Q4 2020 Vroom Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to there from a fourth quarter 2020 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and Dana and star session to ask a question and during this session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero.
I'll now turn the conference over to Alan Miller, you may begin.
Yeah.
Thank you Sidney Jerome good afternoon, and thank you for joining us on dreams for quarter and full year 2020 earnings conference call.
On the call today are Paul Hennessy, Shea, Chief Executive Officer, and Dave Jones, Chief Financial Officer. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at IR Dark Green Dot com and.
And fourth quarter earnings release is also posted on the IR website.
Before we begin please note that the discussion today includes forward looking statements within the meaning of the federal securities laws, including but not limited to statements about rooms operations and future financial performance. These and other forward looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those in such.
Statements, we direct you to the company's most recent SEC filings, including the risk factors section of rooms. Most recent form 10-K for additional discussion of factors that could cause actual results to differ material from those and the forward looking statements. Please note that today's discussion, including the forward looking statements speak only as.
Of the date of this calls and for whom assumes no obligation to update such statements based upon future developments or otherwise.
The company May also discuss certain non-GAAP financial measures. During today's call you can find and presentation of the most directly comparable GAAP measures and a reconciliation of those measures in today's press release with that I will now now I'll turn the call over to Paul Hennessy, Our CEO Paul.
Thanks, Alan and thanks to everyone for joining brooms fourth quarter and full year 2020 earnings call.
I'd like to start by thanking all of our employees investors and board members for all of their hard work and support and building a great customer centric public company.
I cannot be prouder of our team and all that we accomplished in 2020.
First and foremost we had a very successful initial public offering and follow on raise adding capital to our balance sheet. So that we can continue to build an outstanding company.
We doubled and extended our floor plan financing with ally financial enabling us to scale, our supply and meet our increasing demand.
We also launched a series of preferred lending agreements with J P. Morgan Chase ally financial and pumped on their bank, providing attractive lending alternatives to our customers across the credit spectrum.
Operationally, we added a new reconditioning partner to expand and diversify our resources and also added a total of 14 strategic reconditioning facilities in the year, providing broome with quality reconditioning capacity for 2020, one and beyond.
We also started investing in and scaling our last mile delivery services to enhance our customer experience and we laid the groundwork to develop our own long haul operation in 2021 to drive quality speed and efficiency to our national Logistics network.
And we brought technology and data science to our customer experience improving our e-commerce platform by removing friction and enhancing the end to end experience for our customers.
We grew our workforce and all areas of the company and expanded our third party providers to add critical resources to scale our business.
We ended 2020 with the acquisition of car story to enhance our ability to buy better price better and optimize better while also enhancing our overall digital retailing capabilities.
And as we're all painfully aware, we realized all of those achievements, while operating in the middle of a global pandemic.
As I said I could not be prouder of what the team accomplished.
I'd point out our accomplishments because many of our foundational in nature.
Financing for the company for vehicles and for customers reconditioning, and logistics capacity and improvements to deliver quality and scale.
Technology, and data science and enhancements to drive e-commerce conversion and improve customer experience.
2020 was a year and which we built our business into a very stable platform that scales.
And that's exactly what we're doing we're scaling e-commerce units were up 82% year over year for <unk> for full year, 2020 and ecommerce gross profit was up 89% year over year for full year 2020.
Looking back on the fourth quarter, specifically I'm also very pleased with our performance.
<unk> delivered a record number of e-commerce units and achieved record gross profit.
In the fourth quarter ecommerce units were up 74% year over year.
E Commerce gross profit was up 95% year over year.
As we move ahead after the unprecedented year that we experienced in 2020, Here's how I think about where we are currently and where we're headed in 2020 one.
There are four key areas of our business.
Demand and marketing supply and reconditioning logistics sales and sales operations.
These four areas are highly integrated and have direct impact on the performance of our business in terms of both revenue and gross profit as well as cost structure of our business and the experience that we deliver to our customers.
I'll provide transparent commentary on each of these key areas.
Demand for the room model is strong as evidenced by our continued record breaking ecommerce unit sales.
And the demand is broad based across our single nationwide market.
Brand awareness is growing for the Broom brand and as you know we took a large step towards making much of the country aware of the room brand by our participation and this year's Super Bowl.
Now 132nd advertisement does not make a brand, but we're very pleased with the early read and results from that decision, which has longer term brand building benefits.
We are very confident and our ability to engage customers and bring them into the room business and convert them into buyers and sellers.
As I said demand is strong.
Supply has been strong and buying cars, both at auction and from consumers.
As we built out our technological capabilities with integrated buying algorithms. We are now able to evaluate significantly more cars and real time bi and price them appropriately and grow our inventory.
By combining our existing data driven technology platform with the artificial intelligence powered analytics provided by car story.
We expect room to be well positioned to acquire inventory to meet our 'twenty 'twenty, one plans and beyond.
Reconditioning and scaling very nicely I am enthusiastic about our asset light model for reconditioning, which leverages our own facility with those of our third party partners. We are delivering high quality reconditioning at costs that are in line with our expected near term and long term cost structure.
As we add nodes for the network, we get closer and closer to our customers, which are constructive for both speed of delivery to customers and lower inbound and outbound shipping costs.
Our asset light models enables us to respond quickly to increases in demand and to avoid gridlock and our inventory supply.
We are very confident that our reconditioning model will continue to deliver high quality attractive cost and needed capacity to continue to scale our business.
Logistics is an area and increased investment per room, and our logistics operations have been expanding rapidly.
Our initial focus has been on last mile to ensure that our driveway delivery experience is outstanding.
As mentioned on our last call. We will continue to add more on vehicles not only for last mile but also for longer haul routes.
Investments significantly enhance our overall vroom customer experience and our efficient at scale in relation to our cost structure.
We have added talented logistics leaders with specific experience and both the direct to consumer and automotive retail delivery verticals to build out and scale our nationwide network.
We are confident that we are building a national logistics and transportation network that will deliver speed efficiency and and outstanding experience.
Sales and sales support operations on a significantly better place than they were at the end of Q3 2020.
And we've nearly tripled the amount of staffing and both our sales organization and our sales support organizations and they continue to be and area of investment and the first quarter.
It is important to note debt as we experienced exceptional growth and the second half of 2020.
Backlogs and our business formed as there was more volume to process and our capacity could deliver.
The result meant that our customers had to wait.
When customers have to wait for us to complete a transaction or deliver a car pick up a car complete financial arrangements or register their vehicle.
Their experience is degraded.
As I mentioned, we've been invested in and will continue to vest and our sales and sales support organizations. So that we remove any bottlenecks and our business is the business is scaling.
We believe we are tracking against this objective and are confident and our ability to eliminate the backlogs and deliver and exceptional customer experience.
I also want to make the point that our backlogs also contributed to a negative outcome on our retail and wholesale unit economics.
As you saw on our fourth quarter result, and on our first quarter guidance, we had lower gross profit per unit levels than we anticipated.
In addition to greater depreciation than we expected the lower gross profit per unit is also because we were buying inventory in anticipation of and aligned with our demand.
The demand arrived as expected, but due to the constraints and sales personnel and sales support personnel, we were unable to convert and process the sales associated with that demand.
The result is that our inventory aged.
And that aged inventory needed to be discounted to move through our retail channel or liquidated and our wholesale channel.
Said another way.
We bought more inventory than we could actually process and that excess excess inventory needed to be moved and Q4 and will continue to be moved and Q1.
We are confident that as our throughput increases as a result of our investments and as we turn our inventories faster, both our unit economics, and our customer experience improve.
We are intentionally adding and deploying human capital in the coming quarters.
To remove friction from our process and ensure that our customers have and outstanding experience.
But it's important to note that as and ecommerce company. We are committed to the goal of building a world class and and Touchless transaction.
With each software deploy we moved closer towards that goal and the need for incremental human capital decreases significantly while our consumer experience increases significantly.
So here are the key takeaways.
Demand and sales are strong sequentially and year over year, and we believe we will deliver triple digit e-commerce growth this year.
Gross profit per unit was under pressure and Q4 and will be and Q1, but we are expecting over 200% growth and aggregate gross profit for full year, implying material improvements and each remaining quarter of 2021, as we rightsize and turn inventory well.
Supply is readily available and our access to and acquisition of consumer inventory is increasing.
Reconditioning quality cost and capacity is and an excellent place and is well positioned to handle our anticipated sales growth.
Our logistics network is scaling rapidly and improving the customer experience.
Sales and sales support had been creating bottlenecks.
We've invested heavily in those areas and we'll continue to do so to remove friction and throughout the entire sales funnel.
And finally, our platform is stable and scalable and well positioned to deliver another record number of units sold record revenue with attractive gross profit and.
And many many satisfied customers.
And with that I'll handover to day for further remarks on our financials and our guidance.
Dave.
Thanks, Paul and good afternoon, everyone.
E Commerce units sold in the fourth quarter increased 25% sequentially from Q3 and increased 74% year over year.
To a new quarterly record for room, and just over 11000 units. This was driven by increased consumer demand and higher inventory levels and increased marketing spend.
Total listed vehicles, which includes coming soon and inventory and sell pending inventory increase to about 16000 units at the end of Q4 from about 12000 and at the end of Q3.
And we're currently at about 14005 hundred.
With approximately 46% of those vehicles available for sale.
We are estimating 14000 to 14500 and E Commerce unit sales and the first quarter of 2021.
The mid range of that guidance would imply and accelerating 29% sequential growth quarter to quarter and 80% year over year.
Again, as Paul mentioned, we're expecting triple digit growth and e-commerce units for for the full year 2021.
At the end of the quarter, we had 19 vroom reconditioning centers around the country, including our proprietary Vroom VR C C.
And these 19 facilities provide us with capacity to recondition more than 2000 and vehicles per week.
We're confident that we currently have the capacity to meet our full year 2021 targets and we're continuing to work with our reconditioning partners on expanding the number of ERC, which gives us the benefits are widely distributed reconditioning network.
We anticipate expanding to 25% to 30, VR CS and 2021 as a reminder, we added 14 in 2020, despite the difficult Covid environment.
At 30, VR sees more than 50% of all U S households would be within 100 miles of one of our <unk>.
We measure the quality of the reconditioning production and each of our VR CS at the Vin level we.
We utilized voice of the customer feedback to measure daily delighted scores from our customers quality scores from our employees on the ground at each reconditioning facility and net promoter scores by location.
We are pleased with the current quality of production at each of the 19 VR seats.
Our ecommerce revenue grew 43% year over year, and 28% sequentially and the fourth quarter to approximately $285 million.
For the full year revenue grew almost 56% to $915 million.
As planned unit growth outpaces revenue growth due to a lower average selling prices per vehicle year over year.
Average selling price per vehicle and the fourth quarter was approximately $24900 vs $30800 on the prior year and.
As we've discussed in the past our inventory selection is driven by demand signals that we see and our market data and by acquisition opportunities.
In addition, the continued expansion of our room reconditioning centers allows us to participate and a broader market at the 25 to $26000 average selling price due to decreased inbound logistics costs time and decreasing reconditioning costs.
These moves are consistent with our long term strategy.
For the first quarter of 2021 based on current inventory, we're forecasting and average selling price of 25 to $26000 per unit.
Our fourth quarter E Commerce gross profit per unit set a new company record at $20 1 million up almost 95% year over year.
E Commerce gross profit per unit was $1821 and the fourth quarter, which was up 12% year over year from 1006 hundred $26.
We were selling inventory and Q4 that was purchased in Q3 during a 25 year high pricing environment.
That fact, combined with higher than expected seasonal depreciation and Q4 and the inability of our sales and support functions to serve as the accelerating demand caused the shortfall and our vehicle gross profit per unit and Q4 versus our expectations.
It is important to note, though within vehicle gross margin, we saw year over year improvements and inbound shipping costs and reconditioning costs and we expect those trends to continue.
Turning to the other component of our total gross profit per unit products gross profit per unit of $943 and Q4 was up 53% year over year and six 5% sequentially.
The year over year improvements and E. Commerce gross profit per unit were primarily driven by improved attachment rates and increased profit per product sold.
Finally, we believe that total gross profit for E Commerce unit will be and the range of 1007 hundred $50 to $1850 and the first quarter.
Wholesale units increased approximately 69% year over year, and Q4 and were somewhat flat for the full year wholesale units and Q4 were driven by increases in trade and vehicles from the increased E. Commerce units sold and were also driven by increased direct purchases from consumers and the quarter.
And increased vehicle liquidations.
Full year wholesale units were increased as a result of paring down your inventory and the initial stages of Covid, but then offset in part by reduced trade ins and direct consumer purchases during the height of the pandemic.
Coming out of Q3, we discussed challenges, we were facing and sales and sales support those challenges continued in Q4 as ramp up time for new hires and exceeded our expectations. In addition, as Paul discussed as a result of the significant scaling of the business and the second half of 'twenty.
There was more volume to process than our capacity for delivery, which created backlogs and.
And as a result, our inventory simply did not turn fast enough and Q4, and we had inventory that it aged and needed to be liquidated. This was evidenced by our 77 days for sale in Q4, which was up from 66 and Q2 earlier and the year.
As a result wholesale gross profit for the quarter was negative as we moved aged inventory through the wholesale channel.
The fourth quarter results also turned the full year wholesale gross profit line and slightly negative for.
For Q1, we expect those wholesale unit.
B and a range of 7% to $8000.
8000 units and we expect wholesale gross profit per unit to continue to be negative and the range of $450 to $600 per unit.
But as Paul discussed we are taking significant steps to address these bottlenecks. We believe we're now ahead of the curve in terms of sales support on.
Our primary third party sales support function is now operating effectively with about 300 representative servicing our customers, which is up from about 100 at the end of the third quarter.
In addition, we are engaged with one of the top business process outsourcing and the nations to help us turn up another sales support function and the second half as we intend to stay ahead of our accelerating growth curve.
Similarly, and customer support and we're making significant investments our team dedicated to contract funding entitling and registration as rapidly expanding the team had approximately 125 members at the end of Q3 and now has almost 300.
Consistent with our hybrid approach to all aspects of our business. We've also partnered with business process Outsourcers to help us scale and manage our ever increasing volumes. We believe that we will be substantially ahead of the customer service curve by the beginning of the second half.
It is important to note, though that manpower is not the ultimate solution to scale its technology.
We continue to invest and our product and engineering teams as they work on technology to improve all aspects of our business and our customer experience projects that take human time out of the process allow us to scale without incremental operating expenditures and ensure a delightful experience for our.
Tumors.
We believe that the initiatives that are in place to scale. The administrative parts of our business will bring the wholesale gross profit per unit back to breakeven by the end of the year any lingering effects of liquidations are included in our Q1 guidance and again, we are expecting more than 200% year over year growth and aggregate gross.
And 2021.
Turning to TBA units were up 22 for <unk>.
Sequentially from the third quarter as foot traffic increased and improvements and inventory on hand were made.
The TBA still experienced a 50% decline and units year over year, and the fourth quarter and ended the full year down 43%.
While we believe that the effects of Covid on foot traffic has subsided somewhat we still have constrained inventory and the Houston area as the e-commerce business and scaling and post heavily from each BRC location.
Our goal is to get TVA back to a reasonable level of monthly unit sales. We believe as we increase the number of VR season on network, we have the opportunity to allow <unk> to have a dedicated inventory to service the local demand.
However, it is important to note that with the scaling of the E Commerce business Ta will continue to decrease as a percentage of the total.
Operating expenses, our total operating expenses for the first quarter increase as a percentage of revenue from approximately 15% and 2019 to about 19% and 2020 as Paul and I have discussed today, we are continuing to invest much more significantly across all areas of our biz.
And in particular, and our people around technology and logistics and support functions that are needed to scale with the business.
Total compensation and benefits was up approximately 39% for the quarter and 27% for the year marketing expenses for the year were up approximately 25% driving our 82% increase and E Commerce units sold and building the brew the room brand.
Outbound logistics was up 121% or $5 $7 million year over year for the quarter approximately $3 5 million of that increase was from the 74% growth and e-commerce units sold and the quarter increases and market rates from carriers make up the remaining $2 $2 million of the increase.
Full year results for outbound logistics were similar to the quarter outbound logistics costs per unit were $952 and the quarter compared to $749 and the prior year.
The build out of our proprietary logistics network continues as we begin 2021.
And we're in the beginning stages of building a 250 person logistics organization by the end of the year.
Our first line haul trucks will be arriving and the second quarter.
Our proprietary last mile delivery operations are also well underway.
At the end of the fourth quarter, we had eight hubs up and running I should mentioned that dysfunction. Also includes third party last mile partners in line with our hybrid approach.
By the end of the year, we expect to have approximately 30 hubs covering half of the U S population and delivering 50% of our ecommerce vehicle sales.
We expect logistics capital expenditures to be approximately $1 million and Q1 and up to approximately $10 million for the full year.
And Q1, we expect total operating and operating expenses to be between 20, and 23% of total revenue as we step up our investments and the business to support the massive demand we're experiencing.
One final note regarding our balance sheet and liquidity at the end of Q4, we had over $1 billion and cash on our balance sheet and almost $100 million available under our floor plan facility.
We've provided comprehensive Q1 guidance and today's earnings announcement.
And we'd now like to open up the call for questions.
As a reminder to ask a question press star and the number one on your telephone keypad.
Okay.
And your first question comes from Zacks volume with Wells Fargo.
Hey, guys.
First question for me on the Triple digit unit outlook for the year.
Which would imply about 70000 E com units and and a pretty meaningful step up in gross profit per unit, so considering where you're expecting to start in Q1 for both units and GPU could you walk us through the cadence for how these metrics are expected to build particularly at the gross profit.
Per unit line.
Yes, Zach it's Dave Thanks for the question.
Yes, Youre right.
Obviously as we said we've got some of these bottlenecks that we are continuing to deal with and Q1.
And more importantly, we've got some of that aged inventory that we have to continue to deal with so.
I think Q1 will be.
Suppressed to a certain extent.
In terms of gross profit per unit, but obviously, we expect as and.
We're confident that as our throughput increases.
As a result of the investments that we're making we're going to be able to turn that inventory faster.
And both unit economics and customer experience will improve.
And so I think youre right on.
We would expect that.
Gross profit per unit.
Would improve sequentially during the year.
As those initiatives take to get traction.
And so that's why we've given guidance.
<unk> thousand $750 for 850, <unk> hundred $50 for the full year.
Which would obviously imply a sending and gross profit per unit during the year.
Got it and thank you Dave and.
Alright.
Did you finish I'm sorry, yes.
Yes, Yes go ahead for us.
Okay, and then operationally when you're sourcing cars from customers could you talk about how you decide whether a car will be sold through the retail channel or the wholesale channel and how that informs the prices that you are willing to pay for a trade in and then to what extent is this.
Process improved with with car story in order to maximize your gross profit per unit on both the retail and wholesale side.
Yes, I guess, there's two answers to that and part of it is very simple and.
Part of it is more complicated.
We have retail criteria right and so we so as an example.
We typically retail vehicles that have less and 70000 miles and her six years old and younger so that's kind of the first.
And to get through in terms of how we decide whether a vehicle is retail or wholesale.
And so we have.
Much more expensive.
Criteria list and that but those are kind of the main gating items and.
And then from there it gets more complicated because a substantial majority of the vehicles that we are appraising and acquiring.
Our done.
Done really through technology right through AI and.
So that one allows us to scale the business.
Obviously.
We couldnt have enough buyers to buy at or two.
Appraise the number of vehicles that we appraised every year.
So the technology and really comes into play and.
And that's exactly the point of the car story acquisition.
They are really experts and the industry they've got the best industry data and so as you can imagine we can use that data to help us by.
Much better than we have and the past.
We also think debt.
We've more than doubled the number of data scientists and engineers data scientists and engineers that we have available to us now.
So we think there is an acceleration of a lot of the projects that we had on the list.
Around improving the buying process managing inventory everything we've always been addicted to data as you know and.
And so this was we think car story pluses that for us.
Got it really appreciate the color.
And your next question comes from Daniel Powell with Goldman Sachs.
Great. Thank you and just wanted to dig into a little bit of the puts and takes around GPU and the fourth quarter.
And then coming into the first quarter understand theres, some seasonal depreciation dynamics debt.
And they have been a bit more severe than you were expecting but in terms of the bottlenecks just thinking about the unit guidance that you gave and the E Commerce channel for <unk> and sort of coming and at the midpoint of that versus coming in a good bit softer on the on the GPU guidance would imagine not all of that was seasonal.
Depreciation and surprise, so just curious to hear sort of what the solutions are and sort of what youre, putting in place so that those sales functions bottlenecks.
Sneak up sneak up on you again.
Yeah Danielle thanks.
Yes, if you think about it.
If you separated into sales and sales support functions right. So.
And coming in and in the middle of the range on our topline.
As we were exiting Q3, we talked a day.
And amount about.
Some some challenges we had just didn't and the sheer staffing around sales support and so as we got our arms around that.
In Q4 that improved pretty drastically and so I think it allowed us to hit our unit guidance for the quarter.
But.
And we we there was more demand there still during the quarter that I think we could have processed. If we were further ahead of that like Paul and I mentioned.
We have literally tripled.
And the number of people that we have and that organization, we're turning up.
A completely separate organization and the second half for the year. So we don't have those issues again.
But so that's how we think about it from from a topline perspective, I think we're really confident that we've got the.
And the solution there at the top of the funnel.
We talked about seasonal depreciation and gross profit per unit and.
And I think when you look at the data.
There was.
Call it three and 5% seasonal depreciation and Q4 19, and and we were probably almost double that in Q4 of 'twenty.
But having said that we expected some of it I think the more significant impact on our gross profit per unit and Q4.
It was really from the bottlenecks, which caused our inventory to age a bit and then causes us to have to lower prices on that inventory to get it to move or ticket to wholesale auction.
So thats really where we found the downward pressure on gross profit per unit and the quarter.
Gotcha Gotcha, and then as we saw.
Look at.
And the earnings season, Thats passed and some of the comments coming from the listing sites. Just curious as you all have seen your branding efforts start to.
And get out there and in participating and the superbowl and what have you have you started to notice and your conversion improvements coming through those those third party listing sites, where maybe historically.
For your early stage brand was not converting as well as maybe peers.
Yeah, I'll take that one Daniel and I and I think you're you're thinking is academically spot on right as your as people are on third party listing sites and and.
And making selections of brands not surprisingly consumers tend to choose brands that they've heard of and as we build our brand.
And we start to see improvements on not only and third party websites, but but also direct traffic to our website, which as you know.
Convert significantly better.
So what I'd say is that's an ongoing trend from since we from the time that we started turning on our brand advertising on a nationwide basis, and and and not related specifically to Super Bowl events.
But we expect that that decision around the Super Bowl was to do exactly what you're talking about as people understand.
And one that we exist to exactly what we offer and three debt what we offer is actually.
Very appealing to them direct traffic and indirect traffic converts better and yes, we're starting to see that.
That's what get puts us in a position to predict triple digit growth and our ecommerce business.
Yeah.
Great. Thank you both I appreciate the color.
And your next question comes from Sharon Zackfia with William Blair.
Hi, good afternoon.
And I was hoping you could talk about kind of the embedded agility and the model and I.
I guess, what I'm thinking is that.
With the sales support function in particular, it seems as if you would have a good read on how that was ramping and.
I guess I'm wondering how quickly you can turn off new vehicle acquisition, so as to mitigate some of that gross profit hit and we've seen on this quarter or if there were some learnings there and then secondarily just for thoughts on liquidation.
And I understand some of that to wholesale.
But have you analyzed the potential benefit of just on free to consumer really good deal.
Yes, yes, I'll start and I hope not.
And start fall Yeah go ahead.
I was just going to say and in terms of the agile model and and the now.
Laser like focus and and prediction of.
Here is the output of individuals and getting ahead of that.
As we mentioned we.
We think we're in very good shape about truly understanding and.
The human requirements to two.
To convert on the sales side, the human requirements to convert through the sales operations side.
And and our <unk>.
Ben and are adjusting our business to make sure that we get that right to and which again, which informs our confidence of being able to grow aggregate gross profit dollars more than more than 200% on the year. So.
You live you lived through that kind of experience of the disappointment of having gosh, having all the demand we need having the inventory we need and non.
And not being able to get the ultimate debt, we'd like and I think the the answer is we are laser like focused on fixing that problem on a permanent basis, hence the perpetual investments in both.
Human capital and then quick fast follow.
Technical expansion, so that we can ultimately lower the need for incremental human and so we feel very good about that and as far as giving retail customers a great deal. Yeah. I think that's something that we we think intensely about and and will.
That's a.
Lever and our business that we will have been and we'll we'll utilize as appropriate.
And so we're just not liquidating at wholesale.
Yes, sure and I would just add to that and.
And turning off vehicle acquisitions.
The cycle time as you know is fairly long right. So just to use round numbers.
It takes a call it a week to get a vehicle into our reconditioning facility six days to recondition it.
And then and then it's listed and it's listed for a period of time so.
Our normal day to sell which takes into account the entire cycle time is call it 60% to 70 days.
And you saw in the quarter, we were at about 77, and so because of the cycle time.
I think it's.
It's difficult to turn off acquisitions to manage it that quickly.
Now, having said that too I think cycle times in the industry in terms of vehicle pricing.
Are usually.
Not very dramatic and.
And much longer.
A much longer curve than what we saw during 2020, so as I mentioned.
And we bought inventory in Q3 that we would recondition and sell in Q4, and there was pretty dramatic changes and the pricing environment and so it was.
And the unfortunate that equation.
Hi, and then selling into.
For a softer pricing environment and Q4.
Again.
For what I've seen those cycles are usually not as dramatic and the industry, but obviously it was a pretty dramatic here.
On.
So anyway again and I think.
Car story, probably pluses us here as well with enhanced abilities to analyze the data.
And just make improvements and our inventory management strategy as well.
Thanks.
And your next question comes from Brian <unk> with JMP Securities.
Great. Thanks for taking the call. The question two questions. Please so Paul and I just wanted to ask about the investments that we're hearing around sales and support and.
Definitely and hearing Youre still building this out to get ahead of the curve, but just wondering as you bring logistics or no long hauls in house thoughts about maybe bringing that in house as well that meaning the sales and support side and then on the long haul decision and can you just talk about the benefits you see there.
We saw higher NPS scores.
And last mile and so just talk to us about the decision to bring long haul and house as well. Thank you.
Sure.
You know.
We have been.
Very satisfied with our existing third party.
Our sales team.
And and so scaling that was a natural.
They convert well day, they treat our customers like they are their own and so with that and by the way and our customers love that experience.
So we don't have any.
Burning desire to blow that up and say that we would do that.
Better in terms of the sales support role.
Processing.
Process and transactions itself, we do the vast majority of that ourselves. We will continue to do the vast majority of ourselves and as Dave articulated and we get help to scale on and so I think our hybrid model.
Provide the agility that we need for something that ultimately right with an e-commerce platform will need a lot less of both on the sales side and the sales support side. So.
We like our again, our hybrid approach with with Broom tight management over and delivery of Great service for.
For the long haul question.
Here's how we think about it.
Yes.
It delivers better experience because we take on.
More predictability and the network when they are our trucks they come and go.
And our back and call and we get to control the entire journey from from hub to hub and then for the last mile from hub to customer and so predictability and is great for customer and great for our company and in that predictability and.
And <unk>.
More cars on our own long haul trucks, you start to drive efficiency. So instead of every single vehicle being a one off.
We get the efficiencies and economies of scale by putting 5678 cars on a truck that are all headed to a particular region. So again, we love anything that drives better customer experience and better efficiency and unit economics for the business and so long haul was the natural follow on to last.
Smile and the combinations of that again.
Again efficiencies at scale and outstanding customer experience.
Thank you Paul I appreciate it.
Yes, my pleasure.
And your next question comes from Matt Schindler with Bank of America.
Yeah, Hi, guys, just a couple of questions one.
I think this is just to clear this up for everybody because it's it's not sales because as you said youre very comfortable with the sales function that youre doing through third parties.
And it's not delivery that is slowing and everything done it's customer support and I I've got and multiple questions from investors actually.
That would actually be so if you could walk through the exact processes that you are doing to slowly in order to get the sales that you think you could have gotten.
And then secondly.
Right.
Wanted to go and compare to your closest comp out there and.
And look at this is this quarter and <unk> E Commerce looks roughly the same as carve on <unk> 17.
About the same number of units about the St GPU.
And that point they were growing.
And with about 133% and units.
And what is different about them and them and now and you and.
I know theres a lot of things have changed over those years and the competition has changed and we are in the midst of Covid still but can you just walk through what do you think the differences are and what were they doing differently then.
Finally.
And look a little bit your triple digit growth projections for next year.
How much of that is.
How much benefit will you likely see is from a stimulus checks.
That is going through the market and how would that affect growth and.
I know this is a really hard one because it's actually telling you then start projecting something on kind of 'twenty two how much of a difficult comp if we don't see that in the following year, which seems likely.
Perfect.
Okay.
Let me, let me take those one at a time and and I'm going to give you a sense rather than than then work through a very detailed what what end to end process for sales support.
But here's what I think.
You will understand.
As we are.
As customers move from a I'm interested in that vehicle I've put a deposit on that vehicle unqualified for lending of that vehicle and.
And then you've got to actually complete the transaction, so and some some instances consumers need proof of documentation and there are signatures involved there are wet signatures involved and in some cases and our process.
There are verification of payoffs of loans there are verification of of of lease arrangements from if someone's trading and our lease car. There is a lot of human and intensive manual steps and procedures.
And that are required to complete the transaction.
And because that's a manual process rather than a press button and get deal.
In this space as well as any kind of connectivity into DM vs and things like that.
Anything that is manual and requires high touch human interaction.
That's where.
The amount of deals.
Slows the business and and let me add more context as well.
As we've increased our purchases from of consumer cars.
I would say significantly in doing so that that requires the same amount of Av.
Work and manual work and paperwork.
Net signatures et cetera, calling of banks paying off of loans et cetera as.
And they sell so whether we're buying or selling when both of those go north and both of those have gone significantly north.
In terms of total.
Total transactions and our business.
You need a lot of sales support folks doing that until such time as full automation, which as I mentioned, we're working on so that's like that's where the bottleneck is that's where you've heard we've tripled the amount of people that are doing that and we think that you know.
We're in.
And very good shape, and we continue to invest in that area.
And on the second.
What was different with Carvana approaching for years ago Boy, that's a tough one to take on and we are as you said, we are and are entirely different place. They were they were growing I think you said at a 130% at that time, what I'll remind you is pretty cold.
And we were growing at a 150%.
I think that as our and as.
And our world normalizes and as our inventory normalizes.
Our ability to scale faster.
Uh huh.
What will happen and and I think that that's that's why we're projecting.
Uh huh.
Triple digit growth this year.
And we're very pleased with that growth.
As far as stimulus checks.
Whether it's tax season, whether their stimulus checks when consumers have.
More money.
They often have turned to.
Used cars.
And as a.
A way to either secure important transportation and take advantage of our AV and opportunity of the used car or or just treat themselves.
So stimulus checks or positive to our business.
And.
But what I would say is what's much more important is broadly.
And having jobs stability and the market.
On a more normalized world as it relates to Covid.
That's really environment that we believe will do very well and because of our growth rate, we should be growing through tax seasons and growing through.
One time are now maybe two time macro and then events like stimulus checks.
<unk>, a slow and steady and again triple digit growth business. So that's.
And that's how we think about your your your broad and deep question.
Okay and just finally you just.
Little bit on that and that was striking thing if you obviously tax rebates from the kind of Q1 early Q2 period.
<unk> seasonality and stimulus checks coming in at a similar time should we look for a kind of mega seasonality.
Well again, I don't know the timing of all of those events.
And we've tried to guide to the best of our ability on what we think is going to happen.
Both in the U and the immediate quarter, but also.
On an annual basis, and so that that's contemplated whether those show up in the end of Q1 or whether those show up and you know early Q2, that's contemplated bolt and our our guidance for Q1 and our annual guidance.
Great. Thank you.
Sure.
And your next question comes from Rajat Gupta with Jpmorgan.
Hi, good afternoon, and good evening.
Thanks for taking my questions.
Moving back to the fourth quarter and GPU.
Worsens your original guidance could you help us bridge how.
Much of that disconnect now roughly $300 versus guidance was due to just a higher than expected seasonal depreciation environment versus how much was it due to liquidation.
And and the same for <unk> like how much impact.
Embedded in that guide you to just liquidating inventory.
And I have a couple of balance thanks.
Yeah sure so I guess.
Here's what I'd thought about.
Q3 expectations.
Versus actual Q4 performance so.
We expected Q3 vehicle gross profit.
To go from about <unk> hundred dollars to about 240 in Q4 so.
Our expectation for.
Seasonal.
Depreciation and Q3 for Q4 was.
And let's call it $65 per unit and.
And I think Thats consistent we may have I think we were on the lighter and in terms of expectation.
And it's somewhat difficult as you can imagine to actually quantify.
How much seasonal depreciation was in there.
What I would say is you had significant up for ECA and in Q3, which therefore affects the Q4 depreciation as well.
Anyway, we expected <unk> hundred dollars of vehicle gross profit per unit.
We wound up with $878 a vehicle gross profit per unit so.
$424 difference so if we say.
65 of that.
Was what we expected and normal depreciation you're left with about $360 per unit.
And then.
Some piece of that as is.
So our net accelerated but more than expected depreciation and the balance is a result of low.
Moving aged inventory.
And so.
And that breakout is kind of tough to get.
But that's how we quantify it anyway. So we think Paul at $350 and somewhat related to the extra depreciation and I would tell you the majority of it though.
Is is really from the liquidations.
I don't think that the extra depreciation and Q4 was like terribly significant.
And then I.
I think.
As we look at Q1.
On.
<unk>.
Again, it's a little bit difficult to tell.
How much are we going to.
Or D price age units.
Vs versus.
And it's that that are fresh I think it's much easier to see we're expecting a similar loss.
In the wholesale gross profit per unit.
That we saw in Q4.
As we get through that so I think the retail would probably be similar as well. So hopefully hopefully that's helpful. And you said you had another question.
Just related to that alright, thanks for that clarification, but.
I'm just surprised that you are having to liquidate so much inventory even on the retail side.
And just because.
I mean I.
And I understand that some of it is aging.
The same time demand is just really strong here.
And it seems like you've also raised your shipping fees by roughly 100 Bucks. So.
Curious as to like.
Why the need to cut pricing so much harder to just.
Got it and the NPR because.
You clearly have the capacity to ship the 11000 cars or the what do you and a half thousand garden and <unk>. So if demand is so strong why is why are we what is the need to cut pricing. So significantly that is impacting the first quarter GPU.
And so I think the way to think about it is it's obviously, it's a depreciating asset right. So and there's we have competition and the market. So if we've got inventory that has any interest.
And we are selling against fresher inventory.
That was purchased at different times.
Just becomes difficult for those economics to work.
I think it's it's easier on unique vehicles.
To the demand.
A higher sell price.
But when you when you're when you're retailing.
<unk> thousand 14015 thousand units a quarter Theyre not all unique you know a lot of them are our run of the mill inventory and so youre competing.
Again Steelers and other online players and so I think when that inventory ages.
You have to decrease the price of it.
We purchased it and are in a different environment and we have to adjust that price to the current environment.
But a great demand demand is strong.
And so we've got that built into the into the Q1 guidance.
In terms of the shipping fee change.
<unk> debt to 699 and mid February.
We're nationwide business and so we're shipping nationally and as we've talked about for a couple of quarters now.
The shipping charges from the carriers in the industry has just gotten more expensive.
And so that.
What's the rationale we haven't seen any impact on conversion from raising net shipping price.
And then the way, we think about that going forward as well.
At a greater scale, we start for now think about variable pricing on shipping where consumers can look at a vehicle if it happens to be closer to them we can offer.
A smaller shipping charge.
If its vehicles, thus far away and they just have to have and then we'll charge them a little bit more for shipping. So that's how we think about it.
Going forward itself.
Got it got it just one last one for me I mean, so I mean.
And today.
<unk> stands today I mean, what percentage of that would you say is.
Aged more than what you would like and and by what time of the year are you expecting the backlog issue to resolve.
And the reason I ask that is because.
And there are a lot of underlying positives in terms of you know you've increased your sourcing from consumers.
And your reconditioning cost and just at a lower number for you.
Inbound logistics costs are lower than before so I mean, it looks like once these backlog issues are clear and you should see a significant tailwind just on your underlying GPU levels. So.
And.
And even with the 200% guidance for.
And it doesn't look like you're going to get to what you should be entitled to do so.
How long is this are these backlog issue is going to take to clear out.
That will be on thanks.
And as that and.
And then I think we'll have to wrap that for this question I think that the backlog issues are well in hand, and as I as I shared and and in terms of of the inventory.
Situation look we've guided for in Q1, we then and my prepared remarks material improvement in gross profit in sequential quarters. After Q1, So I think youre connecting all the right dock. This is a Q for Q1.
Issue for both the inventory situation, but also for the backlog, which is what's going to allow us to accelerate both unit economics and topline E Commerce unit sales.
Got it and thanks for all the color and good luck.
Yes. Thanks.
Okay.
And that is all the time, we have for questions. Today I will now turn the conference back over to Paul Hennessy for closing remarks.
Great. Thank you and thanks to everyone for joining the call and special Thanks to all the room employees that yeah that debt continue to keep the trains running on time, Thanks, and we'll talk soon.
This concludes today's conference call you may now disconnect.
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Yes.