, as we acquire other businesses, those businesses will have varying gross profit margin profiles. Third, the revenue mix. And fourth, the normal quarter-to-quarter seasonality in the wholesale auction industry.

On a go-forward basis, our cost of revenue will continue to increase on an absolute basis as we grow overall volumes, add personnel to support the volume increases and execute on our acquisition strategy. That said, as we continue to grow and scale, we believe we have operating leverage in our business model as we reach optimal levels in our new markets and believe we can grow the platform and add volume without a linear increase in the cost structure, but we are still in the early innings of our U.S. build-out.

We ended 2021 with a team member count of over 800 people, which is more than double the size of the team in 2020. With the scale-up of our U.S. operations and our product development team as well as the acquisition of Fast Lane, our target team member count for the end of 2022 is approximately 1,300.

Adjusted EBITDA loss was $5.5 million and $7.9 million in the fourth quarter and fiscal 2021, respectively, compared to a loss of $2 million and $4.1 million in the corresponding periods in 2020. Based on the scale of the addressable market we serve and our growth plans in the U.S., we believe it's important to manage the top line growth while recognizing the importance of having a clear line of sight to profitability. Our confidence in this strategy is based on the success that we have demonstrated upscaling the business in the Canadian market and our ability to build a leading market share position and operate profitably in that market.

As a result of that success, we intend to continue to invest in the business with a focus on product development and sales and marketing infrastructure. We have the capabilities to both invest for top line growth while remaining focused on strong unit economics to deliver attractive returns to shareholders and capture greater share in the market.

As of December 31, 2021, cash and cash equivalents were $111 million compared to $37 million at December 31, 2020. Subsequent to the end of the quarter, we deployed $29 million in cash in the acquisition of Fast Lane, which Jason described earlier.

We intend to use our available liquidity to scale the business and execute our growth strategy in the U.S. market. Thank you again to everyone for participating in today's call. And with that, I'll pass it back to Jason.

[Jason McClenahan, executive]

Perfect. Thanks, Andy. We will continue building technology to power our digital marketplace and infrastructure, allowing dealers to buy and sell vehicles the way they prefer, while doing it more efficiently than ever before. We're expanding our EBlock digital wholesale marketplaces supported by land and logistics. Our EDealer digital retail platform is key to enabling dealers to compete in the digital world while managing their inventory effectively. Dealerships are the key to this marketplace. We allow them to move metal faster, improve their profitability, build a better and more trustworthy experience with the consumer, and we are pressing the accelerator to drive more innovation. We appreciate the trust that shareholders have shown in us. I look forward to updating you further on our progress during our Q1 call in May.

With that, I'll turn it back to the operator to open up the call for questions. Thank you.

[Operator]

[Operator Instructions] Our first question today will come from Aravinda Galappatthige.

[Aravinda Galappatthige, analyst]

I just had a couple of questions to kick it off. First of all, with respect to the ramp-up of sales operations in the U.S., Jason or Andy, can you maybe just touch on sort of the buildup of the sales teams, both in the West, and I think you mentioned the Southeast as well?

Do you have sort of the critical mass in terms of the sort of the sales personnel that you need to kind of really push ahead now? What has that recruitment process been like? Are you sort of able to get those personnel with sort of the existing books of business and so forth? I was wondering if you can develop a little bit on that.

[Jason McClenahan, executive]

Yes, I can start that off here Aravinda, and if you want to add any color, Andy, you can take over. I appreciate the question. We're on schedule with our U.S. expansion. We're still, again, in the very early stages in the East. I would not call us built out by any means yet, Aravinda. But we're investing in laying the foundation for future growth and the opportunities that we see in front of us. Obviously, it takes time and investment. And we started those investments in Q4, and we have carried those into Q1. We're attracting an incredible amount of talent right now to build up that infrastructure, lay that foundation to set us up for the second half of the year, but that takes time.

So in the Southeast, we're actively recruiting. And then in the West, we're in a different position, where we have, like we mentioned, sunsetted the back end and the front end of the ABS auction business. So now we're in growth mode to start going and attract talent, invest in neighboring adjacent markets to build up the beachhead that we acquired in that market. But we did not want to get over our skis and do that before we sunsetted the technology. So that's a position we're in the West right now.

[Aravinda Galappatthige, analyst]

And I think when you -- in your prepared remarks, Jason, I think you made some really interesting comments about the Carvana car transaction. Clearly, I mean, one can argue, as I think you have, that this potentially opens up sort of the market share of the incumbent because they're arguably a little bit weaker without their sort of physical assets. So there's more -- maybe more market share that the disruptors can take, obviously, E INC concluded. But you also alluded to sort of just opening the door longer term for you to assist the auto dealers and sort of fight off or fend off pressure from the direct-to-consumer side of it. Can you develop that second element a little bit because I thought it was useful.

[Jason McClenahan, executive]

Yes, absolutely, Aravinda. So in the Canadian market, as you know, we play in both the digital retailing side and the digital wholesale side. And our infrastructure, how it's built in the Canadian market today with our digital retailing platform, we already enable our franchise independent dealers to acquire inventory for consumers and provide them any part of that process in the digital retailing journey on our website. And that's something we're going to continue to build our product road map and innovate up on top of. And that's the reason why we've been so focused on building out the brand-new EDealer platform that's going to seamlessly integrate into the EBlock wholesale marketplace. So we can support our franchise and independent dealers in the Canadian market to start to help compete with the competitors in that space trying to disrupt them for that used car inventory. So we will have more in the coming quarters for our evolution of our digital retail platform, but we're highly focused on being true partners to our dealers and helping enable them to compete with some of the disruptors in the space today.

[Aravinda Galappatthige, analyst]

Great. And then just a last one from me, maybe for Andy. I mean you indicated the 93% volume growth on an organic basis. Given that ABS was not there in Q4 last year, Q4 '20, is that essentially the Canadian growth number in terms of vehicle transactions? Or are you looking at it kind of pro forma?

[Andy Bohlin, executive]

Yes. No, that's correct, Aravinda. Given that if you were to look at the revenue segmentation that we provide in the footnotes to the financial statements, you'll see that primarily that organic growth is essentially all Canada.

[Operator]

And our next question comes from Todd Coupland with CIBC.

[Thomas Ingham, analyst]

Yes. I wanted to ask about the fourth quarter roughly 25% stronger than what we were expecting. Is that just supply chain and chip shortage driving that upside? Or should we be thinking about 2022 being -- yes, 25% starting the year 25% stronger than we initially thought before we saw this report. Any color on that strength continuing would be appreciated.

[Jason McClenahan, executive]

Yes. Thanks, Todd. I can take that, Andy, and if you want to follow on. Yes, we don't want to set the precedent that we're going to be growing at a 93% clip, but we feel very confident in what we're executing against. And the numbers that you've seen there's a few factors. I would say Q4 was an abnormally stronger Q4 than it normally is. Normally, it's seasonality, it's one of the slower quarters due to the tight inventory constraints and the ARPU per vehicle, definitely helped drive that. But we also just simply earned more market share from our competitors and really outhustled that work to relentlessly focus on the customer experience. but we would not use that number to kick start into 2022. What we would say is that, continue to execute against our vision, we're really focused on laying the foundation in the United States to get set up for the latter half of 2022.

[Thomas Ingham, analyst]

Okay. And your point on market share, you gaining -- I know you've talked about your share in Canada being in the 7% or 8% range. Is that where it ended up in the fourth quarter?

[Jason McClenahan, executive]

Todd, we haven't seen any official numbers, so I would be completely speculating on how many wholesale transactions there were in Canada in the fourth quarter as well as for the entire year. But I believe we gained a little bit of traction, but that number is still fairly relevant, I would say.

[Thomas Ingham, analyst]

Okay. And do you have any opinion on what digital adoption was in Canada in 2021 relative to the physical market?

[Jason McClenahan, executive]

Yes. Digital adoption, I think it's looked at 2 different ways. It obviously depends on what vehicles are sold through simulcast through a physical auction, but we look at the true dealer-to-dealer digital auction players like ourselves. And that market is roughly 15% to 20% of the Canadian market right now based on our assumptions and what we see in market.

[Thomas Ingham, analyst]

Okay. And when we think about that 15% to 20%, how should we think about that as standing over the next couple of years, both either in Canada or the U.S.?

[Jason McClenahan, executive]

The dealer-to-dealer segment over the last few years has continued to be the one that's growing the fastest. I believe that pace will continue. You can simply just reach more dealers dealer-to-dealer, further than a geographical reach of physical auctions can currently touch. So I would expect that segment of the business to continue to grow at a nice clip.

[Thomas Ingham, analyst]

Okay. Last question from me on M&A. You talked about being prudent in your acquisitions given tighter access to capital. Are you making the point you're going to focus on Midwest and West and Southeast for now and drive organic growth and are unlikely to make acquisitions? How should we be interpreting that statement?

[Jason McClenahan, executive]

No, we're not going to shy away from the right acquisitions. We're just going to be making sure that we assess everything, we look at the right fit for our business first and foremost in our execution strategy of going coast-to-coast in the next, call it, 2 years into 2023 is what we've said, and it's what we expect to do. So we're going to continue to look, and we have a nice pipeline right now of acquisitions in many different facets of the business. So we're going to continue to chase those down, but make sure that we're looking at the capital markets and leveraging the capital that we have in the bank. And if it makes sense for our shareholders and investors, we'll look forward to doing that. So we're going to continue laying the foundation for organic growth in the markets that we serve today, but we're not going to shy away from bolstering on the right acquisitions for our shareholders and our business to expand our growth and execute on our vision.

[Operator]

And our next question comes from Richard Tse with National Bank Financial.

[Richard Tse, analyst]

Kind of related to Todd's question for the outperformance this past quarter. What are your thoughts on the volatility in the pricing of vehicles for the remainder of the year, just kind of based on your vantage point?

[Jason McClenahan, executive]

Yes. Great question, Richard. It's -- inventory levels, there's no question, they continue to remain tight. We've continued to push through that, earn more market share, and it's been a benefit from the ARPU standpoint on the revenue per car. We've gained market share. Despite these headwinds, I believe used car -- used inventory prices are going to continue to remain strong. We've started to see a little bit of softening, but nothing alarming at all. So I don't believe that this inventory constraint clears up until later this year, but I don't expect to see a drastic term in the near term. And I think it's a great time to continue investing and laying the foundation in the U.S. so that we're ready to capitalize when this headwind becomes a tailwind in the future because it will.

[Richard Tse, analyst]

All right. Okay. You guys have obviously had some incredible success in Canada so far. If you look at the U.S. market, it's bigger, there's obviously some more competitors. Is the path to success similar in terms of really kind of the road map that you pursued in Canada? Or are there certain nuances that are different from that standpoint?

[Jason McClenahan, executive]

Yes. We talked a lot about this during the IPO. And I think the biggest nuance in the U.S. market, there are a few different competitors for sure, but the biggest nuance is the amount and volume of physical independent auctions. And I'd say we built Canada pretty much completely organically until we made the TradeHelper and ESP acquisitions in late August last year, early September. I would say in the U.S., we're going to look for some strategic acquisitions in the right marketplaces like we just did with the Fast Lane Auto Exchange market. to get the market off the ground more efficiently, more effectively, get a functioning customer base and leverage land-meets-technology division that we've been exploring for many, many years. So I think it will be slightly different, but very similar playbook where we're opening up dealer-to-dealer marketplaces.

[Richard Tse, analyst]

Okay. And just one last question from me. As the economy kind of reopens and getting more engaged in physical interactions, has it kind of sort of changed the trajectory of where digital is going in any way? Because I'm just trying to understand whether the sort of this outsized bump that happened over the past few years, whether that reverts a bit? Or whether it's really something what is just kind of something in passing around this new trajectory?

[Jason McClenahan, executive]

Yes, absolutely fair. We have not seen numbers that would indicate that whatsoever. I believe the digital transformation was hitting this industry long before COVID hit. So what COVID did was it pushed the last few maybe dealers that were a little hesitant to try digital and realized like hey, this is a little easier than I thought, and I can cover more geography in buying vehicles from a wider geographical net. So I don't believe it's going back to the way it was. It never will be. It's changed for the future, but I still highly believe in land meets technology in order to provide that experience for the dealer.

[Operator]

Our next questions come from Michael Doumet with Scotiabank.

[Michael Doumet, analyst]

Obviously, nice quarter right out of the gates guys. I guess the first question, there's obviously some pressure on the gross margins in the quarter. And I think you talked about mix and growth as being reasons for that. I mean should we expect margins to remain somewhat closer to these levels versus some of the prior quarters for some time? And I guess just a general question on the expense side. How should we think about expenses ramping into 2022 as obviously, you go and build out the business in the U.S., growth presumably continues to accelerate and just the overall inflationary pressures of the business?

[Jason McClenahan, executive]

Yes. I'll take the start of that, Andy, and then you can add on. When it comes to gross margin, I mean, we've been very open about the fact that we're going to invest aggressively at the market opportunity in front of us. And obviously, when we're opening up new markets, they're not nearly at capacity. So there is going to be some fluctuation as we're getting new markets off the ground in the United States with our gross margins as well as the product adoption mix with the different revenue segments that we have within our business. Not to mention when we layer in several acquisitions that have a different gross margin profile as well. So there's going to be various different reasons for the fluctuation, and I'll let Andy add a little bit more color.

[Andy Bohlin, executive]

Yes. Thanks for the question, Michael. I think we touched on it a little bit earlier, but it's worth pointing out to you that the way that we look at the U.S. opportunity, right, it is -- the dealer universe is approximately 5x the size of Canada. And as Jason mentioned, we're putting the teams in place, and we're starting to build that critical mass to be able to launch these markets. And so you're going to have teams of inspectors out in the market that are hitting cost of revenue that aren't at full capacity yet. And so I think over the near term, right, as we build into that capacity, we expand in the Southeast, we're expanding in the Midwest around the acquisition we made there. We're going to be building out the team and growing into that team. So that's a factor. And then two, what we saw in the fourth quarter was a significant increase in the amount of ancillary services uptake. And as a result of that, those -- some of those services like transport and insurance carry higher cost of revenue associated with them. And so with that revenue mix, that really drove a big portion of the gross margin at 42.7% for the fourth quarter compared to 47% for the full year. So that's a factor as well. We're going to keep an eye on that. And obviously, if auction fees bounce back, then you'd see some -- that obviously influence gross margin in a good way as well. So it's going to fluctuate with revenue mix, seasonality and as Jason mentioned, growing into our team that we built out to capture the U.S. market opportunity.

[Michael Doumet, analyst]

Got it. That's really helpful, guys. And then you discussed some of the successes you've achieved in the U.S. west with the ABS integration. What are some of the key learnings there? And how do you kind of take that forward when you're thinking about integration and post-acquisition growth with Fast Lane?

[Jason McClenahan, executive]

Yes, it's a great question. And any time you're looking at an acquisition until you get on the ground and really dig in and figure out the current challenges and pain points that the staff and the customers are facing gives you a clear picture of what to do. It was a great first acquisition for us. I think this one, the fact that it had legacy technology that we had to sunset took a little bit more time. But I think to successfully sunset all that software inside a year is a big win for this team. Now we've got everybody on a consistent platform build a consistent experience. We've got a nice playbook built now to rinse and repeat when we acquire new businesses, and we're going to deploy some of those learnings that we've already experienced. And really, it comes down to consistent client experience. When you see companies do acquisitions, but you're not focused on exactly the way you want the experience to be for your clients, it gets fragmented and the customers deal with different locations and have a different experience. And that is something we're focused on. It's providing a great level of experience no matter where someone buys or sells a piece of inventory. And we've got that playbook dialed now as we roll into future acquisitions.

[Operator]

And our next question will come from Martin Toner with ATB Capital Markets.

[Martin Toner, analyst]

Folks, congrats on a great quarter. Can you -- I want to talk a little bit about the market participants' number, up significantly sequentially, up about 1,000. Can you talk about where those participants are located?

[Jason McClenahan, executive]

Yes, I can kick that off, Andy, if you want to add some color. So as far as the marketplace participants, we look across the whole gamut of all of our customer base, and we're growing them in every different market that we're in. and we're actively doing that from having more boots on the ground, more active conversations being in the face of more of our dealers in more regions in both Canada and the United States. And it's obviously having a very strong effect in our numbers year-over-year and quarter-over-quarter. And Andy, if you have any more regional specific, feel free to add.

[Andy Bohlin, executive]

No, I think you summed it up well, Jason. I think it's across the board. As we moved and migrated the platform in the Western U.S., right, we've been encouraged by the engaged bidder activity that we've seen out of that marketplace and then with starting to ramp up for the Southeast and across Canada. It really came across the board, Martin, can't really pinpoint it to any particular area.

[Martin Toner, analyst]

Super. And next question is, can you kind of compare and contrast the progress you're making in the various U.S. regions, compare and contrast the areas where you're entering organically versus acquisitions?

[Jason McClenahan, executive]

Yes. We haven't -- like we're in the very early stages in the Southeast. We just started hiring staff, laying that foundation. So it's really hard, I would say, at this stage to compare it to what we've acquired in Western U.S. What I would say is that to get to where we are in the Western U.S. to where we are today, it was much more effective, I would say, to buy that business to get to the critical mass we are right now. And now we're able to invest and grow off of that beachhead. So we're excited to try that out. We're going to be trying that opportunity as well with the Fast Lane team. So the Fast Lane is going to be our beachhead to expand, get all those customers registered and expand off of that beachhead into the Midwest United States as well, while we execute on the organic growth strategy in the Southeast. So we'll have more understandings and more learnings to share at a future time. But right now, it really isn't comparable. We're too early innings right now.

[Andy Bohlin, executive]

Yes. One thing I would add to that, Martin, is that with the -- we were really encouraged and excited about the acquisitions we made in Quebec as well with ESP and TradeHelper. We were already in that market, growing organically. But with the addition of those acquisitions, we've seen just a tremendous amount of growth there, too, overall for EBlock in Quebec. So that's been a nice credibility support in that market, and it really -- one plus one there has proved to be pretty fruitful. So we're really encouraged with our -- by our strategy with the combination of these acquisitions of these regional marketplaces that have a great customer base, great reputation and then being able to expand the radius around them.

[Martin Toner, analyst]

Great. And last one from me. NADA was this past week. Can you give us any kind of color on what you're hearing from dealers about this marketplace and especially given the Adesa deal and kind of thinking about things going forward?

[Jason McClenahan, executive]

Yes. It was -- first of all, it was great to get back in the face of our customers and be in a live conference. It was fantastic to build some relationships, put faces to names of some of our new clients, especially in the U.S. market. The feedback we received, like every show we've gone to has been overwhelming. There's definitely a need. There's customers that absolutely want to see us earn more market share. They like the amount of minimized time that it takes them to acquire inventory in our platform, so it just continues to validate what we thought we already knew, but it reinforces what we know, and customers really want to see vehicles bought and sold at set auction times [indiscernible] in a live auction format like we provide. Not to mention, we did have a lot of conversations with dealers about the land-meets-technology strategy, and it's definitely a pain point that they feel that we can help solve as well.

On the Carvana and KAR transaction, it was honestly a real mixed bag. Dealers didn't blame KAR. They've got a really strong valuation and attractive valuation to sell their physical asset. But on the flip side, one thing we did hear pretty continuously from big dealer groups and large buyers that they were looking for new avenues to buy or sell inventory because they wouldn't enable their competitor. And Carvana is very smart. They obviously knew this going in. They would have some churn, have some turnover from their customer base for doing this transaction. And it also wasn't their top priority buying a physical auction competitor. It was more for the land and logistics to service their retail growth. So I think it was a great show, and we're looking forward to participating in many more of those in the future.

[Martin Toner, analyst]

Thanks very much for that, Jason. And congrats again on a good quarter.

[Operator]

And our next question will come from Christian Sgro with Eight Capital.

[Christian Sgro, analyst]

The first question here, I wanted to take a step back and ask about the macro and volumes. We found it curious that you mentioned that seasonality might return to the normal, Q2, Q3 being strongest here in 2022. I think we were prepared to throw ordinary trends out the window with COVID here. But maybe you can meet us in the middle. Is there any color you'd add on how you see volumes coming back through the year, maybe Q3 being a little bit stronger than 2 if more cars come online? Any granularity that you'd add to that commentary.

[Jason McClenahan, executive]

Yes. I would say with the inventory constraints within the market, this is not a normalized market. Q4 was abnormally strong. We outgrew seasonality for a few reasons. And I do believe part of those reasons as Andy just alluded to, we acquired the TradeHelper business. And what we've seen is that stack up one plus one has been very fruitful. So that is part of our really strong growth in Q4, I would say, is in that market as well. So we believe that inventory levels are going to continue to remain tight, which is also going to drive the ARPU per vehicle. Those go hand-in-hand, which is a good good tailwind for us, well, until inventory balances in the later half of this year. We still don't know exactly when that's going to be, but I do expect things to open up in the latter half of this year. So I don't think that you will see normal right now. I think you will see consistent trends with what perhaps what you've seen in the past but not exactly the same. And I think Q4 was a prime example of that.

[Christian Sgro, analyst]

Right. That's helpful addition. Next question I wanted to ask about the ancillary offerings, just things like transport and [ insurance ], where are you seeing the most traction? And where are you guys investing into 2022 here?

[Jason McClenahan, executive]

Yes. So as far as the product goes -- yes. So as far as the product goes, we're highly focused on continuing to get our brand-new digital retailing platform out right now. which, as we said before, it's in beta right now with independent dealers. We're looking forward to bringing that to our franchise dealers and then making the retail and wholesale connections. So in Canada this year, it's going to be an upgrade year for all of our dealers that are on EDealer or 1,050 subscribers, getting them onto our new digital retailing product that's going to be seamlessly integrated into the EBlock wholesale marketplace. That's a top priority for us to execute here in the Canadian market in 2022. We are going to continue to invest in ancillary service opportunities like transportation and continue to grow those attach rates. And we've had a lot of success this past year as you can see by the growth in percent of revenue for our ancillary business unit opportunities in Q4 compared to the rest of the year.

[Christian Sgro, analyst]

Okay. Perfect. [indiscernible] Would you say transport is an area of focus? Like are there areas that you're seeing an opportunity to differentiate yourself or take share this upcoming year? I'm just more curious to hear where around sort of the wholesale product, where you guys think there's an opportunity?

[Jason McClenahan, executive]

Yes, absolutely. I mean our wholesale product opportunity there is continuing to expand our platform where our digital marketplace becomes one marketplace. Both digital and physical auction infrastructure needs to be on one platform. That's our top priority this year, and we'll have future updates on that in the latter half of this year.

[Operator]

And our next question will come from Salman Zia Rana with Laurentian Bank Securities.

[Salman Zia Rana, analyst]

So the first question, again, pertains to. I know all the other analysts have asked about this already, but eager to learn about the average price per vehicle that you're talking about. So it came in around USD 15,500, a notable jump quarter-over-quarter. So would you say that's a large part of that was because of the elevated used car prices? Or again, was the composition of vehicles, did that also play a part in boosting that figure like higher-value vehicles being sold on the platform?

[Jason McClenahan, executive]

Yes, I can take a stab at that. And then Andy, if you want to add on. We've always sold a higher average sale price than a lot of our competitors in the past, and I believe a lot of that is due to the fact that we have set auction times where these big, high-volume used car superstores or franchise dealers that need to acquire a large volume of inventory in a short time, we really do cater to that type of buyer. But on the flip side, I do believe a lot of that growth quarter-over-quarter would be industry dynamics due to the shortage of inventory right now.

[Salman Zia Rana, analyst]

Okay. Understood. And also keen to learn about your impressions, Jason, on the figures that Manheim just recently released for the used car vehicle index. So it seems like in February, prices have gone down by around 2% year-over-year, I believe. And I believe that was the first time the prices have come down in quite a while. So do you see that as a sign that prices eventually might be coming down, and that might pick up pace in the second half of the year?

[Jason McClenahan, executive]

Yes, it was about time they softened, to be frank. They couldn't get too much higher. I don't think anybody could believe. But we have not seen the inventory replenished to the sense where this is going to drop off. This is going to be a slow change, not a dramatic change in the near term. And the market, the prices per car have softened very slightly, but not to the point where it's a dramatic change right now, not until inventory starts to really flood into I see that really having a big impact. And then when that happens, we've got to be primed and ready to handle that extra volume that is out there. Like I've said before in the roadshow, we'd much rather have way more inventory in market because we make more based on volume and transactions versus on average sale price going up per car.

[Salman Zia Rana, analyst]

Okay. And my last question, again, pertains to the M&A pipeline. So we talked a lot about the wholesale side, but does the M&A pipeline potentially also involve any retail-based solutions that, again, you might later on introduce particularly in the U.S.?

[Jason McClenahan, executive]

Yes. We play in both sandboxes. We're in the retail -- digital retail space and digital wholesale space. So we're not just looking at an acquisition pipeline that focuses on wholesale auction marketplaces. We're always keeping our ear to the ground looking for good strategic partners that have a very aligned vision, good technology that fits our product road map and helps us get to where we want to be quicker and acquire good talent in the process. So we're absolutely going to be looking at both.

[Operator]

And that does conclude the question-and-answer session. I'll now turn the conference back over to Mr. McClenahan.

[Jason McClenahan, executive]

Thank you for joining us this evening. We look forward to updating you on our progress during the Q1 call in May. Have a great evening, everyone.

[Operator]

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.