Q2 2021 Vroom Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the second quarter 2021 earnings call earnings call. At this time, all participants lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask questions. During the session you will need to press star one on your telephone.
You require any further assistance please press star zero.
I'd now like to hand, the call over to your speaker today, Mr. Alan Miller head of Investor Relations. Please go ahead.
Thank you Blayne.
And welcome to bring in the second quarter of 2021 earnings conference call joining us on the call today are called Hennessy, Chief Executive Officer, and Dave Jones, Chief Finance Financial Officer. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at IR Dot Green Dot com the second quarter.
Earnings release is also posted to 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 risk.
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 June 30th 2021 for additional discussion of factors that could cause actual results to differ.
To differ materially from those in the forward looking statements.
Please note further that to say that todays discussion, including the forward looking statements speak only as of the date of this call and room assumes no obligation to update.
Such statements based upon the future developments or otherwise the company May also discuss certain non-GAAP financial measures. During today's call you can find a presentation of the most directly comparable GAAP measures and a reconciliation of those measures in today's press release and with that I'll turn it over to Paul Paul.
Thanks, Alan and thanks, everyone for joining group second quarter 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 great customer centric public company.
Jerome had an outstanding second quarter.
We executed well and delivered on our strategic goals and against our guidance.
E Commerce units once again exceeded our expectations and were up 172% year over year.
E Commerce gross profit per unit was up 153% year over year, and up 32% quarter over quarter to 2000 and $718.
Also in the second quarter from completed a 625 million convertible note offering further strengthening our balance sheet and bringing our cash balance almost 1.5 and at the end of the second quarter.
Hey, Bill.
In our four key pillars of demand supply and reconditioning logistics and sales and sales support operations. While also continuing to invest in advancing the end to end broom platform.
Demand for the room model remained strong we continue to invest heavily in our brand and are seeing encouraging results in demand generation conversion purchases and sales in the immediate term as evidenced by our performance in our second quarter and third quarter guidance as well as improvements in brand awareness for longer term evidence things sustain.
Double demand generation we.
We're well on our way towards building room into a national brand and a household name.
I can't say enough.
On occasion on high side of our business. We've gone from 11280 units listed at the end of Q1.
13676 units listed at the end of Q2.
We grew those units in a very constrained market.
Proved our inventory turns and grew our unit economics.
All of that was enhanced by rooms integration of car story.
Our now combined data driven team is buying the right cars at the right price and moving them quickly.
Importantly, <unk> continues to excel in its ability to buy cars.
From consumers retail vehicles sold that were sourced from consumers with it.
Just then in the second quarter up from 54% in the first quarter.
We have demonstrated we know how to buy from consumers in addition to marketing and selling to consumers and the benefits of purchases purchasing from consumers is enhancing our unit economics.
Buying cars from consumers nationwide and at scale will be.
Continued focus of investment and a continuing area of expertise.
Our reconditioning capacity and used to scale as we leverage our hybrid asset light approach, where both expanding our G. H.
And our total capacity, we opened another five third party reconditioning facilities in the second quarter and now have 29 total VR season across the country. We are tracking well ahead of our annual plan for up to 30 locations by the end of 2021.
Our reconditioning capacity in the second quarter was 2800 units per week up from 2300 units per week in Q1.
As we continue on our network.
And leverage.
The conditioning capabilities, we intend to also be.
And geographically strategic about adding additional room owned reconditioning centers into our integrated hybrid network we.
We feel confident in having enough planned capacity not only for 2021.
'twenty 'twenty two as well.
Our logistics team continues to execute well.
Our last mile team added an additional seven last mile locations and delivered 26% of ecommerce units via our last mile service this quarter.
We are tracking well towards our annual goal to exit the year covering 50% of total deliveries on a run rate basis with our proprietary last mile service.
We remain enthusiastic and our rollout as our overall customer experience is enhanced.
When one of our team members personally delivers the vehicle to our customers.
We are in the initial phases of rolling out our line haul capabilities and are confident that when we combine line haul with our last mile services and continue to expand our geography.
In both logistics and retail.
Whose miles from the network when we remove miles from the network costs go down unit economics go up and the customer experience is elevated.
Logistics fleet expansion will continue to be an area of increased and accelerated investments as we drive long term operational efficiencies.
And leverage.
With regard to our sales and sales support operations as discussed last quarter. We've continued to invest in people process and tech and I'm pleased with the work that's been done.
Our teams are processing record breaking transactions both in purchasing vehicles.
Ken.
To consumers.
Christmas.
Yeah.
Okay.
Okay.
And e-commerce platform to remove friction from the transaction and at scale remove costs.
We are committed to investing in our end to end ecommerce transaction processing to provide a world class touchless transaction for both buying and selling vehicles and are well on our way towards that goal.
Financing and value added products are fundamental components of our consumer value proposition. Our teams have done an outstanding job in lining up world class lenders and service providers to offer vehicle financing across the credit spectrum and address the diverse value added product needs of our customers.
Consistent with our hybrid asset light approach, we intend to be strategic and opportunistic as we evaluate strategies for providing proprietary finance products.
I'm proud of the strong execution that our teams alone.
Quarter and equally proud of the strong financial results, it's clear that consumer.
Model and the room platform is high for both buying and selling vehicles.
I'm pleased that the way in which our hybrid model scaling across all four of our key pillars of demand and marketing supply and reconditioning logistics and scale.
And I'm encouraged as our e-commerce and data science platforms are increasing automation and reducing friction to deliver an improving end to end experience for our customers.
We've navigated some tough markets since we went public a year ago first the shutdown and difficulties caused by COVID-19 than to several phases of resurgence of COVID-19 throughout the pandemic.
Then an incredibly hot used car demand and pricing market.
Looking ahead, we believe the pricing market has crested and is starting to normalize.
The implications of that movement from a high pricing to a more normalized state is that it puts pressure on our retail and wholesale gross profit per unit in the immediate term, which is reflected in our Q3 guidance.
We are well positioned to navigate a more normalized market and remain confident we will deliver triple digit year over year growth in our e-commerce units and 200% year over year growth in aggregate gross profit this year.
We will continue to invest aggressively for the foreseeable future in brand building and our people in our e-commerce platform and our supply chain and in our products and services as we seek to continue to scale our business.
Serve our customers well deliver a sending aggregate gross profit and deliver long term operating leverage.
And with that I'll hand over to Dave for further remarks on our financials and our guidance Dave.
Thanks, Paul Good afternoon, everyone.
E Commerce units grew 18% sequentially in Q2 to just over 18000 units and grew over 170% year over year.
We drove strong unit growth by matching robust consumer demand with increasing levels of available inventory at a faster clip.
So as Paul mentioned at the end of the quarter. We had nearly 13700 listed vehicles on our website up 21% from first quarter levels.
40% of that inventory was available for sale up from about 35% in Q1, as we work to meet demand.
We are confident with.
Planned capacity to meet our medium term unit sales goals and we're working hard with our third party reconditioning partners to increase the velocity of our throughput to get our listed inventory to a level that can provide upside to our unit sales targets.
Our reconditioning capacity continues to scale as Paul mentioned, we opened five new third party VR season, the second quarter, bringing us to a total of 29 locations across the country.
That puts US ahead of our schedule on our 2021 goal of up to 30 Vlccs that we've discussed previously.
We delivered faster inventory turns this quarter with ecommerce days to sale of 68 versus 83 in the first quarter and within our target range.
Our inventory efficiency accelerated every month of the quarter as we lean further into consumer source vehicles, which typically turn faster.
We also benefited from our ongoing national brand and performance marketing initiatives with higher viewership on our web site and increasing brand awareness.
Looking into the third quarter, we expect sales of 20000 to 20500 e-commerce units, implying 130% year over year growth at the midpoint.
This implies an 11% sequential growth at the midpoint as we capitalize on our operational strengths, while balancing our profitability targets and what we expect to be a normalizing retail market.
We expect e-commerce average selling price to remain higher year over year as market prices continue to trend above 2020 levels.
Turning back to results E Commerce revenue grew 37% sequentially to nearly $580 million or up nearly 230% year over year.
Comparisons to the prior year are not as meaningful as the prior year's quarter was significantly affected by our response to the onset of the Covid pandemic.
E Commerce gross profit per unit reached $2718, 32% higher than in Q1.
Digging deeper into the drivers both vehicle and product gross profit per unit expanded sequentially.
Vehicle gross profit per unit increased sequentially, 38% or $436 per unit to nearly <unk> hundred dollars, primarily driven by improved sales margin from a favorable pricing environment increased consumer source vehicles.
And further improvements to our pricing methodologies as a reminder, we define sales margin as the selling price of the vehicle less the purchase price.
The 436 dollar improvement in vehicle gross profit per unit quarter over quarter was despite a headwind of increased inventory reserves simply as a result of our increasing inventory position.
Gross.
Products gross profit per unit of $1131 also expanded $228 per unit sequentially, 25% improvement due to increased product attachment rates and to a lesser extent an increase in the average loan size.
For the third quarter, we expect e-commerce gross profit per unit in the range of 2000, and $350 to 2000, and $450, which is a 10% year over year data at the midpoint.
While we expect to continue building out our strategic profitability pillars, we ignore the used car retail pricing environment.
It will likely provide less of a sales margin tailwind in Q3 than in Q2 as the market shows signs of normalizing.
We anticipate quarter to quarter variability and remain confident in delivering over 200% total aggregate gross profit growth for 2021.
Wholesale results were strong this quarter units grew 16% sequentially to just over 10000 in wholesale gross profit per unit reached $850 up significantly from a loss of $33 in the first quarter, we're happy with the higher margins that we've had on our wholesale unit sales to a very robust.
Wholesale pricing environment.
As we head into the third quarter, we anticipate 9000.510500 wholesale units and per unit profitability at $50 to $100 per unit.
While we continue to drive fundamental improvements in our wholesale strategy, we expect that the extraordinary pricing tailwind in the wholesale market will moderate in Q3.
Our increasing consumer sourced vehicle purchases also affect wholesale gross profit per unit.
We offer customers an easy online submission of basic vehicle information to get a real time price for their vehicle and we pick that vehicle up sight unseen.
Our customers Love this game changing process and it drives some of the highest NPS in our business.
As a result.
Some of the vehicles that we purchase for retail sales did not wind up meeting our retail criteria and are ultimately sold in the wholesale market, which puts downward pressure on overall wholesale gross profit per unit.
As we expand our last mile network, and we're able to pick up a majority of our consumer source vehicles with a broom employee and equipment.
It'll give us the opportunity to inspect every vehicle and make real time adjustments to acquisition prices. We believe there is upside to our current wholesale gross profit per unit as we scale our logistics organization over time.
Yeah.
TVA units of 1580, <unk> decreased 11% sequentially as we've said in the past our top priority is scaling our ecommerce operations, which drives transient pressure on TCA is the e-commerce business consumes local inventory.
In the third quarter, we anticipate 1550 to 1650 units and per unit profitability of 1650 to $1750 per unit.
On a consolidated level for Q3, we expect $858 million to $891 million in total revenues and 51% to $56 million in total gross profit.
Operating expenses of $124 million grew 14% sequentially as Paul mentioned, we're pleased to have a very healthy liquidity. After our successful convertible note offering and we're excited to deploy that growth capital to deliver the top line results. We saw in Q2 and that we're guiding to in <unk>.
Q3, as well as building for the long term future of our high growth organization.
We are making simultaneous investments in people and third party support for the medium term growth as well as in technology for the long term growth.
Within Opex compensation expense of approximately $51.8 million grew 30% sequentially as we invested heavily in our sales and sales support teams as our business rapidly expands in both selling vehicles and buying vehicles for consumers.
The massive growth, we've driven and consumer source vehicles is proving to be very beneficial to our gross profit per unit.
We will continue to build the order to support those efforts for the long term benefits of the business.
Logistics expenses of $20.2 million grew 33% sequentially driven by growth in e-commerce units and higher market rates from our third party logistics providers. This is another area of simultaneous investments that will result in a tremendous transformation in our customer experience and.
In the long term, we believe we will obtain significant significant leverage from an expense point of view.
We are racing at building out our proprietary logistics network and very pleased that we were ahead of schedule, we launched seven new last mile hubs in Q2, bringing our total to 25, we also delivered 26% of our ecommerce units with our last mile services up from 16% last quarter.
We are confident on hitting or exceeding our goal of 30 last mile hubs by the end of the year, which would allow us to service at least 50% of total vehicle deliveries.
Our first tranche of old line haul trucks are fully online and running and we're also accelerating our build out this important piece of the of the logistics network given the acceleration in our strategy. We now expect logistics capital expenditures to be about $25 million for the full year.
First is our prior expect expectations of about $10 million.
Marketing expenses decreased 21% sequentially to $23.5 million of elevated levels in Q1, when we launched our Super Bowl campaign. However, we continue to make other national and performance marketing investments that drive brand awareness as a result, we continue to expect higher levels of marketing.
Spend sequentially.
As I mentioned, we have simultaneous investments across many areas of the business as we work on our asset light model to build a more leverages <unk> structure for the future. We believe our current investments are needed as we continue to deliver the huge top line growth that will ultimately get grown to profitability, our third quarter guidance.
Implies approximately $6800 of Opex per retail unit.
Which is reflective of our continued investments across the business, including investments in marketing as we build the room brands as well as investments in both variable processing costs and the technology to reduce or eliminate those variable costs as we transition over time to a more digital business.
We believe that level of investment will be similar through the balance of 2021.
We continue to be on target to reach healthy triple digit unit triple digit ecommerce unit growth and over 200% total gross profit growth for 2021 incorporated into our annual guidance reiteration is our expectation.
For unit two sequentially builds for both quarters in the back half of the year.
Lastly, turning to our balance sheet and liquidity, we ended the quarter with nearly $1.5 billion of cash on our balance sheet and $86 million of availability on our floor plan facility.
Operator, we're ready for questions. Thank you.
Youre welcome Sir.
As a reminder to ask a question you will need to press star one on your telephone to.
Withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Your first question is from now that kind of Trust Securities. Your line is open.
Yeah, Hi, Thanks, a lot.
A question so maybe just on the.
On the GPU metric for the second quarter.
How much of it there then was the strong pricing environment, which is their own expectations.
Contributing to the upside and as we think about Q3.
I think you talked about home prices.
Might have peaked.
Should we think about the entirety of the quarter should we expect pricing to come back down to.
Oh, maybe Q4 levels do you want them and how should we think about diagonal vector GPU is not a follow up.
Great. Thanks for the question.
Young how much of the gross profit per unit was was environment.
I think the way we think about is that that is we gave guidance at the midpoint for Q3 of $2400 a unit.
Versus the 2700 and actual in Q2. So it was a 300 dollar difference there part of that.
Moderating pricing environment and part of that as is normal seasonal.
So where we are in the year, so it's difficult to quantify the two.
But I think what's important to notice we're really pleased with the structural improvements we have made to gross profit per unit this quarter.
Higher consumer sourcing.
And better pricing methodologies with the benefit of having car story are really the key drivers there and that's how we think about the structural components in terms of average selling price and market pricing going forward.
Again difficult to predict how and when it's going to change I think we've we certainly see in the.
Industry graphs that.
We've kind of peaked on both wholesale and retail pricing and we see that starting to come down now we don't think it's going to fall off a cliff, we think it'll be more gradual and manageable.
And obviously the our intent there is to manage our inventory to keep turning it quickly.
And we should be fine to manage through a decreasing pricing environment.
Thanks Danielle.
Yes.
Just I know the answer to my question. So just wanted to double click on that answer.
If I had to think about <unk> GPU across the board.
With pricing, maybe not coming down substantially then.
Would it be.
It looks like.
It's fairly conservative, especially as I look at wholesale 5200 versus a.
Q2 was is there a concentration of their audit work.
How should I think about it.
Yeah, No look I think I won't comment on whether they are conservative or not I think we use our data and our and our best knowledge to predict.
The market is going to go in the quarter and how we're going to react to that obviously.
Point in time, we know the inventory we have on hand to sell.
We have you know.
A good estimate of what we think the average selling price will be.
But similar to everybody else in the industry I think.
It's difficult to predict but.
We've got the best data in the industry and we use that to the best of our ability to figure it out.
Yes makes sense.
A question I had was just on CAC it looked like.
The CAC customer acquisition cost in the last quarter. It was probably one of the.
That's where you have most of the most efficient.
Sustainable is that how much of that is a strong demand versus your own.
Are they getting more efficient.
Yeah.
I'll take that one I think what Youre seeing is you know continued an improvement in all aspects of the marketing side of the house that the marketings are starting to get more efficient as you do.
In my in my opening comments I heard in my opening comments.
We're building a brand and and chasing brand awareness and that's starting to build as well and then we're converting better and when you price in turn inventory quickly that helps drive conversion as you increase units available for our customers that's contributory to conversion and so what.
What I think youre seeing us structural improvements in our business.
And then the output of that is improving CAC.
What I'm not going to say is that the.
This is the highest that you'll ever see it as we continue to invest in our in our business and I think youre seeing structural changes.
<unk> come out of good performance.
Thank you.
Sure.
Your next question is from Zach Friday of Wells Fargo. Your line is now open.
Hey, good afternoon.
Can you talk about the metrics that you track internally to measure the customer experience and when you think about all the new initiatives that you've put into place like adding customer service reps acquiring car story and then taking last mile delivery in house curious if you could talk about how these experienced in metro.
Rates are trending and to what extent, you're seeing any underlying improvement.
Yeah.
We like most of our competitors in this space you know measure from top of the funnel too to the bottom to kill the car in the driveway.
With with all sorts of internal metrics that that contemplate both satisfaction.
And speed and not surprisingly speed is a is a big driver of satisfaction and NPS is trending up.
And so that's very encouraging for US is it's trending up overall and is trending up in our specific categories of both delivering.
Delivering vehicles to consumers and and buying cars from consumers. So the trends are good and look I think all of you have seen what happened when we had bottlenecks in our business what that does to speed what that does to satisfaction and what that ultimately even does to our to our gross profit.
<unk> per unit.
And we didn't have any of those negative issues really going on in Q2. So this is a a perpetual point of investment for us because were growing so fast and as we bring in more and more demand into the franchise and buy more and more cars that continues to put stress on the system, but as we said.
We're investing heavily to get.
To make sure that our customer experience.
Again from top of the funnel to the bottom of the funnel is outstanding and we're making really good progress there.
Got it and Paul you've you've changed your tune a little bit around owned reconditioning centers I'm curious if you could talk about what's what's driving the pivot here and is this a read on on your preference for in house Reconditioning versus asset light and then is there anything you can share in terms of the <unk>.
<unk> and timeline any extra color there.
Yeah, and let me, let me first start by pushing back and saying I don't think we're changing our tune. We we've had a hybrid approach to to reconditioning, we've got our own factory.
That we've that we've had.
Many many years that we built the business on top of and then we expanded into third party and we've always said that we would be opportunistic about.
In the right locations at the right time for us.
To build a very big business.
That we would we would be thoughtful about that and reconditioning.
So that the the tune is the same.
We're now planning on is when do you need.
To do that and what we.
We need to do that and as I mentioned in my comments, we feel great.
Here, we feel very good about our capacity for 2022. So now we're gonna be thoughtful about the integration to our to our hybrid network of additional recon capacity because in the end that at real scale.
Our growth is going to need lots of capacity and you know we see that in some of our competitors. So.
We'll leverage the speed and scale and quality of our existing third parties and then we'll be smart about adding our own and since they're all integrated we believe that's going to that's going to drive both experienced up and and capacity.
That makes sense appreciate the time Tonight.
Yep. Thank you.
Your next question is from Ron Josey of JMP Securities. Your line is open.
Hi, guys.
<unk> on for Ron Thanks for taking our questions.
Paul.
We normalize it was kind of in the back half of 'twenty, one and likely into 2022.
Asps kind of bounced around over the last two years, where do you think customer demand is going to point you guys is it going to be more towards the $20000 level or more towards the $30000 level.
In a more normalized environment I have a follow up.
Yeah, I'll I'll answer that one quickly.
All of the Asps across the industry have gone up we think that that over time comes back down but we've been.
We've articulated since our public offering that over time at scale, we think that ASP.
It goes down into the low $20000 range.
That we're sticking with that story, we think that's where the.
The largest intersection of of demand.
Supply will be and and and where we'll be headed that way at at scale and you know we started our business with you know.
Single reconditioning facilities and that warranted that we have large <unk>.
Asps.
Now as we're approaching 30 locations across the country that allows us to operate at lower average selling price. So we think that there's it goes up and will come down but over time had to where some of our larger scale competitors are which is in the low 20000.
Thanks, That's great and then you talked about the last mile networks benefit to vetting of cars that you guys are purchasing from consumers.
Can you talk a little bit more about that and just the overall does that improve also the buying proposition for consumers that you guys called out that last mile network as well like what are the other benefits. Thank you yeah I think that's the big one is.
Driveway inspections allow us to accurately price the car when we actually see them you know the beauty of our model is our customers still out a few pieces of data we buy the cars fundamentally sight unseen and then and then and then inspect them at a point.
Later in time and the longer that that time takes to bring that into one of our facilities the more potential risk on our business now that we're rolling out last mile. We can inspect in short order and like our competitors adjust pricing.
On the vehicle.
Based on on its merits and look sometimes.
Occasionally we'll see a vehicle come in that doesn't.
Our retail bank.
And just the thing is in his comments and if it doesn't meet our retail standards or it doesn't.
Meet our safety standards.
We're not going to put at it we're not gonna listed on our retail website.
Website customer safety first and and so that's how we think about it the benefits for last mile or many others.
Uh huh.
You know both on the delivery side and the pick up side.
Paul is there any way to quantify that in terms of kind of cars that you guys would reprice that may flow through to GPU for wholesale.
Oh, let's see.
Yeah.
We haven't done that work on a well.
How to how to quantify it at anything that we thought through in terms of buying in the high priced market currently and then.
Moving that that inventory in Q3 is reflected in our guidance and that's as far as we've gone on the wholesale side.
Yes.
I would say too sorry, if your question was more around quantifying.
How many of those consumer vehicles that we get that ultimately wind up in the wholesale channel.
Without going into like the granular detail on it.
One is it's reflected in the guidance.
And two in the overall wholesale gross profit per unit.
And Thats really combined with what we think will be and what we think we're seeing is a decelerating wholesale pricing environment. So that's what we've planned for.
But again you know all included in the guidance range that we gave for wholesale.
Great. Thank you guys.
Your next question is from Christopher Hillary et.
<unk> Your line is now open.
Yes.
Hey, guys. Thanks for taking the question.
So you're the first one is on the financing business can you elaborate more there.
Do you have the personnel and data internally to kind of build up in the ground up or would you likely look to do kind of like a partnership somehow or just acquire something outright just kind of want to get a sense for the gamut.
You know where you can do with the financing business.
Yeah, Great question.
I chose the word opportunistic anywhere.
It also isn't not surprisingly one of the things we think about it.
Versus buy and and but he's here should be the takeaway.
We're at the size and scale, where a N.
And level of execution, where we are prepared to starting engaging.
And you know proprietary lending and will be really fun.
To that end.
As that starts to present itself.
<unk> will be out in more detail will be out there sharing those details, but but right now we're just comfortable thing.
We think it's time to to offer our customers you know that.
We're going to engage in that.
Gotcha Okay.
That's helpful and then I wanted to ask more about the.
I guess the wholesale I think you referenced kind of like your view of the marketplace is that anybody who has some different pieces, but.
You referenced that you're expecting for using manheim.
<unk> guidance, you expect used car prices start rolling over but then it actually looks like your E. Commerce Asps are increasing relative to Q2.
Can you just give us some sense for like kind of like how do you kind of triangulate. Those two is it where you're already on the balance sheet today the prices rose towards the end of the quarter and you're going to sell those in July or just some sense for why asps are rising sequentially versus the overall used car pricing environment declining sequentially.
Yes, Chris I'd say, but what I would say is we have a lot of that inventory in house already if you think about our 68 days to sale.
We've we've got a lot of that inventory and process already and so we kind of know what that average selling price is going to be so I think as we're buying in August and September it's really for Q4 sales and Thats where.
You know the nuances of managing the inventory commitment we want to continue to push on turning it quickly.
You always we always want to be selling in the same market that we bought in gen.
Generally the cycles in this business are fairly long.
But recently, we've seen them accelerate a bit.
But again, we don't we don't expect wholesale pricing retail pricing to fall off a cliff we think it's kind of a gradual change.
Got you Okay. That's helpful picks us.
Yes.
Yeah.
Your next question is from Sharon Zackfia with William Blair. Your line is open.
Hi, Good afternoon, I think my first question would be the easiest one you've had Oh I'll call. Paul Your line was cutting in and out I didn't get the percent that you sourced from consumers.
In the corner.
65, I think up from 54.
65, Thank you and then secondarily I guess it would be helpful and that kind of unpack some of that sequential increase in your SG&A, which I know you alluded to and I'm wondering as well within that increase are there preliminary investments related to the idea of.
Kind of starting to move into a proprietary financial solutions for your customers.
Hey, Sharon.
Can take that so.
And you you're talking about sequential Q1 to Q2.
I'm actually sorry, I should've been more clear I'm talking about the implied guidance for Q3 versus Q2, because I think the G&A per week is up more than 50% if I'm not mistaken.
Gotcha, Yeah, so what we're thinking about going forward again, we talked a lot in the script about.
Investing so I think.
If we think about it in.
Opex per unit right. So we've been as you know investing quite a bit and people in the sales and sales support functions.
And so a lot of our comp and benefits at this stage of life are pretty variable.
So I think as we think about the Q2 Q3 estimates.
We would expect a similar comp and benefits per unit number two.
Q2, maybe up a little bit as well.
But we've hired a substantial number of people in those areas.
And we'll obviously keep ourselves at that level and service attrition.
In terms of marketing I think we talked about about cash check was good in the in Q2.
We will continue to step up our marketing efforts.
In Q3, so we'll have some increases their occupancy costs are relatively fixed as we've talked about before we've taken on some additional space one for growth, but to for Covid as we have to distance people.
And so we've got some additional space that we probably otherwise wouldn't have.
But some of our occupancy costs are variable as well as we leverage third parties to to store a lot of our vehicles around the country or or better said prepare them for shipment to customers around the country.
Hmm.
Logistics per E Commerce unit were about $1100 per unit in Q2.
We'd expect that to continue into Q3.
The way to think about that as a majority of the logistics cost per unit today are still third party.
As we are building the logistics organization.
You see those people show up in income from benefits right all of the management.
The drivers the trainers the compliance people that all shows up in health and benefits will show up in logistics is is no maintenance fuel things like that so but the majority of that is still a third party today on the logistics line. So I would expect that to not change too much.
And then in our other line that is fairly variable as well in there we've got things like software licenses that are head count.
You know that are based on head count so as we continue to increase head count.
There's variable costs in there and this is just like a lot of other variable costs.
Associated with increases in e-commerce units so.
We said, we would expect about $6800 of Opex per retail unit.
In Q3, and we expect to see a similar result in Q4.
And then we obviously or look towards the future to get leverage on that.
Past that point in time so.
So hopefully that's helpful.
Yes that is really helpful. I don't know if you answered it though are you or you're already spending against the idea of launching.
Your own proprietary financial solutions.
Yeah, No I would say.
Anything around that as you know income sequentially at this point.
Okay. Thank you.
Thank you.
Your next question is from SEC, but ration of Wedbush. Your line is open.
Thanks, a lot and good afternoon, I was hoping you could clarify for us exactly how much of your sequential gross profit per unit improvement on vehicle E Commerce.
From <unk> was from each sourcing from customers and your improved pricing methodology.
Hey, Seth.
Yeah again, I think it's really it's difficult to figure that out right.
Because if you think about the way we measure sales margin, it's a pretty simple equation, what do we sell the car.
Vehicle for what we paid for it.
But inherent in that.
There's a tailwind from a good pricing environment.
There is consumer sourced vehicles and theirs.
Our pricing methodologies and the data that we used in the data expertise that we have.
What I can tell you is we've historically said that consumer sourced vehicles will generally deliver 500 to $1000 more.
Sales margins and other sources that was true in the quarter.
And so we still see that.
That benefit from consumer source vehicles, and that's why we continue to to race at it because it's it's significant dollars.
And so.
That's how to think about it but it's.
We'd be guessing if we were trying to figure out how much is the environment there and how much is from you know.
Other changes.
Got it and then my follow up is on your implied guidance for the fourth quarter as it relates to E Commerce, GPU and specifically any color on the selling margin dollars. It seems like it's probably about flattish from the third quarter fourth quarter guidance.
Seasonally we usually see weaker trends in the fourth quarter versus the third.
Can you help us understand how you're thinking about the fourth versus the third quarter in terms of selling margin dollars.
Yes, I think you know, we obviously don't go into that level of detail, but as you think about it.
Hum.
Typically it wouldnt be any seasonality of the product gross profit per unit.
So I think any variability in total gross profit per unit due to the time of year would obviously be in vehicle.
Now are you know our goals are obviously to offset that as best we can.
Through consumer purchases and through utilizing data to buy vehicles, better and sell vehicles better.
But yeah, that's how I think about it.
Okay.
Ask one last one.
What is your timeline to EBITDA breakeven.
In basis, you put out a time at the time of the IPO. It seemed like you're ramping investments when you planned at that point in time would you care to pine on when you expect to potentially breakeven.
Yeah again with apologies.
We're giving one quarter of guidance.
And we just haven't given anything on the long term plan, but I think we are.
When we think back to your original plans were certainly well on our way from a topline perspective.
I think we've seen tremendous growth in the past couple of quarters and real maturity in managing your gross profit per unit. So we're excited about where we are today.
Got it.
Good amount of liquidity and growth capital that we're now deploying to one provide a great consumer experience and to really throttled the business for future growth and make sure we can service that growth.
Thank you.
Thanks, Joe.
No questions at this time please continue.
Oh, great well, thanks, everyone for joining the call and thanks to all our roommates for delivering a great second quarter and yeah, well, we'll see you in a quarter. Thank you.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
[music].
Yes.
Yes.
[music].
[music].
[music].
[music].