Q1 2021 Vroom Inc Earnings Call
Good day, thank you for standing by and welcome to the room.
The first quarter of 2021 earnings conference call.
This time, all participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session two out.
For the questions are in the fashion.
The star one on your choice on it for you.
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I would now like to hand, the conference over to your speaker of today, Mr. Alan Miller Investor Relations officer, the floor is yours.
Thank you Alex good afternoon, and thank you for joining us on group's first quarter 2021 earnings conference call joining us on the call today are Paul and the C Chief Executive Officer, Dave Jones, Chief Financial Officer.
Note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at IR Dot group Dot com the.
The first 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 meanings within the meaning of the federal securities laws, including but not limited to statements about the rooms operations future financial performance. These and other forward looking statements are subject to a number of written.
Uncertainties and other important factors 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 the year ended December 31, 2020 as updated by our.
Quarterly report on form 10-Q for the three months ended March 31, 2021 for additional discussion of factors that could cause actual results to differ materially from those in the forward looking statements. Please note for further that today's discussion.
Including the forward looking statements speak only as of the day of this call and Vroom assumes no obligation to update such statements based upon future developments or otherwise.
The company May also discuss certain non-GAAP financial metrics during today's call.
You can find the presentation of the most directly comparable GAAP measures and a reconciliation of those measures in today's press release and with that I'll kick it over to Paul Paul.
Thanks, Alan and thanks, everyone for joining brooms first quarter of 2021 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.
From executed well on the first quarter, our ecommerce units exceeded our expectations and were up 96% year over year.
Our ecommerce gross profit also exceeded our expectations and was up 123% year over year.
But executing well means not only delivering great growth in units and gross profit. It also means strong execution across our four key pillars of demanded marketing supply and reconditioning logistics and sales and sales operations by focusing on these four key pillars. We are building a strong foundation.
For sustainable scale.
From a demand and marketing perspective, we continue to be enthusiastic about the level of demand that exists in the marketplace as well as our ability to generate demand for our business model.
The demand for both buying cars from broom and selling cars to groom remains high.
We are building of nationwide brand that is increasingly known for buying and selling used vehicles and we're pleased that our continued upward trend in brand awareness.
We're confident that as increased demand flows into our business, we are well positioned to convert that demand.
As evidenced by our growth from Q1 and guidance for accelerating growth in Q2.
From a supply and reconditioning perspective, I'm also pleased with our performance. We believe our current inventory level is sized appropriately and it's healthy for the market.
We not only generated e-commerce gross profit per unit beyond our expectations. In Q1, we also see continued improvement in our unit economics going into Q2.
We are currently experiencing unprecedented market conditions caused in part by shortage of microchips and delays of new car manufacturing, which increases demand for used vehicles, putting downward pressure on supply and upward pressure on pricing.
In this market were particularly pleased to be in a position to integrate and leverage the data and data science teams the car story.
Along with the AI powered analytics.
As used vehicle supply is constrained and wholesale pricing is high and traditional channels.
We're very well positioned to acquire vehicles from consumers and I'm bullish on our trajectory for consumer sourcing.
Over the past three quarters, we've experienced strong sequential improvement in acquiring inventory from consumers, increasing as a percentage of retail sales from 31% in Q3 of 2020% to 41% in Q4 of 2020% to 54% in Q1 of 2021.
Well historically boom has always had a strong mix of vehicles acquired from consumers. We are demonstrating that we have executed well in scaling our consumer acquisitions platform.
Supply will continue to be of focus and area of investment for room, particularly given the uncertainty over the duration of the current supply and pricing market.
We continue to increase both the number of our reconditioning facilities and our overall capacity in Q1, we added five third party reconditioning facilities for a total of 24 and expanded our capacity at many of our existing facilities.
Our hybrid asset light approach the reconditioning continues to provide us with capacity and agility.
We believe that we are well positioned to not only handle our projected 2021 volume, but are also scaling our capacity to handle sales growth and volume in advance of needing it for 2022.
I'm pleased that all of the improvements we've made in terms of capacity quality and cost.
And we will continue to invest to build scale and capacity.
With regards the logistics, we executed well on our rollout of last mile locations. In Q1, we added 10 locations and delivered over 16% of ecommerce units via our last mile service.
We remain on track to achieve our goal of delivering the run rate of 50% of our e-commerce units be our last mile service by year end.
It's rewarding for our customers on our company to see our brand displayed nationally on television in places like the Super Bowl.
But it's even more rewarding when we see our brand displayed locally on trucks delivering customers a great vehicle and of great driveway experience.
We've mentioned our investments in sales and sales support operations, which include investments in people process and test.
We're continuing to invest in people to mitigate bottlenecks in our processes to remove friction and increase sales flow.
And in technology to automate improve customer experience and drive conversion.
We executed well across all three of these areas in Q1.
We hired trained and coached hundreds of new people, we streamlined our processes and expanded our sales capacity and we deploy technology to reduce manual efforts and drive customer experience.
But we still have more to do.
I'm pleased with our current improvements, but not yet satisfied.
We will continue to invest in sales and sales operations for the foreseeable future.
I'm appreciative of all of the outstanding work from all of our employees and our valued third party partners will enable us to execute well across our platform.
In short we are experiencing strong demand record ecommerce sales improving inventory health and unit economics, increasing reconditioning capacity expanded last mile deliveries growing sales and sales support resources.
We are well positioned to the two delivered triple digit ecommerce unit growth and over 200% aggregate gross profit growth in 2021.
And with that I'll hand over to day for further remarks on our financials and our guidance.
Great.
Thanks, Paul.
We reached the new record in E Commerce units this quarter with over 15500 units, delivering 41% sequential acceleration and 96% year over year for us.
Our unit growth was driven by robust consumer demand and improved inventory position and positive response to our increased marketing.
We had over 11000 listed vehicles at the end of the quarter with 35% of those available for immediate sale.
Our inventories on a much better position than it was in the fourth quarter, we feel good about driving inventory efficiency in the quarter and we're now increasing our inventory buys to continue to meet demand.
As Paul mentioned during the quarter, we purchased 54% of the vehicles, we retailed from consumers. This was up from 31% in Q3 of 20 and 41% in Q4 of 2020.
Our days of sale expanded from 77 last quarter to 83 this quarter due to a few factors for.
We continue to work on the queue for bottlenecks and we continue to move the Q4, aged inventory through the system during this quarter.
In addition, the ramping of the consumer purchases added some time to the acquisition process, but were making improvements as we scale.
Importantly, each of the months in the quarter saw a sequential improvement in days of sales and we expect continued improvement in Q2.
As a reminder, we currently target 60% to 70 days the sale.
In Q2, we expect 17500 to 18000 e-commerce units sold implying over 160% year over year growth at the midpoint of the guidance.
We anticipate about 15% sequential growth in units as we grow reconditioning capacity to meet consumer demands, while remaining nimble to adjust to a dynamic environment.
Our reconditioning capacity continues to build as Paul said, we added five new third party VR sees in the quarter, bringing us to 'twenty for total V. Our CS compared to 19 at the end of 2020.
At the end of Q1, we had capacity of about 2300 units per week, implying about a 120000 unit capacity annually.
We believe we're tracking well against our 2021 target of 25 to 30, the Rcs, which would enable us to reach over 50% of U S households, within 100 miles of one of our VR seats.
E Commerce revenue grew 81% year over year, and 48% sequentially in the first quarter to over $422 million.
E Commerce gross profit per unit was $2054 in the first quarter of 2021, demonstrating 14% year over year growth and 13% sequential improvement.
Within E Commerce gross profit per unit, our vehicle gross profit improved.
The improved due to further reconditioning cost improvements and the decline in inventory reserve balances compared to the prior year quarter, which was affected by higher than normal inventory reserves at the onset of the pandemic.
Total gross profit was ahead of our expectations of $36 million up 97% year over year and 80% sequentially.
We expect average e-commerce gross profit per unit in the range of $2500 to $2600 in the second quarter, which at the midpoint would imply over 24% sequential growth from Q1.
We have good line of sight into our unit profitability in Q2, and expect ongoing tailwind from the favorable demand environment as well as our previously mentioned profitability drivers.
Wholesale units increased 84% year over year, and 24% sequentially to 8641 units.
Wholesale loss per unit of $33 improved significantly from $420 in the fourth quarter of last year as the wholesale market was very strong in Q1.
Looking ahead for the second quarter, we expect wholesale units of 7500 to 8000 and gross profit per unit of $800 to $900. As we believe the wholesale market will continue to be strong through Q2.
Looking at TVA units were flat sequentially as our ecommerce business continues to demand fast turning inventory we expect.
The inventory for TVA to continue to be lean in the near term as we focus on scaling our ecommerce operations in a competitive inventory buying environment. However in the long term, we remain committed to building a dedicated inventory for TVA to service the local demand.
In the second quarter, we anticipate 14 hundreds of 1500 TBA units at an average gross profit per unit of 2000 to $2100.
So if we put it altogether, we expect total revenue of 618 million for $640 million and total gross profit of 54 million for $59 million for Q2, implying over 56% sequential gross profit growth and over 600% growth from Q2.
Of last year, which was obviously affected by the pin debit.
Moving on to the operating expenses first quarter operating expense of the expenses of $109 million represented about 18, 5% of total revenue as our higher than expected revenue gave us some leverage.
Our SG&A dollars grew as expected as we built the organization for scale.
To be clear we are intentionally intentionally.
Currently deploying human capital, which is less efficient from an opex point of view as we provide for an enhanced customer experience and efficient sales processing tons. While at the same time, we're investing in technology, which will lead to operating leverage as we scale of the business longer term.
Breaking it down a little further comp and benefits expense grew 40% sequentially to $39 $9 million as we bolstered sales and sales support functions as well as engineering teams.
As I mentioned, we've continued to prioritize building of our customer support teams to help process ever increasing vehicle unit volumes quickly.
We continue to capitalize on our hybrid asset light model leveraging outsourced parties as an additional resource.
We have made substantial progress on the bottlenecks identified in Q4, but we are continuing to invest in our sales support functions to provide the exceptional customer experience that we want for all of our valued consumers.
We know that overtime technology and automation of the solution to a frictionless customer experience and we continue to make progress on that regard.
Marketing expense was $29 6 million in the quarter growing 65% year over year and 68% quarter over quarter.
As a reminder, Q1 included the financial effect of our very well received Super Bowl commercial.
We are pleased with the response to our marketing strategies as average average monthly unique website visits visitors has grown in lockstep with our marketing year over year.
On a sequential basis unique visitor growth accelerated significantly at 54% and year over year at 64%.
Through the rest of the year, we expect marketing investments to remain higher than 2020 levels in dollar terms as we scale, our business and drive increasing national brand awareness.
Finally, our outbound logistics logistics expense grew 46% sequentially in line with E Commerce unit growth and at a similar per cost per unit costs, the last quarter of almost $1000. We.
We expect a similar carrier environment in Q2.
We continue to rapidly build out our proprietary logistics network at the end of the quarter, We had 18 logistics hubs up and running up from eight in Q4, and we delivered over 16% of our Q1 deliveries with our proprietary last mile service.
Customer satisfaction with the experience is high and we remain on track.
To build out 30 last mile hubs and obtain a run rate of 50% of our total deliveries with our proprietary last mile service by the end of the year.
Our first line haul trucks and trailers are arriving this quarter and we're busy planning the launch of our line haul operations.
As mentioned last quarter, we think logistics capex will be up to approximately $10 million for the year.
So overall, we expect 61% of $70 million of EBITDA losses in the second quarter as we anticipate operating expenses at 19% to 20% of total revenue.
We remain on track to deliver triple digit ecommerce unit sales growth and more than 200% year over year of growth in aggregate gross profit for 2021.
Finally, touching on our balance sheet, we ended the first quarter with over $950 million of cash on the balance sheet and of $162 million of availability on our floor plan facility.
As always we have provided comprehensive Q2 guidance on our earnings release.
I'll now turn it back for the operator for questions.
As a reminder to ask a question on you will need to press star one on your telephone keypad again that is star one on your telephone keypad to withdraw your question in the press the pound team for that.
As Tom Bylaw of the compile the Q&A roster.
Your first question comes from the line on for Jonathan.
From JP Morgan Your line is now open.
Great.
Good evening and thanks for thanks for taking the question.
Just had.
For a multi part question on the e-commerce the GPU.
Firstly could you help us bridge.
Either sequentially or versus your initial guidance.
So the what you reported like what changed.
During the last three to four weeks of March.
And then going from the first quarter to the second quarter.
Could you help us unpack the drivers of the on.
The sequential uptake narrow the comments of seasonality.
How much is just the inventory quality getting better or reconditioning efficiencies on customer sourcing mix et cetera.
And then just lastly, like what percentage of operating rent for you today is and.
And would you say is greater than 60 days old.
What was that number at the beginning of the year.
Thanks, Thanks for the question.
Yes, I think when we look at ecommerce GPU the.
The Big story there is.
Is sales margin right, it's a great environment.
I think debt.
When we look at the skill set that we have now with the car story acquisition and obviously our internal.
Data teams and data analysts.
We feel like we've got a lot of horsepower behind <unk>.
Acquiring vehicles.
Obviously in the first quarter, we did a really good job of acquiring vehicles from consumers of 54%. So I think there isn't one thing in particular that I would I would point to in the quarter I think we continued.
Solid product gross profit per unit and so I guess.
Where we saw the most upside from guidance was probably the sales margin as it was a.
Good quarter, and we continued to acquire of vehicles well.
On.
And I think when we think about Q1 going into Q2.
It's similar.
In terms of if we break it down between vehicle gross profit per unit in product gross profit per unit, we continue to make progress in our efforts to reduce reconditioning costs.
We continue to build out the network.
Which as you know naturally reduces our inbound miles helps us with inbound cost.
And.
And obviously sales margin as we continue to get better and better at acquiring vehicles, we continue to acquire more vehicles from consumer so.
And then on the product side.
We continue to implement our initiatives.
We expect to have stability in product gross profit per unit going forward.
So I think when you put all of those things together.
What allows us to now raise our target for.
For Q2 to the 2500 to $2600 of gross profit per unit, we were guiding to.
In terms of inventory like we said.
We are much healthier than we were we had an objective.
In the quarter or two to work our way through the problem of.
Inventory that we had.
We are now we feel like we've got very healthy inventory, which means we've got a good mix of.
Of the aging across the board and we don't have any concerns at this point about about aged inventory.
So hopefully that helps you understand.
Got it just to follow up on the the just the pricing move we have seen particularly on the wholesale side.
Alright.
Obviously, you've been of great job of improving the customer source mix, but you still I mean, there's still a lack of good 45% of.
For your inventory that that come from auction or wholesale.
So with the kind of move that we've seen in wholesale pricing.
Do you think you can pass through all of that into retail or do you.
Or have you baked in.
What happens like if retail pricing may not catch up later in the quarter is that kind of like considered in the guidance or are you assuming that you're able to make up that spread.
At some point in the quarter.
Thanks.
Yeah, so any consideration of that Youre right would be in the guidance. The way, we think about it though is obviously inventory management and turn.
There is no reason to believe that there's going to be a dramatic change in retail pricing.
So I think we're.
We're in the business of buying vehicles on selling vehicles I think if we can.
Hit our return targets and do that efficiently.
There shouldnt there shouldnt be any undue risk in the current inventory.
Great. Thanks, I'll pass it on thanks, Thanks for thanks for taking the questions.
Thanks Richard.
The next question comes from the line of the Mcafee.
Net income.
Your line is now open.
Hey, good afternoon, so with the rollout of concierge delivery and markets like La and Chicago can you talk about expected impact to the customer conversion and satisfaction and.
As in house delivery works its way to 50% what improvements do you anticipate to things like day to sell and GPU as well as lower logistics costs.
I'll take that.
I think first and foremost.
Where we're getting good control over our logistics network because it just fundamentally allows us to deliver a better experience to our customers full stop.
So that that that the strategy and our.
And our reason for getting 2% to 50% and then and that satisfaction ultimately leads to better NPS and we believe over time better better conversion and lower cost per acquisition over time, because customers have a great experience and they talk about it and they come back.
And so that's all the.
The strategic thinking behind.
The the logistics network broadly.
In terms of of cost per acquisition of I should say of cost of running the logistics network.
As we deploy closer and closer to customers as Dave mentioned in his script as we add more of our facilities in close proximity to customers and as we remove network miles.
Sure.
As we deliver both inbound and outbound.
The cost structure improves and that's how we think about it and that's why we're pursuing that so fundamentally you get a better customer experience you get a better unit economics.
Benefit for for the company and then and then we believe.
Debt, you get better cost of acquisition and better conversion, because you're delivering an outstanding service.
Got it and then with the 200% gross profit growth still on the table for the year and I think you actually said at least 200% gross profit growth is this more of a continuation of the upward trends youre seeing in Q2 or do you see incremental second half benefits from things like.
Customer sourcing base to sell you called out reconditioning I am curious if you could talk about the drivers there and then any other internal external.
<unk>, we should keep in mind.
Yeah, we don't we don't give out the underlying pieces, but what what all of what I will tell you is we have a.
We have a good trend.
Saw in Q1 and that trend continued into Q2 or <unk>.
The acceleration of E Commerce unit growth.
<unk> is up into the right and so the the number that we forecasted in our.
In our fourth quarter earnings call on now in our first quarter earnings call of those numbers of the same triple digit growth in E Commerce and 200% in aggregate gross profit dollars that is what we believe is going to happen because that's what our models are telling us as we as we.
Execute on all of the areas of our business from.
All of the pillars that I mentioned on the marketing side certainly on the acquisition side of of vehicles consumers. Obviously plays a large role in that.
Good reconditioning execution as well of scaling and then the same on logistics. So it's all of the contributing factors in and I'll add in and the sales ops that I mentioned in my opening remarks.
As we invest in sales operations again, the business can process greater scale and Thats why we feel good about the guidance that we've given.
Appreciate the time of day.
Yes sure.
Next question is from Alex Potter from Piper Sandler Your line is now open.
Great. Thanks.
So the first question was you mentioned the sort of for areas of execution that you're focused on in the fourth one is that sales and operations.
Step, which in recent quarters has been sort of the bottleneck for you. So I am interested it sounds like you're making some progress there what inning would you say you're in in terms of getting that issue completely addressed and as an external analysts looking at a specific metric to gauge your progress there.
Would it primarily be manifesting itself in GPU in.
Days sales on the inventory or what.
Yeah.
Can't point to one because it quite literally we use the word bottleneck it.
It blocks, both sales flow when you block sales flow inventory can age customer experience can decline cancellations can increase so.
Proving that.
The lifts all boats, if you will there's not a single metric in terms of the inning answer in <unk>.
My opening remarks, I said look we've made improvements you see it in our sales velocity, but.
But we're not satisfied and the.
The commitment to an outstanding customer experience and and the N E. Commerce platform experience. There is no finish line on that so we are we're.
Very committed to getting it right for the for the customers and we're making good progress. So I think what I'd say is we believe we're in a in a good spot with room for improvement.
Okay, Great and then one more on on logistics.
More and more in house I hear you on the 50% target.
Assuming everything goes well. This gives you more control of both on the cost side on the logistics cost side as I mentioned, but also on the customer experience side conversion everything is better.
In theory, assuming all goes well is there any reason to think that assuming it does play out that way.
You wouldn't necessarily want to stop at 50% rather than coming eventually for 100, okay.
Yeah.
We're not slamming on the brakes, we're just giving guidance as far out as we could see on that and we believe that giving giving our customers on outstanding driveway experience that that number will will likely go north in 2022 and when appropriate we'll.
We will kind of give some insight and guidance to that.
But we're just as you can tell that by our first quarter location adds.
We're just we're just starting to job on that front.
Okay perfect. Thanks, guys.
Sure.
The next question is from Sharon Zackfia from William Baird.
Blair Your line is now open.
Hi, good afternoon.
I guess the follow up on the logistics question I mean, obviously.
We've had some as everyone has had some stress in the system from a third party network standpoint over the past few quarters and now you've got the the internal initiatives.
Over time, where do you think you can drive logistics per car I mean, if I look back a few years ago. It was.
South of $300 is that of the level that you can see again in the next.
The 510 years or is there something that will be sustainably elevated now with your own network coming into play.
Yeah, Hey, Sharon.
Thanks for the question I think.
Obviously, we don't give guidance that far out.
We think we can get leverage and logistics.
With the model that we have today.
We've literally just started.
The past few months.
I've personally been amazed that.
How well the team is rolling it out so congratulations to them.
Look I think it's the.
The key components are really customer experience control over the experience.
And that's what we're after.
But.
I definitely do think that theres leverage overtime.
We'll we'll give guidance on that as we get two quarters, where we think we will see some of that leverage, but obviously it to get any leverage it needs it needs some scale.
And so we're at 16% at the end of the quarter on.
On our way to 51 of a much clearer view of that as we as we move through the months here.
Thanks for that and if I could follow up with the finance question within the.
The expectation for the 200% increase or more than that and gross profit are there embedded expectations. The GPU on the finance side kind of go up as the year of Progressive and can you talk about what caused.
Kind of the better pressure of that you saw on the first quarter of year over year.
Yes, so on.
And the guidance, we don't we don't breakout for the product versus vehicle I would say.
We've talked a lot about <unk>.
The initiatives that we have around the product obviously I think we've the team has done a great job improving attachment rates we've seen.
Very consistent improvement in attachment rates over the past couple of quarters, which is great.
I think that the variability that we saw this quarter.
A couple of percentage of a few percentage points so not significant.
There is a lot that goes into product gross profit per unit we've got.
We've got charge backs, we've got profit sharing the estimates on reserves that so theres quite a bit that goes in there.
And then you've got attachment rates on individual product pricing and mix and so I.
I think debt.
We have seen and will continue to see an ace ending products gross profit per unit.
And there'll be some variability along the way, but it shouldnt be significant.
So that's how we think about it.
That's great color. Thank you.
Thanks Sharon.
Next question is from Iran. Hosie from JMP Securities. Your line is now open.
Hi, guys. This is Andrew <unk> on for Ron Thanks for taking my questions I wanted to kind of click on the marketing can you talk about your learnings from the Super Bowl AD and just with your plans to increase brand investments.
Are you seeing the type of coal into your call centers change in other words are you moving from more of kind of a transactional kind of component versus kind of what was historically more educational.
And then I have a follow up.
Yeah, we don't we didn't give out specific details about the performance of the of the Super Bowl, but but I.
I think we said we were.
We're pleased and when I think about composition direct traffic that comes.
Seeking the vroom brand typically converged significantly higher when customers are saying, Hey, I know, what broom offers and I'm seeking to get that service and so conversion is just fundamentally higher versus when they might see one of our cars listed on.
On a performance marketing channel or on the third party listing site or something like that where there they're looking for the car and not necessarily the service. So we continue.
Two.
To spend on brand, we will for the foreseeable future build a super brand so that customers understand exactly what we're offering both on the buy side and on the sell side.
So the customers can transact with us and when they and when they come for after seeing the brand.
They just convert way better so yeah, that's how that's how we think about it and so we'll look for those opportunities to showcase the brand and explain exactly what we have to offer.
That makes sense and then just on the consumer source of vehicle just the consistent step up for the last couple of quarters can you guys just kind of double click into that and kind of help us understand the drivers there. Thank you.
Yeah, I mean look we don't give away the whole playbook, but what I can tell you is that.
We are skilled marketers and we've built a really good good technology platform of data driven technology platform that converts the customers that come in from from the strong marketing. So when you when you fire on kind of all cylinders that way.
Customers the right price.
A good price for their vehicle.
And and because we're making them aware of that for them as a great place to go do that.
We got a lot of appraisals and therefore, a lot of transactions and that's why you see the the ace ending of move as we as we increase our our consumer acquisitions on our platform. So we're just the the truth is we're just executing really well there.
Fair enough. Thank you.
Next question is from Seth Basham from Wedbush Securities. Your line is now open.
Thanks, a lot of good afternoon. My first question is just putting in on the sales margin strength in the first quarter of that drove the upside to your gross profit.
Ecommerce expectations, how much of that was from strong retail market pricing above the expectations and March relative to better acquisition costs than you anticipated.
Yes.
Hey, Seth.
I think that's a tough question because it's it's it's the difference between the two so.
I guess, what I would say is.
We had obviously with the guidance that we gave coming out of Q4 for the for the full year for.
For you.
Which was triple digit units and 200% or more in aggregate gross profit.
We had planned obviously on improvements across the board in vehicle gross profit in product gross profit and what I would say is now through.
The first quarter, we've obviously started to execute on those well.
I think it's it's obviously a good market for all automotive retailers today.
Today, but it's difficult to say how much of it is this great market, which by the way we didn't necessarily know how good it was.
When we gave that guidance originally so I think we're pretty happy that we've been executing on the plan and we think we can continue to do that.
And that's obviously reflected in the Q2 guidance, where we've got.
Further step ups in terms of gross profit per unit.
And so.
We'll just get the work executing on behalf of SB.
We do every day.
Got it helpful color, obviously strong Q2 guidance you Didnt officially raise your full year guidance. Obviously, it's open ended at the top.
And couple of should we be thinking about something a little bit better than you guys were forecasting just in early March.
<unk>.
I think you should be think.
Alright.
I think you should be thinking about it exactly as we've articulated that.
Fair enough and then lastly, just thinking about some of the operational challenges you guys faced last fall and into the winter.
Particularly the race day sales and sales support and extended delivery times could you give us an update on whether or not you've been able to reduce average delivery times and improved net promoter scores over the course of the past six months.
Yes, I mean, we don't we don't share those numbers.
Specifically, but but you can imagine.
When you create a bottleneck and it causes all of the the downstream problems with inventory with delivery with customer experience and then you start to remove those bottlenecks fundamentally we believe that the system improves then again you see that in both the sales velocity and the unit economics.
In the performance of Q1 and the guidance of Q2 so.
We believe that that's headed in the right direction.
Wonderful. Thank you very much on good luck.
Thanks.
Your next question comes from the line of advisor Newmar from Keybanc Capital. Your line is now open.
Hey, guys. Thanks for taking the questions I guess first now that you've had some time under your belt with car story, just trying to understand kind of how it.
How it changed now that you have it in house versus being a customer of theirs, we're able to kind of also keeps kind of your external customers and then as it relates to the customer service I know you guys indicated with the real progress behind it will continue to invest against it I guess when should we assume that you start to get kind of a more normalized customer service level versus where you were last quarter.
Thank you.
Yes on the on the car story integration.
Officially closed the deal in early January and.
Got got to work on on integration. So what I'd say is it's early days, but.
Outlook outlook is great and performance in the immediate term as Ben has been strong.
Again, I won't get into the the playbook of of what we do or how we do it but but we're we're very pleased with results and I think there was a question on on their existing.
Of client list and we continue to.
Maintain and grow their client list as you would expect so yes.
Yes.
As I mentioned, we're very pleased especially in a time of on.
Unprecedented kind of.
Market conditions were glad to have now the combined team of really really strong data folks.
As far as the customer experience again.
We work on that every day and there is no finish line so.
Speed is in our DNA and the faster we can get customers their transaction completed the faster we can get their car picked up the faster we can get their new car delivered to them. Those are all drivers of positive customer experience and we're working hard at that and again as I said, where we're making really.
Strong improvements in that in and still have a long way to go so there's not a there's not a date when we'll call that behind us because we'll always but wanting to go faster and better.
Thank you.
Sure.
Next question is from John comments from money from Jefferies. Your line is now open.
Yeah.
Thanks for taking my questions.
So first I know, you're still guiding to triple digit growth in E. Com unit growth in the E. Comm units for the full year, but I was curious if it makes sense to think about growth on a two year stacked basis for the remaining quarters and in other words should we expect to see unit growth in the back half thats above the first.
For the right given the easier comparisons and I have a follow up.
Hey, Thanks, John.
Yes.
We guide one quarter of the time I think what I would say is.
Now have.
The Q1, actual and Q2 guidance.
<unk> got half of the year.
And so I think if you if.
If you just made.
You guys are obviously going to make assumptions on on how to extrapolate that.
But I don't I don't think it shouldn't be too difficult to.
C of path forward to the.
The triple digit number.
As you can imagine we just don't want to give guidance past Q2.
Okay.
Just a quick one you provided the Q1 guidance with more than two months of the quarter already complete. So I'm just curious what caused the trajectory of E com unit growth to inflect. So much in the last few weeks of the quarter.
Was this a function of being conservative or there was there some other dynamic going on and assuming the last month was better than expected are you seeing continued improvements in E. Comm unit growth. So far in Q2 in Q2, maybe you could just talk about the trajectory there. Thanks.
Yes.
I think.
We always try to be transparent and.
The logical in the guidance that we gave.
I think what you saw on the industry has been an accelerating rate of growth in the retail market.
So I think there was there was some there was more growth than we had obviously the expected.
I think what you can expect from us in terms of the guidance is.
We give you a range and we expect to hit that range.
And that's really as simply as we think about it.
Sure.
Yeah.
So hopefully that answered the question.
Thanks, so much.
Your next question comes from the line of the make Backus from Raymond James Your line is now open.
Hey, guys. Thanks for taking the question.
So on the inventory availability.
There's just a lot of tightness in the market on the used market.
So how is that impacting your sourcing strategy currently and is the tight supply in the inhibitor of capacity at this point.
And then I had a follow up question after that.
Yeah I guess.
Here's the way we see it.
The 15 consecutive.
Weeks of Ace ending wholesale pricing.
<unk>.
And of fundamental reduction.
In in supply in traditional channels and.
And by the way.
The precedented demand for those vehicles.
Julian including the rental car companies historically large sellers of used cars are now actually large buyers of used cars. So you've got this you've got this.
Massive.
The market situation.
That's unfamiliar and that's why I think.
In my opening remarks.
I said, how great I feel about being able to buy cars from consumers at the rate that we're buying cars from consumers for all of those reasons.
And there, yes, it's constrained and we think we're well positioned to deliver the the second quarter that we've guided as well as the the annual numbers that we've given.
Yeah, we believe we're well positioned to execute.
Got it.
And in terms of the customer sourced penetration.
Obviously thats continuing to go up.
At 54%, where do you think that can get to over time do you have a specific target there.
Over time and can you just remind us the.
The incremental profitability on the customer sourced vehicle versus a one from from option or otherwise.
Yeah on the first question, we haven't planted some some number that we think is the right number like <unk>.
70% or 75%.
We think it's smart to be able to leverage of buying cars from consumers. There. It's a large market its massively fragmented and we're pretty good at it. So we're going to continue to drive that number as appropriate.
Yet we will be opportunistic.
Wherever we see the right car at the right price.
We will buy those those vehicles and make sure they're available for our for our customers. So.
Broadly that that's how we think about we're not we're not setting a we're.
We're not setting a target as far as the unit economics.
Weighted I'll answer that is it.
It broadly depends on the market and we're in a strange market.
Typically it's bounced between $500 and $1000 in total value that's an improvement of the car.
Purchase from a consumer versus the wholesale car, but again, that's where the massive aspects of.
What are the one of the broad market conditions at the time.
Thanks very much.
Sure.
Your last question comes from the line of Naphtha from true Securities. Your line is now open.
Yeah, Hi, Thanks, a lot of just a couple of questions.
So just curious to know.
How you plan to ramp up of the units from the credit thousands of that you have.
To get to the.
The midpoint of the unit sales of do have put the second quarter do you think you on at the appropriate level of our.
You need to ramp up significantly and then.
I had a funnel of cushion on the on unit economics.
Sorry, I just wanted to make sure. When you said the 5000 units that we have I just wanted to make sure I understood.
That number.
Yeah, you bet, so I think the view.
You gave out of the readily available units.
The bill for sale.
And.
The way do you think do you need to be too.
To get to the unit sales that youre targeting for second quarter.
Got it.
Yes so.
Look we've got the.
And the.
Our inventory turns very quickly right. So as you know we've got the components of inventory on our website. Some of it is available immediately for someone to purchase.
Some of it is.
Allocated to customer already and then you've got a bunch of thats coming soon and that moves pretty rapidly.
Each day.
The way what I would say, though is yes, we're very comfortable with the level of inventory today and thats what it.
Allows us to give the guidance that we gave for Q2 so.
If the numbers work.
Yeah.
Got it and then maybe quickly on the on the GPU of the gross profit per unit on the E Commerce.
Unit.
Q1.
They play of just what the fourth quarter and the first quarter for obsolescence.
The other two Howard in Q4 on the reversal you had in Q1, it looks like sequentially the vehicle GPU per.
Unit actually went down.
Is that the right way to look at it or am I missing something I just wanted to run it by you.
Yes.
Don't break out the components of the unit economics so.
Sure.
Like I said there is there is more we have to take more of an inventory reserve.
The.
In the first quarter of last year because of the instead of the pandemic so that debt.
That depressed the vehicle gross profit per E Commerce unit in the prior year.
And there was obviously you didn't have that in the current year. So that's one of the factors that go into it.
And that combined with some some efficiencies in reconditioning is what gave us the improvement.
And again, we don't break out the all of the components of unit economics, which is try and give you of senses to what what's driving it.
Got it thank you.
Thank you.
You don't have any of my question Sandy sign for Sanchez you May continue.
Great well, thanks, again to all of our room employees.
Round the country for doing such an outstanding job and excellence in execution in the in the first quarter and thanks to everyone for joining the call.
This concludes today's conference call. Thank you all for participating you may now disconnect.
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