Q3 2020 Shift Technologies, Inc. Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the shifts technologies third quarter earnings conference call at <unk>.
At this time all participants are in a listen only mode.
The speaker presentation, there will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
Please be advised that todays conference is being recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today, Jennifer Jarman Investor Relations. Please go ahead ma'am.
Thank you operator, good afternoon, and welcome to the shift to Q3 earnings call joining me on the.
Our call today, our co Ceos, JORC, Aerosat, and Toby rental and CFO, Andy Hanford following prepared remarks shifts executive team and VP of strategy and finance Henry Bird will be available for Q any during our remarks, we will make some forward looking statements, which represent our current judgment on what the future may hold.
And while we believe these judgments are reasonable. These forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties actual outcomes and results may differ materially from what is expressed or implied in any forward looking statement. Please refer to our filings with the FCC for a full discussion of the fab.
That may affect any forward looking statements. We undertake no obligation to publicly update any forward looking statements whether as a result of new information future events or otherwise. After this conference call. During the course of the call we will be referring to non-GAAP measures as defined and reconciled in our earnings materials with that.
After that I will now turn the call over to George.
Thank you Jennifer and thanks, everyone for joining us on our first earnings call.
Now as a public company.
It's been a transformative year for shift and for our business from for the buying us entering the public markets in October.
We are pleased to report strong financial results.
<unk> and expect to continue building on that momentum in the fourth quarter.
Last nine months have been extraordinary for shift.
The onset of cobot consumers and businesses have accelerated transformation that was already underway.
Business was built to support this consumer behavior. So unlike other traditional retailers, we didn't have to shut down.
Sounds good okay, new capabilities to be able to sell in a touchless way in a new shopping environment well covered has brought about unfortunately, then it has resulted in accelerating demand for our offerings.
We have been working hard to meet.
In this third quarter, we were told.
Don't revenue was 31%.
Adjusted GPU, 89% and total unit sales, 34% year over year and sold nearly a thousand E commerce units per month BA.
These rapid growth rates were ahead of our prior expectations, demonstrating our momentum and the massive opportunity in front of us.
This is our first earnings call as a public.
The company.
And I want to take a moment to outline our strategic priorities and highlight our operational efficiencies.
I'll, then turn the call over to Toby to provide a business update and discuss our recent accomplishments since Toby and I first came up with the idea ships mission has always been to make <unk> purchase and ownership simple.
To make buying or selling.
Used car fun fair and accessible to everyone.
We're delivering on that mission since selling our very first car in 2014 to now expected to generate approximately 194 297 million in revenue in 2020, the strongest and shifts history.
Sure sounds the broadest range of cars of any major auto.
<unk> ecommerce companies, including value cars, which our customers love. Additionally, we have built a strong technology platform that enables us to service our customers with low cost logistics, delivering an exceptional customer experience.
As there was under about technology, driven and consumer centric approach. She says earn and have 70 net promoter score.
For for customer satisfaction, well above that received by traditional auto retailers.
Our regional presence enables us to source vehicles locally and then resell them within the same region, leaving us uniquely positioned in each market. There are several benefits to this model such as inventory acquisition.
Onboarding and sales fewer average they sell as compare to the broader industry transportation logistics and fulfillment costs, you need to test drive offering as well as our future ownership opportunities that we believe tie well into our customer lifecycle model in.
In addition, our motto benefits significantly from Citi.
She just send targeted merchandising marketing.
Although we operated using regional fulfillment model, we still use centralized services such as our inside sales operation and our customer service. Looking ahead. We are focused on several strategic priorities that we believe will drive long term growth in the near term our strategy is to deepen pennant.
Innovation in our existing markets and expand into new.
To improve attachment rates of high quality I'm very proud of it.
Drivers conditioning efficiencies and to increase our brand recognition.
We are focused on driving penetration within our existing footprint through strategic branding and marketing strategies as well as offering customers.
Just and broadest selection of inventory.
Over the long term as we strengthen our foothold in that market, we benefited from word of mouth as well as from improving unit economics.
We believe we can continue to strengthen our market presence in our mature markets, while driving further penetration in our more nascent markets.
At the end of Q3, we were operating.
Learn in six regions in the last summer.
The model that we presented during the Investor meeting, we held in connection with our recent merger kind of place launching tomorrow as the year.
Were confident our continued geographic expansion and believe we have the one way to opportunistically accelerate airplanes, while continuing to focus on deepening penetration in our existing markets.
We recently announced the launch of our newest markets General, which while early is getting good traction.
We're also excited about launching vehicle acquisition in Austin, Texas This week.
Driving growth in Ethernet revenues, another important component of our long term strategic goals.
Sure novice customers high quality and delivery.
That's financing warranty tire and wheel protection services.
Were making strategic investments in RF and I offerings to improve monetization per units sold over time in.
In Q3, we grew asinine per unit at 48% compared to Q3 2019, we will continue optimizing our ancillary product offerings to increase touch month.
Product and drive gross profit margin expansion over time.
As we and others in this space have discovered before cover has upended the pricing dynamics in the used car market.
Our technology suite is optimized to successfully acquired the right inventory.
Right.
And originally reconditioning strategy means that.
Great software can adjust for different variables and enable us to quickly adapt our return process.
We are leveraging our core technologies, and we'll continue investing to enhance our in house or condition.
We strongly believe that enhanced reconditioning is a valuable advantage in the U.S auto retail market.
In addition to market.
Our maturity and ancillary products efficient reconditioning, the critical component to our long term growth.
Gross margin targets.
She says five reconditioning facilities across our California, northern markets, enabling us to execute on our regional strategy and we will be launching facilities, our newer markets like Seattle and Austin, while our facilities.
Whatever the physical capacity plus a substantially more cars, how scalable in nature hiring skilled labor has been uniquely challenging in the current environment, especially in California, creating a bottleneck for our internal reconditioning. So good.
At the onset of covered we had solid inventory on hand, and made strategic decisions to be hyperbolic.
About our car buying over the last time I.
Our selective acquisition strategy and resulted in strong gross profit per unit year to date, but ultimately the heightened demand.
Throughout that period resulted in substantial inventory.
As we were selling far more units than we were acquiring in those early on.
Instead, we were rapidly accelerating acquisitions to build our inventory and meet the growing consumer demand.
This dynamic created in near term backlog for reconditioning operations, especially given slower than anticipated mechanics, hiring which I mentioned earlier.
In order to accelerate unit sales and drive growth, we decided to outsource reconditioning.
Vehicles, while also incurring substantially more overtime expenses for in house technicians than we would otherwise expect so we will get into some of the details of the financial impact later on.
We are building ships for the long term and believe that the demand we are seeing exemplifies the strength of our offering we're actively working on hiring additional mechanic labor to bring.
And all of our reconditioning capabilities back in house, which we believe is critical for long term success.
Now turning to our brand and marketing strategy, we have been successful in leveraging advanced data tools to enable smart decision, making and take advantage of our regional strategy, enabling us to make efficient channel choices regions, we operate.
We are very different from each other for example convertible sales are prevalent in southern California.
The N. hybrids are more popular in the bay area and in Portland, and truck sell really well in Sacramento.
Through our regional merchandising marketing strategy, we can deploy marketing campaigns that like the personality of each of those markets well maintained either in.
Inventory to support our customers' preference.
We have identified an opportunity to create a truly differentiated grants, which Toby will talk more about in a few minutes.
We are leading the way in building a brand that has a lasting relationship with consumers and therefore building long term strategic value for sure but.
Were very happy with how the team and our business performing.
During Q3 and believe these results position us well to execute on this next stage of our growth for the business.
With that I'll turn the call over to Toby to discuss some of the business highlights and progress we have made towards achieving our long term goals. In Q3, then Cindy will provide details on our financial results and poor guidance and we will open the call to question.
<unk>.
Thanks George.
We are excited about the opportunity in front of us.
We believe we have the right strategy in place and are making meaningful progress. Despite the challenging macro factors that had been confronting us not only in regard to the pandemic, but also the fires that have impacted areas of the west coast encompassing several.
Each of our core markets.
Despite these issues we are seeing strong performance across all our markets and are making inroads in expanding our geographic footprint.
With the recently announced launch of our newest two sided marketplace in Seattle, Washington shift now covers all major metros on the West coast.
We've.
I believe that the combination of having a supply line along the coast in both interlocking and self standing regions creates both strong inventory advantages and cost synergies.
There is a tremendous growth opportunity within our west coast footprint and we believe we can replicate this model in other regions.
As a reminder.
We enter we take a highly efficient capex light approach to opening new markets by first acquiring cars locally to build inventory followed by the establishment of our own hubs and reconditioning centers to that end. We recently announced that we are beginning to purchase inventory and Austin, Texas, creating the backbone of our next.
Regional concentration.
We're using the same playbook, we have successfully deployed to establish and expand our footprint on the west coast.
Q3 was also an exciting time for shift from a brand point of view.
We recognize the opportunity to establish a truly differentiated brands and recently unveiled our new brand.
Remind marketing strategy, including an AD campaign, new look and feel and an official spokesperson for the company.
The overarching theme of the new shift brand is embracing and celebrating used cars unique in a category that often pushes consumers to purchase new vehicles.
But buying a new car is a trap.
Even if you think you succeeded in haggling through the Industrys opaque and discriminatory pricing approach. The moment you drive off the dealers lot. You proceed to lose thousands of dollars on average with rapid depreciation.
And this is not true when you buy a quality used car from ship.
It was this insight.
That inspired the company's new brands.
By being driver centric and techforward shifted challenging the traditional model to give consumers a better used car buying experience one they can feel good about.
We proudly celebrate and champion the value and quality of shift used cars and the savvy consumers who buy them.
We believe we're going to lead the way in the category with our unique philosophy of building a relationship with consumers and a brand they love, which ultimately drives long term value and topline growth.
Our positioning and creative strategy is differentiated and will drive brand affinity.
We now have an increased.
Marketing budget to execute on our strategy.
Despite the increased spend we continue to market more efficiently than peers do focus on targeted digital advertising and regional market efficiencies.
Some specific new initiatives that we have taken over the last 90 days include in.
In Q3, we continued to invest.
Less than our technology platform.
This includes investments in the consumer experience on the operation side to ensure our team uses technology leverage to its fullest and.
And data science, where machine learning continuously help us improve how we buy cars and engage with consumers.
We have a deep bench of industry experts leading ship.
We still continue to strengthen our leadership team as we position shift for long term success as a public company.
We recently added Mark Mccollum to our team as Chief revenue Officer.
Previously Mark led the Texas, and Arizona markets for Autonation and has been an automotive software startup as founder as well.
He brings deep expertise as a multi decade veteran of the auto retail industry to shift.
We're also pleased to welcome our senior Vice President and controller blame a teller, who has over 20 years of experience in running public company accounting teams.
Believe me, we will lead our accounting team and worked to optimize.
<unk> as our internal processes and practices for best in class Public company reporting standards.
In addition to our management team. We also invested in the development of our World Class Board of directors.
During the third quarter, we welcome the financial veteran of the automotive industry and our audit Committee.
Chair Victoria Mckenna.
Adam Nash a season consumer technology executive from bellwether companies, such as linked in and Dropbox.
And Kevin Smith County, and experienced marketer, who served as the global Chief Marketing officer at Hilton worldwide and is recognized by Fortune Adweek and others.
For marketing innovation effectiveness and leadership.
We are thrilled to have such a diverse set of experts in our corner as we enter the next phase of growth.
In summary, we have made significant progress in the past nine months and are embarking on our life as a public company with exciting momentum.
We are investing in market expansion and innovative branding and marketing strategy.
Industry, leading consumer technology, and a world class leadership team.
I couldn't be more excited for the future a shift.
I'll now turn the call over to Cindy who will review, our Q3 financial results and outlook.
Thank you Tobey.
We operate in a highly fragmented industry with a massive market opportunity our focus on achieving strong unit economics has positioned us well to accelerate revenue growth. This coupled with our capex like E. Commerce approach makes for a compelling long term model.
Our third quarter and year to date results demonstrate that there is a clear demand for our offerings.
And consumers are embracing shift more than ever before.
One of our goals as a public company is to provide transparency around their performance and future expectations.
I will first hit on our Q3 financial highlights and then walk through our Q4 outlook unless.
Unless otherwise noted all comparisons are year over year.
So revenue grew 31% year over year, and 85% sequentially, reaching a record $59.9 million.
Total units sold for 4046 up 34%.
Our strong growth was driven by higher E commerce in the wholesale unit sales, which grew 35% and 31%.
[noise] respectively.
We continue to optimize the business and reported strong margins throughout the third quarter.
We grew non-GAAP adjusted gross profit, 156% to $3.9 million or 6.5% of total revenue.
The significant increase was largely driven by an increase in E Commerce unit sales.
As well as 113% increase and other revenue both of which carry high margins.
E Commerce, GPU, which can be thought of as the margin earned on the sales of vehicle itself increased to $545 per unit up from $360 per unit. This.
This increase was largely driven by.
Operational and technological improvements made to rationalize our inventory and improve our vehicle sourcing.
Other GPU increased to $745 per unit up 48% year over year, we have made strategic investments to enhance our high quality ancillary products to better monetize our unit sales and we.
We believe these results are a testament to the contribution of an eye.
Q3, adjusted gross profit per unit was $1319 up 89% year over year and in line with our prior expectations.
Our non repair leaver costs, which provide helpful insights into the efficiency of our reconditioning.
Obviously is for $152 per unit in the quarter.
Internally in order to have a comparable view of GPU with industry peers, we add back this non repair labor component to our GPU calculation.
So net of these cost managements internal view of GPU for Q3 is 1407.
$31.
Moving to expenses as DNA was $24 million or 40% of revenue up from 35% in Q3 last year.
The increase in M&A was primarily driven by increased marketing spend which totaled $7.7 million for the quarter.
And an increase in expenses.
This was associated with becoming a public company.
We will continue to make disciplined investments in sales and marketing to drive long term revenue growth and anticipate similar gionee impact from costs associated with becoming a public company in the near term.
As a result, adjusted EBITDA loss for the period was 19.4 million.
Million dollars or 32.4% of total revenue.
As compared to 30.5% of revenue in the year ago period.
As of September 32020, cash and equivalents totaled $18 million, we closed our merger with insurance acquisition Corp. on October 13th 2020, and the trends.
And that's delivered approximately $302 million net of deal related expenses to support growth and working capital.
Subsequent to the close of the merger, we also paid down to $6.1 million balance of our PPP alone and a $25 million balance on our delayed draw term loan.
As of October 32020, and immediately following the transaction ships had approximately 82.1 million shares outstanding inclusive of 6 million shares which are subject to the earn out provisions of the agreement governing the merger.
We expect basic and diluted weighted average shares outstanding to be approximately 82.
7 million in Q4.
Additionally, as we previously disclosed on November 5th we filed a preliminary proxy statement and schedule T O, which contemplates our intention to commence an offer to all holders of shares outstanding publicly traded warrants to exchange each warrant for a combination of cat.
Cash and a fractional share we.
We expect to file a definitive proxy statement on or about November 16th 2020, following which we expect to commence an exchange offer for the warrants that will be open for no less than 20 business days.
Turning to our outlook.
Proven 19 has clearly presented to us and the industry.
Area with a new set of challenges we continued to see strong demand for our products and as a result, we are increasing our prior revenue expectations.
We now expect Q4 revenue to be another record in the range of $72 million to $75 million, representing 163% to 174% year over year growth the strongest revenue.
Right and the company's recent history.
Before providing GPU guidance I want to reiterate a point that George discussed earlier regarding the use of outsourced reconditioning and overtime labor and take a moment to provide a onetime disclosure of the financial impact in our rationale.
We've only.
Okay that using third parties for recon is less than ideal for both operational and financial results, which is why owning the process in house is a core competency for shift.
Due to the heightened demand we are anticipating we conducted an internal analysis to determine the financial impact of the need to outsource some reconditioning personal.
Select vehicles as we ramp our capacity to meet our strong demand.
We found the blended impact of third party reconditioning to be $209 per unit in the third quarter on top of that the amount of overtime pay its internal teams is resulting in an additional incremental cost of 60 to $70 per unit over the course of the period.
As evidenced by our revenue growth guidance, we are prioritizing revenue acceleration by fulfilling demand and building our brand to capture market share.
As was the case in Q3, we will continue to leverage a combination of our internal staff. This.
Assuming increased overtime and third party reconditioning for certain vehicles in Q4 to absorb.
Size man. We believe this is a short term trade off that will leave ship well position for the long term.
We anticipate that our GPU for Q4 will represent 100% to 200% year over year growth.
We will continue to work through the cobot Nike related staffing challenges that weve discussed while remaining focused on GPU.
Our near and mid term GPU growth drivers are our regional inventory strategy.
Technology first model and data advantages ancillary products and optimizing our in house reconditioning, we remain confident in our long term GPU targets.
As a result of our expectations for GPU as well as the investments we.
Making in sales and marketing to drive long term revenue growth and Gn expenses associated with becoming a public company. We expect adjusted EBITDA margin to improve by 250 to 350 basis points year over year in Q4.
Our Q3 financial performance in Q4 outlook are testaments.
Remember our ability to scale shift we.
We will continue to make responsible investments as we execute our strategy to drive long term growth.
With that I'll turn the call back over to Toby.
Thank you Sandy.
We exited the third quarter with record revenue growth and strong momentum.
We will continue to invest in.
The business to accelerate growth as we scale in new and existing markets and are committed to delivering shareholder value for years to come.
Before we open the call to questions. There are three key takeaways I would like to highlight.
One.
We have a very broad approach to inventory, which allow.
But I was just to cover the larger spectrum of cars consumers walk online.
That's enabled by our regional model, our test drive and our reconditioning capabilities.
To our differentiated technology.
Is all built on data with machine learning and AI.
Latch allows us to optimize the entire product experience from inventory strategy through the N. sale.
Sorry mirror.
We are continuing to build a strong brand.
We believe will drive market share over the long term.
And with that operator, we're ready for questions.
Thank you as a reminder to ask the question you'll need to press star one on your telephone to withdraw your question press the pound key please stand by we compound junior roster.
Our first question comes from Mike Grondahl with Northland Securities. You May proceed with your question.
[noise].
Hey, Thanks, guys could you talk a little bit about how.
7.7 million in brand spend what sense like what kind of forms of marketing.
[noise] Hi, Mike Thanks for joining us I'll hand that question over to Tony.
Hi, Thanks, a lot for that question. So as we noted our primary advertising and communication channels to customers. Our digital direct response has been the case for a long time and we continue to invest.
And that highly tuned direct response machine.
There was growth in that and we're really.
I'm really bullish on that in addition, as I mentioned, we built out the brand strategy.
And hired a spokesperson beginning to expand beyond digital into non digital E like out of home and TV more brand building channels that we're doing that and experimentation fashion.
And thats really in anticipation of us being able to continue our building our brand over many years, we see the brand building as a long game.
That's going to create both affinity.
And long term value. So we're again focusing on that baseline of digital advertising as we expand into the newmont new.
New channels that allow us to build brand more broadly.
Got it.
Any.
Any spots on the team that you still need to fill or do you feel like you've kind of filled the team out for 2021.
Again, another great question, we're super bullish on the building out of our executive team. If you look at what we've announced over the last couple of years, we've been hiring folks with just decades long experience in each specialty area.
And we most recently announced bloomer teller.
Her join our finance team she comes with 20 years of experience in accounting and financial Controllership.
We're also have just recently announced timbar giant he is going to be taking over fixed ops. We've been doing a good amount of hiring in our reconditioning and fixed ops as you know were bullish.
On our internal reconditioning capabilities.
We think that's a critical strategic advantage over the longer run that's going to help us drive our growth and.
And so we're really excited about Tim joining you're going to see that continue we're going to keep hiring in each area to be in the up level. The company as we grow more and more.
Taking this thing to the next level time and time again.
Great and really nice to see the demand thanks guys.
Thanks, Mike Thank you.
Thank you. Our next question comes from Seth Basham with Wedbush Securities. You May proceed with your question.
Thanks.
Thanks, a lot and good afternoon guys.
My first question is making sure we understand the moving pieces with here results as well as your guidance relative to what you put out just one month ago. Your estimate actual results for the third quarter.
Were pretty consistent with what you report except for that marketing spend.
And what happened with that marketing spend when did occur and is it just an accounting timing Oh.
Issue or something else.
Oh, Thanks, Seth good to talk to you and I'll hand that question over to Cindy and Henry.
Thank you Seth.
Marketing, specifically brand marketing as a key part of our growth initiative.
But the high demand for used vehicles, we took the opportunity to invest earlier than originally planned to drive brand awareness as we moved into two to 2021 and beyond.
Okay, just to be clear you Didnt anticipate.
This spend in early October after the quarter closed, but it actually had occurred.
Oh down here, Hey, just to.
This is Henry.
The guidance that we provided for the estimated actuals were actually focused primarily.
Paid in the topline.
Guidance ranges as well as the reiteration of the GPU guidance at that time, we didnt articulate any changes to the full pn now it was soon after the quarter closed.
And and you know given the timing of the transaction we wanted to provide.
Some insight into certain line items, so we feel comfortable providing at that time.
Okay fair enough and a follow up question those are not guidance at that point in time.
For the fourth quarter.
Issued the guidance you now providing is very different.
Below the top.
<unk> line.
Can you give us some insight as to how you're thinking changed over the course of the past month.
Hi, Seth I don't think that's a 100% correct the guidance for fourth quarter in our model that we presented during the.
Stop process was 72 million and.
And now we're providing a topline guidance of 72 to 75 was definitely not lower than what we provided before.
And so I think were really excited about where the demand is and we think that there's a ton opportunity to capture share and to help consumers and grow our business.
So we are very very bullish about the quarter and anyway.
I'm sorry, George I think you misunderstood me I said, it's different except for the topline GPU seems much lower than at that point in time and implied.
Yes, you know, it's much lower because the EBITDA is much larger bombs or using the correct based sorry for Q.
2019.
Yes go ahead Tobey doing it takes Uh huh.
Yeah as I was referencing earlier.
We didnt provide specific guidance on that for Q4, but we have projected that we are going to be doing major investments in.
In marketing and brand, we've actually seen an opportunity to pull that.
[music] Board.
And get going on that earlier, we want to be building momentum going into 2021, as we look to grow. So we've actually operationally ahead of ahead of schedule as it were announced our new spokesperson.
Put together, our new brand strategy and a role in that thing out there really.
Paul saying there is an acceleration of our brand application agenda, we're super bullish on that and we wanted to take the opportunity to do that earlier rather than later, because we've been putting together a great team and they've been able to execute up against that agenda.
Okay last question ill, let us get on it's just regarding the GPU guidance for the fourth quarter.
Which I relative to the third quarter GPU seems to be a much lighter and your new anticipated guidance can you give it some thought as to what's going on besides the outsourced labor.
Without outsourced labor and.
Overtime are the primary reasons the GP.
Our guidance is slightly lower.
And it's still positive its a 100% to 200% growth from last year, but we provided the recon disclose it took to inform what the updated range for GP should be and what is driving that we.
We believe that in this environment when hiring.
Not as easy as it normally would be.
It is still critical to service consumers and we think there's a lot of benefits to driving growth.
And capturing share in servicing all the customers that come our way and so we're purposely choosing to continue to fulfill all the demand that we are getting even if it means outsource.
Saying reconditioning for a portion of our inventory and continue to meet the demand that we have so the purpose behind that sharing that Lincoln disclosure, which is a onetime event, which we think will be very helpful for investors and analysts.
In terms of understanding GPU, what specifically about but we're very very.
Confident about the long term GPU information that we've shared in the past in terms of getting to that $2500 per car in GPU over the next two years.
All right and as a onetime event, you're not expecting this to occur beyond the fourth quarter.
To clarify that it's a onetime disclosure for the details.
For those specific metrics that Cindy spoke.
Spoke to during the prepared remarks.
We continue we expect you know.
To continue.
Through Q4, but but we do not obviously expect.
To utilizing outsourced recon for the long term.
The near term.
Decision were making to satisfy and sell the demand we're seeing.
Got it all right. Thanks, a lot guys.
Thank you. Our next question comes from Arvind.
I would be judge you May proceed with your question.
Thanks, Hello, everyone. Thanks for taking my questions [noise].
Just a couple of just to drill down a little further on the marketing spend.
Just curious you know if we if we.
You know take away to brand marketing investment you know how do you know how to.
Cackle balls in the third quarter and and what are you envisioning for the for the fourth quarter you know perhaps.
Perhaps if you don't want to be too specific you could just give us a directional indication of how that might be trending.
And then I have a follow up.
Absolutely so thank you for.
Again, I think at a high level.
And get into the specifics we've been fairly clear to.
Communications throughout the summer and the fall that we expect to have to go up in 2020 versus 2019, and because we believe that shift has dramatically under spend on marketing and.
Partly because.
And we have been capital constrained and that has been to the detriment of businesses grow and so post the transaction now.
Now that we are extremely well capitalized we will be investing in driving growth in that business and part of that investment will be an investment in marketing.
We have seen with our peers what apart from the fact that can have on the business long term.
Both in terms of driving GPU and driving price to market in terms of where they transact and so we believe that they did a valuable thing to do over the next two three years to invest in marketing and drive the growth in the business and we'll continue to do that.
Thanks George.
So that's what I was getting at is it seemed at least that you know.
From your prior presentation, you were able to kind of separate out the brand marketing component from sort of the returns youre seeing on say paid search or stuff like that and that was kind of what I was more getting up but that's okay.
If you.
If you feel like that's not something you can speak to but.
I guess my other question was just on.
You know the decision to enter the Austin market what was it about that market that appeal to you I think you were in a press concerning the mid west versus East coast.
Maybe you could speak to that and then secondarily just any.
Any any thought about.
Well you might expand from Austin or from Texas in General might you go into the to the south east or more of the Midwest. Thanks.
Great Thats a good question. So we are really excited about our announcement to start acquisitions in Texas.
There's a lot of reasons why Texas made sense to us then.
I'll start and then let Toby chime in as well for one thing and having Mark come on board is a huge advantage and in this regard he ran the Texas dealerships for our nation, which is the nation's largest automotive retailer. So he knows the market extremely well and that obviously gives us.
Mr. I'm confident about Texas, Secondly, Texas allows us to think about building and interlocking relationship between markets as we scale and there similar to what we've done on the West Coast and that's also really exciting and Tony.
I would say we're super.
Bullish on that.
Interlocking and independently sustaining regional structure has served us very well.
We are launching Austin with a similar approach that we took to other markets for example, Seattle.
We mentioned that we're now.
Holy live with our two sided marketplace buying and selling.
In Seattle.
Causing us to be able to really sell cars, all the way from Canada, and Mexico up and down the west coast tremendous footprint, great interlocking regional structure, and we see taxes as if it had a fantastic next spot Austin being by the beginning of us expanding another similar.
They are locking regional structure. So we're really bullish on that as a as a platform for growth and as a as George mentioned market column has joined as our CRL as just extraordinary experience there having run both Texas and.
Arizona for auto nation, one of the top retailers in the country.
Great. Thanks, Toby think thanks George.
Thank you. Our next question comes from Zach Fadem with.
As far as <unk> you May proceed with your question.
Hey, guys quick follow up on on the Austin market and just given that it's not a one way market today curious how that works.
Yes, as far as you know you're acquiring vehicles.
Where do you sell those vehicles today, and then what's the timeframe towards turning to a two way market over time.
Hi, there. Thank you for that question and.
I'll hand that question to Tony.
Hi, Thanks, Thanks for the question Zack So as you know in all of our markets, we have two fundamental disposition channels.
One is after we buy the car we sell that car at retail back their consumer.
The other is we buy that car and we sell that Carter to wholesale.
Right away, we have the ability in Austin to be able to do the second.
We do have a unique value proposition, whereby we will put a price on just about any car set of customer bring that means that actually the majority of those cars.
Are not what we would call meeting our retail standard.
So at the outset the majority of the quotes we get actually makes sense to go to wholesale.
The retail cars what.
What we do is we will either sell them as part of our National network.
Or in Austin's case store them for a period of time and so we had a critical mass where we feel like we'll take them out together.
In retail.
We have not share either the timing for when that will happen as that's that's kind of competitively sensitive.
Or what markets, we will go through after.
We have used this playbook in multiple markets that we've launched including San Diego.
And Seattle most.
Most recently we.
We've seen it work really well and we're very bullish on the model.
Got it and then on I'm curious if you could talk a little bit more about the value segment. How those vehicles are performing versus other vehicles in your Arsenal and maybe you could talk about your competitive mode.
There and why you think other peers have it.
Tapped into the value opportunity or why they might not tap into that opportunity in the market.
It's a great question, we are very happy with the value business.
We have announced previously that through end of August 29%.
Send about sales were in the value segment, that's higher than we had initially anticipated, but probably driven I believe by the environment that we are in economically today.
We continue to be very bullish on that and we see a lot of demand.
In the value segment.
We think that not offering a test drive is.
Really big factor that plays into why our peers can't really touch those cars when you're dealing with an eight year old car or a car with 80000 miles or more on it most consumers want to sit in that car touch it feel like to drive it before they buy it and so having the ability to manage.
Why don't you sticks locally and offer a test drive is really crucial to want the ability to be able to sell but our which differentiates our model from everybody else in that fund.
Fundamentally asking why our peers do not I touched that level.
While we think it's a huge advantage as we've spoken before there is a huge.
[noise] opportunity with front end on those cars right. So those costs have much better off on an average core vehicle in the used car market.
And so we think investing in value makes a ton of sense and we expect that to be the case as we scale.
Got it thanks George.
I appreciate the time guys.
Thank you very much.
Thank you and as a reminder to ask your question. Please press star one on your telephone. Our next question comes from Sharon feel with William Blair.
Proceed with your question.
Hi, good afternoon.
Question on the marketing campaign, and obviously you must.
You bet about it to full forward more spending I mean, how are you seeing the consumer respond across your markets I mean is there any.
Segment of consumer any region that seems to be responding more strongly to the messaging.
Thanks, Sharon good question and I'll pass that on to Toby.
Oh, we have a share and shared publicly the cohort performance by segments or by marketing campaign.
So I'm going to have to speak in more general terms on that one.
We are seeing uptick from the new creative.
That are very excited about.
I'll get new creator.
It is in my opinion and objective clean the data, we're seeing higher quality and more impactful across the board than anything we have done in the past, but we don't see that as the end of our journey, but we're going to continue doubling down.
On that Brad.
Again, we did pull forward a lot.
Out of that activity in terms of things like our video shoots creative creation spokesperson engagement et cetera. So we pulled that forward and are excited to be beginning that journey and we're just going to continue investing there.
As we look to grow and expand our brand presence because brand brings as.
George mentioned earlier, a lot of positive impact both in terms of our growth as well as upward momentum on our price to market.
I guess a follow up on that I saw that you're doing a black Friday sale I don't know, if that's something new to shift or if that's something you do every year.
But can you talk about how.
Your marketing and that is that.
Part of the broader AD campaign or is that just digitally and is that part of what we're looking at and the sequential GPU calculation.
It is indeed, so we while we were recognized that I believe some of our peers have announced they won't be doing.
Black Friday campaigns, we are in an earlier growth stage.
And we're going to use black Friday to expand to meet the demand that we're seeing.
Grow our sales build our brand.
And in practice that does have an impact on our GPU in two ways first you when we're doing a sale there is obviously a desk.
I'll now involved.
And second.
As George mentioned earlier as we've stretched our in house reconditioning and are doing overflow with third party reconditioning that has increased our cost to fully meet the demand, but we're very deliberately saying we want to drive growth.
And.
Take that impact because of our strategic goal of expanding and driving continued growth both in Q4 and into next year.
Thank you for that and just one last housekeeping questions venture so newly public I missed some of your guidance was year over year could you give us what the events.
EBITDA adjusted EBITDA margin was for the fourth quarter of last year.
Okay.
This is Henry bird sharing that information can be found that previously filed investor materials.
No change to that.
No change.
Okay. Thank you.
Okay.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to George Eriksson for any closing remarks.
Great. Thank you very much I would like to thank the operator, and everybody who listen for.
Questions and I would like to thank everybody at the shift team for helping us put together our first earnings call. The public company. The team Toby an eye on all Super excited about the opportunity that we have ahead of us and we look forward to many more conversations in the quarters ahead, as we build the business and create shareholder value. Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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