Q2 2021 Shift Technologies Inc Earnings Call

Good day.

[music].

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to shift technology second quarter of 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press Star then 1 on your telephone.

Please be advised for today's conference is being recorded if you require any further assistance. Please press Star then zero.

I would now like the hand, calling for them to your speaker for today.

Burt Burt price.

The president of strategy and finance, Sir you may begin.

Good afternoon, and welcome to the shift technology second quarter of 2021 earnings call joining me on the call today.

Co CEO, Toby Russell, and George Harrison and CFO of debt shy.

During our remarks, we'll make some forward looking statements, which represent our current judgment on what the future of May hold.

While we believe these judgments are reasonable. These forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties.

The outcomes and results may differ materially from what is expressed or implied in any forward looking statements. Please refer to our filings with the SEC for all discussion of the factors that may affect any forward looking statements.

Take no obligation to publicly update any forward looking statement, whether as a result of the new information future events or otherwise after the conference call. During the course of the call we will be referring to non-GAAP measures as defined and reconciled in our earnings materials.

That said I will now turn the call over to Tobi.

Thanks, Andrew.

Good afternoon, everyone.

In the second quarter, our business exceeded all expectations.

Through hard work of our team we delivered incredible performance across key metrics.

<unk> hundred $55 million in revenue, representing a year over year growth of 377%.

5871 ecommerce unit so.

Adjusted GPU.

$2809 <unk>.

And significant improvement in our operating leverage.

With these results, which greatly exceeded the guidance that we gave on our first quarter call and strong momentum in the Q3, we are now raising our full year revenue guidance to between 575.

$595 million at.

At the midpoint. This represents a 3 ex increase over last year for nearly 50% more revenue than we had originally anticipated 2021.

We achieved these strong results, while continuing to provide exceptional service to our customers.

In a very unusual environment brought about by Covid.

And continuing to drive towards achieving our mid and long term strategic goals.

These goals will be the core focus of the rest of my prepared remarks today and afterwards, Oh, Dan will discuss the financial results and guidance in greater detail.

As we've discussed before we have several key strategic focus areas investment into which will set shift up for long term success. These include the.

Deep learning market penetration within our existing markets.

Expanding our geographic footprint.

Building lasting brand awareness.

And driving efficiencies in our whole stack operations, while improving unit economics.

Once again our growth this quarter was primarily driven by the strength of our most mature regions along the west coast from San Diego up through Portland the.

These 5 legacy markets in which we had operated prior to 2020 of.

Accounted for nearly all of the 377% year over year of growth in the quarter.

At the same time, we are encouraged by what we're seeing in newer markets, such as Seattle, and our Texas markets and Las Vegas, where at this time, we are buying but not yet selling cars.

The newest markets will be valuable contributors to our sustained growth in 2022 and beyond.

1 of the key drivers of growth across all of our geographies has been our new marketing strategy that we've talked about at length. In prior calls. This campaign is proving to be highly effective supporting immediate and midterm sales efforts. While also building durable non perishable brand impressions for the long term.

In our May call, we set the expectation to reduce cash by roughly half in Q2, we achieved this with a 46% cap decrease quarter over quarter. The total marketing spend also decreasing sequentially. Despite accelerating unit sales growth.

Given the momentum we're seeing in our business and the effectiveness of our branding effort campaign.

We will continue to prioritize and in some cases accelerate investment in building our brand.

As of late Q2, we are now in a position to utilize powerful of third party data tools to measure the impact of our branding efforts on shift aided awareness among customers.

We believe that with the right investments over the next 6 to 8 quarters.

You can drive faster awareness growth than our peer set has when they embarked on brand and growth and do so at a lower total spend level. Despite a more expensive COVID-19 driven marketing environment.

That in turn low drive deeper market penetration.

Port growth in front end, GPU and help new markets grow with faster ramp and their earliest cores.

Turning to operations, we continue to see strength across business functions.

While many in the industry struggled to find supply shift was able to grow our sellable inventory of nearly 40% throughout the quarter with the 93% of cars sourced in Q2 from a direct from consumers and partners.

Our in house reconditioning facilities did an excellent job keeping pace with the growing supply.

And currently can process over 600 cars per week without additional staffing, which is more than sufficient to meet our 2021 inventory needs.

Okay.

Q2 saw some of the most unusual used car market behavior of that the industry has seen in decades and certainly.

In the 7 of half years. This shift has been in operations.

A confluence of factors caused multi week steep pricing appreciation.

Rather than the depreciation of the industry normally sees across all used car cohorts.

Market tailwind benefit of the industry and helped us achieve the $2809 GPU over performance.

<unk> will provide additional color on the drivers of that and overall unit economics.

That said.

Nearly 5 ex revenue growth year over year significantly outpaced that of the broader market.

Given this momentum.

Based on the branding and operational investments, we are making we are positioned to continue significant market share growth in existing and new markets for the rest of the year and beyond regardless of market pricing dynamics.

Regardless of how the market moves in the short term our strategy technology and operational excellence is well positioned to respond appropriately to drive growth, while delivering on our mission of making car purchase and ownership simple and trustworthy the long term.

I would like to thank all of our employee of the ship for their hard work and dedication to make these great results possible.

Our people stepped up and delivered exceptional results.

We had a great quarter and we're excited for the growth ahead in 2021 I.

I will now turn the call over to Oded to go over our second quarter financial results as well as provide guidance.

Thank you Toby and good afternoon.

The second quarter was the very strong financial quarter for shift provide.

Providing record metrics across the board and demonstrating meaningful progress towards our long term goals.

I will first review, our second quarter results, and then share guidance for the third quarter and the fiscal year.

Total revenue for the second quarter grew to $154.9 million, an increase of 377% to the prior year period, and 46% to the prior quarter.

Total units sold were 7815 and increase of 240% year over year with the E. Commerce channel growing 2.5871 units up 222 per cent.

E Commerce average selling price was 22019.

At 11% higher than last quarter in part due to pricing appreciation we saw throughout the quarter.

Adjusted gross profit increased to $16.5 million versus $3.7 million in the prior year period.

7.5 million in Q1.

I will focus my remaining commentary on the sequential changes.

Our adjusted gross profit per unit reached 2890 in the quarter.

66% from Q1.

As Toby mentioned in the second quarter, we saw unique market dynamics with significant depreciation new car prices.

A large portion of the cars that we sold in Q2 were purchased before price appreciation really took hold.

So the much elevated the profit.

We estimate that the unusual depreciation dynamic contributed approximately 6 to 700 of incremental GPU.

Q2.

Looking at Q3, most of the cards, we're selling in the first half of the quarter were purchased in Q2 at the very peak of price depreciation in order to ensure adequate.

Supply to meet our growing demand.

As the result, we expect GPU margins for the second half of the year to be lower than they would be in the more normal environment.

Given the unusual swings in market the pricing conditions between Q2 and Q3.

Looking at average GPU over the combined 2 quarters held.

It helps to balance the short term volatility.

Market appreciation helped Q2, but as expected the hurt Q3.

I'll discuss this fully in the guidance section.

Yeah.

Other revenue, mostly F&I was $5.1 million of Q2 compared to $4 million in Q1.

We remain encouraged by the fundamental performance of our F&I business.

F&I per unit in Q2 after adjusting for changes in accounting Reserve was 938 same as in Q1.

After consistently delivering the around 900 per unit of the F&I revenue in the first time for of the year, we continued to see meaningful opportunities in the space.

Total marketing expense for the quarter was $10.9 million.

Down from $15.4 million in Q1, as the new strategy emphasizing brand marketing took hold and yielded impressive results.

As Toby mentioned Q2 customer acquisition cost.

Does 1 side of it was an 897 down 46 per cent from Q1.

Total SG&A in the quarter was $48.1 million for 31, 1% of revenue.

Compared to $50.2 million for 47, 4% in the previous quarter demonstrating significant operating leverage.

EBITDA loss for the quarter was $26.1 million or 16, 9% of revenue.

Share to a loss of $34.4 million or 32.5 per cent of revenue in Q1.

Turning to the balance sheet and cash flow.

We ended Q2 with cash and cash equivalent of $238.2 million.

This represents a $61 million increase compared to Q1 cash balance.

Our Q2 cash balance includes $115.3 million for them from the May 2021 issuance of convertible notes.

Net of origination fees and kept the coal purchase.

Primary uses of cash for both the second quarter and year to date, we're funding inventory purchased the marketing investment supporting our accelerated growth.

Partially offsetting the cash outflows in the quarter were full utilization of our $50 million floor plan facility and a normalization of our accounts receivable balance when compared to Q1.

Turning the spotlight on inventory, we ended the quarter with $122.5 million of $48 million increase towards Q1 inventory.

Strong sales and GPU performance in the second quarter speak to our continued ability to procure desirable cars, the vast majority of which our book directly from customers.

Looking forward to the second half of the year, we expect to achieve the accelerated growth embedded in our guidance with only modest inventory investment.

As we have demonstrated this year, we are able to quickly the size of our inventory to changing demand and market conditions.

We're utilizing the inventory increase in Q2 to fuel our current.

Quarter growth.

And plan to replenish when prices become more favorable in Paul.

Turning to guidance.

For the third quarter, we expect revenue to be in the range of 155 ex the 170 million.

159% of 184% higher than Q3 of 2020.

Adjusted GPU is expected to be in the range of 1500 to 1600 for the third quarter.

This will create an average of approximately 2100 for the Q2 and Q3 period.

Our adjusted EBITDA loss for the quarter is expected to be in the range of 34 to 36 million.

Based on positive results for year to date and the momentum we're seeing across our business. We are again, raising our annual revenue guidance for 2021.

We expect total revenue to be in the range of $575 million to $595 million.

Approximately 3 times.

Our revenue for 2020.

We expect to sell 22 to 24000 E Commerce card.

Yeah.

As we've demonstrated in prior quarters, our growth strategy allows us to grow well in excess of the market.

While the volatile market than I mean, it could be not slowed down our growth they do impact the GPU.

Due to limited price visibility later in the year and with an abundance of caution our full year expectation for GPU remains at greater than 1800, well.

Well on track to reach our sustainable GPU target of 2500.

We now expect our EBITDA loss margin to be better than negative 23% for our previous guidance of better than 24 per cent.

I will now turn the call over to George for closing remarks.

Thank you Toby and oded over the years in the past before we were public company I was often asked what is the governing constraint on the ships the growth.

The regularly say that we were capital constrained that we could not investing in the areas, we need to drive growth, but if we had the capital weighted we'd be in a position he got exponential growth and bring this company to scale much faster now after removing the capex constraint. Once we went public last year. It has been very exciting for us to CRT deliver an accelerating growth.

For the 3 subsequent quarters, where the 168%, 254% and 177% year over year of growth for Q4, 2020, Q1.2021 in Q2.2021, respectively, while at the right.

The significant operating leverage this year.

It is also exciting that almost all of this growth is coming in the market, providing a part of the proof pointing to the our model is positioned to aggressively gain market share in each of its operating markets by providing consumers with the broadest possible inventory and test of our deliberate.

Given these strong results in Q1, and Q2 and our newly increased guidance for the full year. We are now expecting to hit 1 billion in run rate revenue a few quarters ahead of our original expectations. We are looking forward to continued efforts to invest in the areas that have supported this the industry leading growth trajectory, while driving significantly sustained improvements in our gross.

As well as in improving our operating leverage on a drive towards the scale and profitability.

Thank you to our shareholders customers and team members, especially those working on the Frontlines index of the pandemic, who are all helping to deliver on our mission.

We look forward to answering your questions operator, please open up the line for Q&A. Thank you.

Thank you, ladies and gentlemen, as a reminder to ask the question you will need to press Star then 1 of your telephone.

Withdraw your question press the pound key.

Dan Thats Star 1 to ask the question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Alex Potter with Piper Sandler Your line is open.

Excellent thanks, very much guys great quarter.

I guess first of all of them obviously the focus on on marketing is clear is it possible that the CAC looks as good as it does right now because there's just this unprecedented demand for used vehicles. So customers are just falling all over themselves trying to find these vehicles and that that couldn't.

Normalized you know of couple of years down the line or a couple of quarters down the line once the market settles down.

Hi of clay to talk to you and thanks for the play the.

The question so as we had said no credit.

Just call our plan was to reduce our tax by about 50 per cent.

Roughly half and when the Doctor about 46% reduction since day 1.

In line with what we had expected.

And we think thats the way to think about attack.

<unk> is twofold..1 is you know you could just targeted for acquiring customers today.

And then secondly targeting towards building.

Aided brand awareness among consumers for the long term so a lot of what we're doing today.

The marketing strategy is not focused on immediate results of this focus that results over the long term, we've seen with our peers as they build brand awareness.

There.

The leader.

The higher price the market increases, which then results in better front end gross profit. So a lot of our investment type of do it with some of those kind of long term strategy and long term planning I think if we were just targeting customer acquisition for today and not for the long term, we probably could drive to a much lower cash.

We wanted to but we don't see it would be the right approach given that we are types of invest for growth over the long term.

So I think the reality of that type of reduction as part of the kind of operational and strategic focus that was matched to the like for the results and a marketing campaign and our assets and really not connected to the market conditions overall.

As we Thompson of prepared remarks within months of patients definitely impacted gross profit, but what we're seeing with our unit and revenue growth is primarily in the vast majority are driven by our own results and very much in line with what we wanted to accomplish in the business.

Okay, Great that's very clear.

I guess that I mean, clearly you've got a business model of it seems to be working is there urgency than on your part to try to expand out maybe expedite. The this business model to other regions or are you going to stick with your historical plan.

In terms of kind of a deliberate market by market region by region rollout.

All of that Toby take that.

So, but you might be on mute.

Okay. Thanks for that question, Alex We had previously as you referenced that we wanted to grow about 2 markets per year.

And as I mentioned in our prepared remarks, the vast majority of our year over year growth came from input price.

We continue to see just tremendous potential from our existing and footprint.

The base for deliver in large volume per share, but we are growing our market expansion faster than that too that I had mentioned or we had talked about in the past I think we're going to continue gauging that.

And continue moving ahead of that target for 2021, we're excited about that and we're seeing really great reception of both the brand marketing campaign.

And the footprint expansion, both immediately within the footprints and in the surrounding areas. When we see cars being shift to nearby area of sort of of penumbra footprint alongside our existing markets.

Okay, Great and maybe 1 last 1 then I'll turn it over you mentioned kind of be in footprint the existing footprint that you've got on the west coast there.

You also mentioned that you have the ability of the kind of vehicle. The week I think of what you said to meet your 2021 targets is there.

Point on the somewhat.

The near Horizon, where you perceive bumping up against capacity constraints.

In your existing markets, where you would need to deploy additional capex or start, adding adding square footage adding parking.

Parking spaces anything like that that could potentially constraining the growth. Thanks.

I think it's a good question and I know that with our peers that more of an issue. So I think from what we said in our remarks.

On this point, specifically related to kind of what we can process a day, where the labor that we have.

The real estate can process a lot more than.

And then if the Congress, but obviously you know you need to hire and train labor force of the for more so we don't.

The past it hasn't been an issue for us it's not an issue for US right now because as we said we are in the very good place with reconditioning capabilities that we need for this year.

Obviously, given the non model does not assume building assets.

Reconditioning facilities, we arent able to turn on additional facilities as we launch each market and then you know the.

And kind of variable areas of the Labor force and that's kind of how we've approached them.

Kind of thinking about what are we going to see new car. So.

So I think we want to be able to grow production organically and we're able to do that with you know kind of out of the model we have today.

Close to the customer.

Great. Okay. Thanks, a lot guys great quarter.

Thank you.

Our next question comes from the line of Sharon Zackfia with William Blair. Your line is open.

Hi, good afternoon, congratulations on the quarter I guess I wanted to unpack what you were talking about when you mentioned.

Well in your brand awareness faster all of dollar spend.

1 of your parents. They previously could could you kind of help us understand tactically what that really means and how you do that and then separately.

If I look at your unit sales relative to your average monthly unique visitors. It looks like your conversion went up in the quarter can you talk about what's going on there or are you getting better leads is it something that ties into the brand strategy I'm just curious on that metric.

Sure. So I'll start with the first question.

We candidly share so many details.

Now on that what we can say is that you know over the last quarter or so we have gotten access to a lot more data that allows us to measure what impact our brand campaign is having this as part of the result of the fact that as you spend more money out of it you kind of didn't get access to information that previously might not have been available to you.

Agencies and other partners.

So that is allowing us to track the attack.

The minutes of our branding efforts really well and to also set the midterm goals for our team in terms of of what we want to accomplish as for.

1 is on branded awareness and so we believe that with the right investments over the next 6 to 8 quarters, we can achieve the worthy.

The strong results and drive faster growth in our <unk>.

And that's versus what other folks have been able to do with you know what would hopefully be eaten out of it.

Less total spend.

Hopefully in the coming months and quarters, we can talk more about that but at this point of kind of directionally, whether it'd be useful for us to know how we're thinking about that.

No in the parcel of gotten questions about hey, what are the goals of the separate and so we wanted to index indicate where we have the knee.

Can't really kind of go into more detail than that right now, but hopefully in the future we will be able to.

And then I'll turn it over to Toby for the second part of the question, we just have to deal with.

Thanks, a lot of for great question on conversion.

Notable factors helped drive up our conversion better.

Better targeting and marketing of course. Additionally, as Oded mentioned, we grew our inventory, which means having more inventory and more cars for people it's easier to do the thing that we do which is match people with cars. When you got a larger pool of inventory to match folks with and finally, we have been making great strides in our.

Technology experience, we're continuing to actively invest in our web and mobile technology.

The experiences investing and improving the ring of removing friction for customers and improving features that make it easier to find cars and easier to connect with those cars. So we're seeing more.

Notable levels of activity combined to really improve that conversion and that remains an ongoing focus for us.

That's really helpful. And then 1 last question on the F&I GPU was there any benefit there from the pricing environment.

Yeah.

Yeah.

I believe Toby will total about 1 on in terms of the of our F&I at a high level.

We have found that that is just a great business area and the business line, it's incredible value add as you allude most people don't walk around with like $20000 in their pocket and so 1 of the top questions. We get from buyers or early in the early days of the shift from buyers was hey, I love the car I love the experience you have financing for that.

And we said, yes, we can do that the combination of being able to offer financing and warranty is.

Is critical we're continuing to build technology and build out that entire product offering both from a intangibles the the financial offering and the technology offering to keep improving what we offer to customers or there are variations with things like ISP and vehicle segment, we've talked in the past.

About the variation in F&I between what we describe as core cars of our certified cars versus value cars et cetera, but I wouldn't say that in this particular period, we saw wild variation based on RSV.

Yeah.

Okay. Thank you.

Thank you.

Our next question comes from the line of that fade them with Wells Fargo. Your line is open.

Hey, good afternoon.

So on your 1000 unit increase in the full year.

The unit outlook to what extent would you describe this is flowing through the outperformance in Q2 as opposed to raising your unit assumption in the second half and then as we think about total top line could you talk a little bit about your expectations for price and where you expect the retail asp's to land.

At the end of the excuse me at the end of the year versus the 22000 level today.

Thanks for the question you.

As you know, we just raised total revenue guidance by $85 million.

For the year, we also raised our unit volume guidance by 1000 cars.

So it's the combination of each 1 of the quarters and our trajectory of the faster than we originally anticipated, but specifically towards the end of the year. We don't have very good a asp's visibility right now.

So if you really do the math there may be if a S. B remains at the 22 plus thousands range there may be some upside for total revenue by the end of the year.

Gotcha. So I guess another question on car sourced from customers up to 93% in the quarter and then your wholesale units up over 300% could you just talk about what you attribute to the external environment here and how should we.

Think about modeling out. These these line items over the couple of over the coming quarters.

Uh huh.

1 of do you want to take that.

So I'll I'll take that.

The way, we kind of thinking about the we've not really been buying cars at auction.

Other than very Opportunistically, given the pricing environment at auction I think.

The vast majority of the inventory that we are getting now is coming from consumers.

Historically, and we very much kind of lean into that that's gone, it's the kind of drawing on our inventory.

You need and so on.

Inc.

Folks should assume that that's what we'll continue to do obviously we.

Actually he would prefer to be able to get more cars at auction and you can buy the in this environment, where prices are just way too high.

We really are kind of not.

Haven't felt like it made sense to do that but again I think that you're not talking about the in the past I'm kind of a number of conversations that.

Historically speaking, we did not really being into auction because of the 9 numbers were not as good as they needed to be of course to be able to get them, often but given where the F&I number now we actually are capable to do that much of a larger amount of costs from auction auction prices. We're in a better place and so longer term I would expect it has lots of inquiries come down we would mean to the.

A little bit more.

So that's kind of how we think about our inventories kind of purchasing and I'll, let Toby talk about kind of inventory disposition of into the wholesale.

Yeah on the wholesale side.

This is not like a massive focus for us at this point you know there are other players out there that are built out of.

A big wholesale business and a lot of ways. Our wholesale disposition really is an offshoot of what of the core of what we're focused on which is acquiring consumer cars to sell of the consumers.

We're really putting our primary focus on that and the wholesale business, while it is valuable and it supports that consumer mission we.

We have not yet built out our capture of the real opportunity of that thing as a other large.

Standalone unit, you know of hosting our own auctions at large scale et cetera, but we do we do you think there there's future opportunity on that but in terms of your question narrowly back about how to model that.

There may have been a little bit of of different in terms of what was going on wholesale of this past quarter in terms of the shortage of cars at wholesale increasingly we're seeing that normalize and for the later part of the year and into the next year indications are that the market is returning to a more normal supply tape and we wouldn't expect anything extraordinary.

They're unusual either in terms of wholesale pricing or supply, particularly as new car supply comes back online following chip shortages through the earlier year. So from a modeling point of view you know cat can't be Super specific on the taxes, but I think we're about the the returned to more of a normalized environment.

In the latter part of this year and into early next year.

Got it that makes sense and then lastly, just to follow up on on the F&I question is it fair to say the 900 ish level is the right way to think about this item.

In the near term or are there reasons to believe that there could be some upside here in the back half of the year.

So.

As you know our midterm goal for F&I has to be somewhere in the 1200 to 1400 range right. So if we're in the 900 and now we're making good progress, but we still have ways to go.

And the way we're thinking about it is that we continue to improve our hiring and training of our staff.

The you know they do a better job and become more productive, but they still have again a ways to go we think about the product and so on so.

<unk> always been our strategy to talk about growth in that area.

From this level 2 of them to a higher level, how fast can we ramp up to that higher level.

Time will tell we're doing every effort to do that it may take us several quarters to get to.

For the promise range.

Got it thanks for the time.

Thank you.

Thank you. Our next question comes from the line of them.

Robin song with <unk> Your line is open.

Good evening, Thank you for taking my questions.

Congratulations on the quarter.

I thought I would just start with the question on GPU.

Thank you for putting a number on what you thought the.

The price of the.

The environment contributed to the expansion, but that's the only is about something like $500 plus or minus of GPU improvement quarter over quarter. Just curious if you could help us unpack that how much was reconditioning, how much maybe of structural price games or pricing power.

Anything else you can expand on that and then the second question just.

Again on sort of thing.

Are you seeing.

Are you able to isolate.

Whats going on in terms of the elevated pricing as you know between just the overall pricing environment and any impact that might be you might be seeing from for more companies getting getting into consumer sourcing.

Thank you.

So thanks for the question I'll start with the GPU compare it to Q1, so the couple of things going on.

Q1, as we said last time.

Was we had a little bit of hangover from Q4, especially on the reconditioning side right. So ex.

The costs, there was a little bit elevated and we had some improvement from this quarter as well.

I would say that those and plus of course, what we talked about market conditioning of the combination of.

Of those 2 factors contribute to the to the big rise.

Obviously, as we said in the comments.

The the market dynamic.

Dynamics was the bigger part of that and it's gonna be equalized in Q3. So that's why we suggest to look at the.

Average of the 2 quarters Q2, and Q3 to get a more normalized balance the number.

Okay.

Okay.

Marvin on the second part of your question around sourcing it I think of it as a very valuable and important 1 what we saw was a true anomaly.

And the market and that was a rapid appreciation.

Like something on the order of 25 per cent of appreciation between January and April of <unk>.

Used vehicles.

With that and that shortage environment, you saw a lot of folks saying Wow.

Youre on auction buyer, if you source primarily through the auction you were having to pay very high prices to be able to source at auction. Fortunately for sure we were able to not rely on the auction channel to do our sourcing as we mentioned in this past quarter <unk> 93 per cent of our sourcing came from consumer others of.

Real advantage there were spent years building out that capability and while we see others moving in that direction. We tend to say that that's validation of the great strategy and we have no concern about that competitive environment and third we see a real competitive advantage on our part making that a key area and in the past.

The shift has been able to diversify and source elsewhere, but that core consumer of sourcing is always going to be a great and best way.

To get cars those of the cars that we save people. What you were looking for that 1 owner no accident strong options package relatively lower price because if the slightly older car and that's always been the bread and butter in the core of what she has done really really well that proved out very nicely. This past quarter and we think of that will continue to be true. Additionally, because we've been so focused on consumer.

Sourcing we have a wider spectrum of.

Of what we sell so the ship value offering for example is a key differentiator.

Is a unique capability to be able to source recondition and the merchandise that vehicle for that and that that is an outgrowth of our years of experience and focus on the consumer vehicles and you just would never final of vehicles really at an auction to buy them. We think of that as another key advantage and puts us in a strong position.

We're excited about that and we've seen that the the advantage of that strategy play out here in this past quarter.

That's terrific. Thanks Tobey.

Could I ask a follow up question you know just the forward looking on your new markets. You know are the thank you only recently begun selling operations in a couple of those expansion of the city, but you know anything youre seeing with the.

With the buying operations or anything that you could comment on how these new markets compare to 2 of the core of West Coast markets have you been operating in a while just any insight there would be great. Thank you yeah.

The other another great question of as I mentioned, we're just saying for most of our growth of tremendous growth in the core footprint the.

That San Diego up to us.

Seattle kind of Canada, and Mexico West Coast region is just the timing, we're really excited about that Seattle being 1 of the newer markets as well, but Texas has landed very nicely.

While we don't see any need to rely on it for our 2021 numbers and we see it really is the foundation.

Our growth in 2022 and 2023, the the rapid move to selling cars out of Dallas.

And our being able to have both of the Dallas Fort worth and Austin, San Antonio markets up and up and running and selling cars is just real indication that we're bullish on the market and that's going really well for.

Furthermore, we're super excited about the idea of Texas being a great anchor or the central and eastern United States, We built out our entire footprint on the west coast with interlocking mutually supporting region, but you know you can shop in la or San Francisco anywhere up and down the west coast. The now from taxes, and we see the out of the growth.

The each other to build out through the central and eastern United States. So we're feeling really bullish on that and there's been great reception of the shift offering there in Texas.

Yeah.

That's great to hear and.

Once again, thank you.

Thank you.

Ladies and gentlemen that star 1 to ask the question.

Our next question comes from the line.

The weighted.

For security your line is open.

Thanks, a lot of and good afternoon. My question is how you're thinking of that managing growth versus profitability here. It seems like demand remains really strong your inventory sourcing capabilities are really strong and the wild GPU might be coming in a day. It does seem like you're taking off the <unk>.

For the gas flow, but as it relates to growth first of all is that accurate and if so why or why wouldn't you kind of drive more units. If you have the ability of the strong demand environment.

No.

Oh.

So I'm not sure I understand your question because the growth pattern that we have exhibited the growing 5 times more than last year and I'm, just raising our guidance by $85 million of think indicates of pretty fast growth.

You know we have the thing about the way we grow the company in our existing markets and the infrastructure that we have to support all of that.

We are continuing to increase our capacity and things like.

Reconditioning.

Most of the has been growing just in the few months of been here by more than 25%.

Sales force is growth growing serving our customers better. So we are doing everything we can to grow the topline.

In a very fast way our guidance again indicate that we're gonna grow revenue. This year by 3 ex compared to last year of thought I don't think were not.

I'm not trying hard enough the growth.

Okay. I was just noticing that your guidance implies in terms of quarter over quarter of unit growth a slowdown.

Relative to what you just did in the past quarter or so seems like you had the ability to scale, but you're slowing down that scaling a little of that.

It sounds like the bidder of the market dynamics, where youre right now you.

The great inventory position, we want to maintain that.

But we also have to be cognizant that the marketing of expensive right for purchasing cars and in order to grow our GPU and maintain profitability. We have to think about how fast the grow the inventory of the same time. So there are many considerations.

The South I think it's also important to remember that Q4, historically has very strong seasonality.

In the market.

I've kind of in the island for that.

Let them back in 2014 and 2015.

So in general we.

I tend to be quite conservative in our assumptions about 2 for Oh just.

The spoke about that in the in the prepared remarks.

And so across the board, we are pretty conservative in our assumptions about Q4.

The you know if so.

So part of our assumption here of that S. T will come back to normal levels in Q4.

Potentially even you know, we'll have a steep of seasonality curve than normal because of how Q2 and Q3 have gone right. So as it was the other that would be concerned about Q4, and obviously you've asked me does not come down from there'll be upside to what we've already said as far as 3 of scope for the full year.

Got it thank you.

Thank you.

Our next.

Income from the line of been share along with Cantor Fitzgerald. Your line is open.

Oh, Hey, guys. Thanks for taking the question.

So your customer service vehicles of just going back to this came in at 93%, which is you know pretty significantly above some of your competitors does this suggest that you might have some pricing power on the other vehicle acquisition side.

You know down the road and maybe if you could kind of talk about how.

The pricing or the sourcing of of vehicles varies from newer markets versus the older markets. None of the follow up on track of if I could.

It's a great question.

I'm going to answer it both in terms of sourcing as well as selling.

We do believe in core of our strategy is the building out the shift brand as a destination for selling or buying your car does create long term pricing advantage, allowing us to trade at reasonable market places on both sides of that day.

In the short term, we do think we do have an advantage.

As I mentioned this past quarter of being able to move our price and quickly along with the consumer market, so as to not necessarily the dependent or subject.

To the auction inflation that we saw and we were able to move to the 93%.

Mark with that consumer sourcing, but again, the long term sourcing pricing does relate back to great customer experience and our brand journey and we're coupling both of those are we believe we of the best customer experience in the industry on both sides for buying or selling your car and we want the brand that shift number 1 challenges that were great.

People don't know about it and so we do think of that brings with it both through the final conversion of advantage as well as.

Pricing power if that makes sense.

Okay, Great and then on the cash side, maybe if you could just talk a little bit about how CAC varies between you know some of your more established markets like San Francisco versus.

Some of the newer markets.

And then non also I'm sorry go ahead.

No go ahead from Slim finished the question.

The number 1 can say in.

<unk> it looks like your.

Marketing expense per unique visitor was up about 76%.

Which compares to a lot of pricing in the performance marketing space in Q2 up Triple digits. You know what are you guys seeing in 3 Q.

Seeing any easing in kind of the impression costs.

On the performance marketing side.

The awesome questions and I wish I could speak in more detail, but we haven't kind of any data on how our older.

Older versus newer markets do as far as marketing and so what I can say is the following.

We have found and then you have spoken about the in the past.

Unimportant until the impact we have found that given our presence in the various low pitches already can.

Especially San Francisco, and Los Angeles that marketing nationally for brand is really beneficial we don't spend all of the $1 nationally, but the significant amount of who do you see there.

The the the.

The cost of kind of more similar across the board.

None of the positive impact from that and then second.

And then I think it's really important to consider that we have very strategically on the.

Pushed our spend more to brand and the way from digital spend we've found over the years of building. This company that building a strong brand as 1 of the way the critical and.

So we can't.

He couldn't do that which is digital.

I and other the chip came into this business thinking that you could literally though the whole company was just digital spend.

And so that's kind of not possible to do with your brand is really crucial.

And so from from that standpoint.

You know we.

We kind of don't just think about kind of customer acquisition costs from just the digital fine we're kind of in the more holistic point of the including the the the brand side of all kinds of things.

Okay, great. Thanks, guys.

Yeah.

Thank you.

Our next question comes from the line of Mike Ward with Benchmark. Your line is open.

Thanks, Good afternoon, everyone.

Just wondering if you can provide a bit more clarity on the walk and the gross per unit coming from Q2 to Q3, we're about halfway through Q3, and so have you seen the significant drop off already and the gross per unit.

What are the other is is it just the acquisition cost went up and some of those units kind of matured in from Q1.

From late Q4 into Q1, and then with the Q2, so what we're saying.

Yeah.

So what.

What we have seen just the.

Let's go back book.

The majority of the units that we sold in Q2 were.

Acquired in Q1 and before prices really went up right. Okay. Brian for Q2, it was such a windfall of selling high after buying low.

What kind of the C. In Q2 of the Q3 is a much flatter line and maybe even starting to show some signs of declining.

Prices be bought at the peak of the market and now we're selling it's still a good price, but clearly not as high of spread as we've seen in Q2.

So that's why 2 things that's why we guided lower and also that's why we think that it makes sense to look at the 2 quarters together and doing the average because that's more like are.

Seasonal normal average would indicate.

So it's not the big collapse and so so basically what we're seeing is we've called true July and August were seeing the transaction price is still remaining on the ecommerce side remaining elevated.

North of $20000 for 'twenty, 1 'twenty $2000, but the cost for those of us come up so youre not seeing the collapse on the market so to speak but you're just going with the expectation that.

Basically the maturing process of the purchasing of the selling price differential.

Is that the right way to look at it.

Yeah absolutely.

You can see market dynamics and prices.

Well as the US and you can see the dairy hasn't been any collapse.

Right.

Now it may be a little depreciation in the wholesale market, it's less depreciation in the retail market, but it's not the same windfall and mine gate at those prices.

We bought stuff in January or in the.

So the vision.

Okay and part of that is true might be conservative as youre looking at the numbers coming out because it seems to be the changing pretty quickly.

That's exactly right.

To consider that September is also usually a unique of months in the space because that's usually the time when you start to see seasonality of the kind of half of this very strong August right and then how much a week of September on the seasonality perspective.

So.

What we tried to do historically speaking of it.

Sell as much inventory as possible in August and go into September with less inventory and then of acquired inventory in September when prices have come down over the months.

And so that obviously you know, but you spoke you can't tell all of your cost because I wouldn't make any sense and so you go into the September with condiments, when it's going to have some GPU pressure, we know that that's normally the case and so the kind of <unk>.

Managing for that and in what we're guiding for 2 for the quarter and I do want to say 1 other thing which is not something you can track it'll kind of publicly available numbers, but I think it's something that the definitely happening in the space, which is that while the list prices for the Luna I still of them in there. The strong we are noticing an indoor.

The evidence from consumers that the discounts do you live the offering are beginning to be stronger than the war 30, or 60 or 90 days.

And so that will you know, there's an indication to us that you will see some kind of reduction in prices coming into the future months and that's another reason why we're being conservative in our assumptions for the second half of the year as far as the gross profit.

Makes sense.

On the within SG&A I think of the first quarter you of the big marketing spend where you were kind of doubling up does it come back down in Q2 do you have of <unk> marketing expense portion of SG&A.

Yeah marketing went down from more than $15 million 2 in Q1 to less than the $11 million in Q2.

Clearly a total dollar of the claim getting back to the to a more normalized range.

But if you look at the whole SG&A, you've seen of yearly nice leverage effect of the increase in revenue.

Obviously, not as much increase in our income.

Perfect.

Thank you very much.

Right.

Thank you.

Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.

Hi, guys. This is the 1 on for Mike I just had 1 quick 1 in terms of marketing are are there any major updates here area. You can call out that are resonating with both buyers and sellers.

Well I think you kind of hard to say more than what we've said in the <unk>.

And so far which of that we've reduced our cash by 46% of images in Atlantic in line with what we had said that wouldn't be the case and we're seeing really positive momentum.

The marketing that we're doing.

From the from the consumers, obviously on both sides of wherever the.

The excited about the data that we now have access to and kind of what that's allowing us to see in terms of what the reaction is.

When the kind of go into more detail than that but we think that the marketing campaign is having a really positive impact, but I do want to underline 1 more time that this is not a kind of 1 or 2 quarters out from the do they move headquarter.

Last month that you're going to making for a long time, but that's how you both brand and we think that doing that I don't have any positive amid the medium term and long term benefits to the business.

The from customer acquisition perspective, and from a gross profit per se.

Got it thanks for taking my question.

Thank you.

Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon.

Hi, Brian graduation, congratulations on the great quarter.

Yeah.

So.

A couple of questions.

Like the follow ups, but first off just with respect to the the market. The other market broke we talked a lot of golf it at what point.

Due to the new markets become more of a needle mover from Brooklyn from a volume perspective for shift.

I hear what you're saying now you continue to have such strength in your existing markets, particularly those in the western on the West Coast United States.

As a proportion of these these new markets more used to be well at what point do they really become sort of the state.

Kind of a bad or more of the total volume growth of the company.

It's a great question, Brian. Thank you for that what we're saying is the way we see the newest markets of the Texas market, the Seattle market likely to make a bigger difference next year. So in the 2022 time frame and the reason is we have pursued a strategy that is go deeper.

And our existing markets.

Over time, which means they're pretty substantial market presence in each of those existing markets and so for a new market the catch up to that and make a significant difference. It takes a little while some of it doesn't happen like 3 months of more like it takes it about a year or so to start hitting the stride in terms of total volume.

The different strategy than if we said hey, we're gonna loss of 50 market for the each day, 1 adds a little bit of a little bit of a little bit.

And we've articulated not not that strategy that we wanted to go deeper and get a lot more marketing and brand president leverage locally as well as create an ecosystem.

Our original strategy are sort of Super regional strategy and so that's why you might see the we see those.

Those markets, both incubating for a little longer and becoming part of an interlocking system.

Talk a lot about the interlocking region that kind of support each other from a brand presence and total inventory of point of view.

No that's very helpful. I appreciate it.

Helpful. And then the second question I had just with respect to marketing the focus now on.

For our brand building.

No.

You talked a lot about the.

The shift that happened over the last 3 quarters and thinking through the prior question you discussed the.

Now the.

The lower marketing dollars Q1 to Q2.

So that's why as we watch the market to continue in full of here what should we expect is it more of the same or would there be over the balance of saving of 'twenty, 1 where you see you efforts come in that that helped us the branded campaign.

I think for right now the the back.

We can say is that you know we're going to continue doing what we're doing I think and Toby spoke in the prepared remarks that we believe that over a kind of 6 to 8 quarter investment. If we do the right unless 1 of them. We can have some really positive.

<unk> on our brand and how much of aided awareness, we have and then that obviously has really tangible implications for our GPU on hand, the customer acquisition costs.

Over the long term I don't think we can kind of say more than that at this point, but we think that at minimum continuing what we're doing will be very much of the case for the next few quarters. Obviously, you know as our volume growth. The total dollar amount might increase but we think that the cap where it is now is in a good place.

Got it.

Thank you very much and congrats again.

Thank you.

I'm not sure any any further questions in the queue I would now like to turn the call back over to George for closing remarks.

Great well, thank you everybody for joining us and really appreciate your questions.

And when the photo speaking to 1 and 1 in the coming day.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to shift technology second quarter of 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need the press Star then 1 on your telephone.

Please be advised for today's conference is being recorded if you require any further assistance. Please press Star then zero.

I would now like the hand off of them to your speaker for today, Henry Burt Burt price Vice.

Vice President of strategy and for net Sir you may begin.

Yeah.

Yeah.

Good afternoon, and welcome for the shift technologies second quarter of 2021 earnings call. Joining me on the call today are co CEO, Toby Russell and Georgia Harrison.

Oh, sorry.

During our remarks, we'll make some forward looking statements, which represent our current judgment on what the future of Michael.

While we believe these judgments are reasonable. These forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties.

Actual outcomes and results may differ materially from what is expressed or implied in any form.

Please refer to our filings with the SEC for all of discussion of the factors that may affect any forward looking statements.

We undertake no obligation to publicly update any forward looking statement, whether as a result of new information future events or otherwise after the conference call. During the course of the call we will be referring to non-GAAP measure of defined and reconciled copyrighted material without that I will now turn the call over to Tobi.

Thanks Henry.

And good afternoon, everyone.

In the second quarter, our business exceeded all expectations.

Through hard work of our team we delivered incredible performance across key metrics.

$155 million in revenue representing year over year of growth of 377%.

5871 ecommerce unit so.

Adjusted GPU.

2000 and $809.

And significant improvement in our operating leverage.

With these results, which greatly exceeded the guidance that we gave on our first quarter call and strong momentum in the Q3, we are now raising our full year revenue guidance to between 575.

And $595 million.

At the midpoint. This represents the 3 ex increase over last year for nearly 50% more revenue than we had originally anticipated 2021.

We achieved these strong results, while continuing to provide exceptional service to our customers.

In a very unusual environment brought about by Covid.

And continuing to drive toward achieving our mid and long term strategic goals.

These goals will be the core focus of the rest of my prepared remarks today and afterwards, Oh, Dan will discuss the financial results and guidance in greater detail.

As we've discussed before we have several key strategic focus areas investment into which will that shift up for long term success. These include the.

Deepening market penetration within our existing markets.

Expanding our geographic footprint.

Building lasting brand awareness.

Driving efficiencies from our full stack operations, while improving unit economics.

Once again our growth this quarter was primarily driven by the strength of our most mature regions along the west coast for San Diego up through Portland the.

In spite of legacy markets in which we had operated prior to 2020 of.

Accounted for nearly all of the 377% year over year of growth in the quarter.

At the same time, we are encouraged by what we're seeing in newer markets, such as Seattle, and our Texas markets and Las Vegas, where at this time, we are buying but not yet selling cars.

The newest markets will be valuable contributors to our sustained growth of 2022 and beyond.

1 of the key drivers of growth across all of our geographies has been our new marketing strategy that we.

We've talked about at length in prior calls this campaign is proving to be highly effective supporting immediate and midterm sales efforts. While also building durable non perishable brand impressions for the long term.

In our May call.

Set the expectation to reduce cash by roughly half in Q2, we achieved this with a 46% decrease quarter over quarter with total marketing spend also decreasing sequentially. Despite accelerating unit sales growth.

Given the momentum we are seeing in our business and the effectiveness of our branding effort campaign.

We will continue to prioritize and in some cases accelerate investments in building our brand.

As of late Q2, we are now in a position the utilized powerful of third party data tools to measure the impact of our branding efforts on shift aided awareness among customers.

We believe the with the right investments over the next 6 to 8 quarters, we can drive faster awareness growth than our peer set has when they embarked on branded growth and do so at a lower total spend level. Despite the more expensive COVID-19 driven marketing environment.

That in turn will drive deeper market penetration.

Port growth in front of N G P U and help the new markets grow with faster ramp and their earliest cores.

Turning to operations, we continue to see strength across business functions, while many in the industry struggled the planned supply shift was able to grow our sellable inventory of nearly 40% throughout the quarter with the 93 per cent of cars sourced in Q2 from a direct from consumers and partners.

Our in house reconditioning facilities did an excellent job keeping pace with the growing supply and currently the process over 600 cars per week without additional staffing, which is more than sufficient to meet our 2021 inventory needs.

Q2 saw some of the most unusual used car market behavior of that the industry has seen in decades and certainly.

And the 7 and a half years and shift is that in operations.

A confluence of factors caused the multi week steep pricing appreciation.

Rather than the depreciation of the industry normally see across all used car cohorts.

The market tailwind benefit of the industry and helped us achieve the $2809 GPU over performance.

<unk> will provide additional color on the drivers of that and overall unit economics.

That said.

Our nearly 5 ex revenue growth year over year significantly outpaced that of the broader market.

Given this momentum.

Based on the branding and operational investments we are making we are positioning for continued significant market share growth in existing and new markets for the rest of the year and beyond regardless of market pricing dynamics.

Regardless of how the market moves in the short term our strategy technology and operational excellence is well positioned to respond appropriately to drive growth, while delivering on our mission of making car purchase and ownership simple and trustworthy for long term.

I would like to thank all of our employee that shift for their hard work and dedication.

These great results possible.

Our people stepped up and delivered exceptional results.

We had a great quarter and we are excited for the growth ahead in 2021 I.

I will now turn the call over to Oded to go over our second quarter financial results as well as provide guidance.

Thank you Toby and good afternoon.

The second quarter was the very strong financial quarter for shift provide.

Providing record metrics across the board and demonstrating meaningful progress towards our long term goals.

I will first review our second quarter results and then share of guidance for the third quarter and the fiscal year.

Total revenue for the second quarter of grew to 150 for $29 million, an increase of 377% to the prior year period and.

46% to the prior quarter.

Total units sold were 7815 and increase of 240% year over year with the E. Commerce channel growing 2.5871 units up 222 per cent.

E Commerce average selling price was 22019.

11% higher than last quarter in part due to pricing appreciation, we saw throughout the quarter.

Adjusted gross profit increased to 16 in the half million versus $3.7 million in the prior year periods of 7.5 million in Q1.

I will focus my remaining commentary on the sequential changes.

Our adjusted gross profit per unit reached 2890 in the quarter.

66% from Q1.

As Toby mentioned in the second quarter, we saw unique market dynamics with significant depreciation in car prices.

A large portion of the cars that we sold in Q2 were purchased before price appreciation really took hold.

So the much elevated the profit.

We estimate the unusual depreciation dynamic contributed approximately 6 to 700 of incremental GPU.

Q2.

Looking at Q3, most of the cards, we're selling in the first half of the quarter were purchased in Q2 at the very peak of price depreciation in order to ensure adequate.

The supply to meet our growing demand.

As the result, we expect GPU margins for the second half of the year to be lower than they would be in the more normal environment.

Given these unusual swings in market pricing conditions between Q2 and Q3.

Looking at average GPU over the combined 2 quarters help.

It helps to balance the short term volatility.

Market appreciation helped Q2, but as expected there for Q3.

I'll discuss this fully in the guidance section.

Yes.

Other revenue, mostly F&I was 5.1 million of Q2 compared to $4 million in Q1.

We remain encouraged by the fundamentals of performance of our F&I business.

F&I per unit in Q2.

Adjusting for changes in accounting reserve was 938 same as in Q1.

After the consistently delivering around 900 per unit of the F&I revenue in the first half of the year, we continued to see meaningful opportunities in the space.

Total marketing expense for the quarter was $10.9 million.

Down from $15.4 million in Q1, as the new strategy emphasizing brand marketing to coal yielded impressive results.

As Toby mentioned Q2 customer acquisition cost was 1 side of it was an 897 down 46% from Q1.

Total SG&A in the quarter was $48.1 million for 31, 1% of revenue.

Compared to $50.2 million for 47, 4% in the previous quarter demonstrating significant operating leverage.

The EBITDA loss for the quarter was $26.1 million or 16, 9% of revenue.

Share to a loss of $34.4 million or 32.5 per cent of revenue in Q1.

Turning to the balance sheet and cash flows.

Ended Q2, with cash and cash equivalents of $238.2 million.

This represents a $61 million increase compared to Q1 cash balance.

Our Q2 cash balance includes $115.3 million for them from the May 2021 issuance of convertible notes.

Net of origination fees and kept the coal purchase.

Okay.

Primary uses of cash for both the second quarter and year to date, we're funding inventory purchased the.

The marketing investment supporting our accelerated growth.

Partially offsetting these cash outflows in the quarter of work full utilization of our $50 million floor plan facility and normalization of our accounts receivable balance when compared to Q1.

Yeah.

Turning to spotlight 1 inventory, we ended the quarter with $122.5 million.

$48 million increase towards Q1 inventory.

Our strong sales and GPU performance in the second quarter speak to our continued ability to procure desirable cars, the vast majority of which our book directly from customers.

Looking forward to the second half of the year, we expect to achieve the accelerated growth embedded in our guidance was the only modest inventory investment.

As we have demonstrated this year, we are able to quickly the size of our inventory to changing demand and market conditions.

We're utilizing the inventory increase in Q2 to fuel our current.

Quarter growth.

And plan to replenish when prices become more favorable and Paul.

Turning to guidance.

For the third quarter, we expect revenue to be in the range of 155 ex the 170 million.

Or 159% of 184% higher than Q3 of 2020.

Adjusted GPU is expected to be in the range of 1500 to 1600 for the third quarter.

This will create an average.

<unk> 2100 for the Q2 and Q3 periods.

Our adjusted EBITDA loss for the quarter is expected to be in the range of $34 million to $36 million.

Based on positive results for year to date and the momentum we're seeing across our business. We are again, raising our annual revenue guidance for 2021.

We expect total revenue to be in the range of $575 million to $595 million.

Approximately 3 times our revenue for 2020.

Expect to sell 22 to 24000 E Commerce card.

Yeah.

As we've demonstrated in prior quarters, our growth strategy allows us to grow well in excess of the market.

While the volatile market, then I mean, because it did not slow down our growth they do impact the GPU.

Due to limited price visibility later in the year and with an abundance of caution.

Our full year expectation for GPU remained at greater than 1800.

Well on track to reach our sustainable GPU target of 2500.

We now expect our EBITDA loss margin to be better than negative 23% for our previous guidance of better than 24 per cent.

I will now turn the call over to George for closing remarks.

Thank you Toby and oded over the years in the past before we were public company I was often asked what is the governing constraint on the ships to growth. Our regularly say that we were capital constrained that we could not investing in the areas, we need to drive growth, but if we have the capital weighted we'd be net position you've got exponentially.

<unk> and bring this company the scale much faster now after removing the capex constraints. Once we went public last year. It has been very exciting for us the CRT deliver an accelerating growth for free.

The subsequent quarters for the 168% 254 per cent and put 177% year over year of growth for Q4, 2020, Q1.2021 in Q2.2021, respectively, while driving significant operating leverage this year.

It is also exciting that almost all of this growth is coming in existing markets, providing a positive proof point that our model is the position.

True to aggressively gain market share in each of its operating markets by providing consumers with the broadest possible inventory and testify of deliberate.

Given the strong results in Q1, and Q2 and our newly increased guidance for the full year. We are now expecting to hit 1 billion in run rate revenue a few quarters ahead of our original expectations. We are looking forward to continued efforts to invest in the areas that have supported this the industry leading growth trajectory, while driving significant only sustained improvements in net.

Gross profit as well as improving our operating leverage on a drive towards the scale and profitability.

Thank you to our shareholders customers and team members, especially those working on the front lines and that's sort of the.

Pandemic, who are all helping to deliver on our mission.

We look forward to answering your questions operator, please open up the line for Q&A. Thank you.

Thank you, ladies and gentlemen, as a reminder to ask the question you will need to press Star then 1 of your telephone.

Withdraw your question press the pound key.

Dan Thats Star 1 to ask the question. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Alex Potter with Piper Sandler Your line is open.

Excellent thanks, very much guys great quarter.

I guess first of all of them obviously the focus on marketing is clear is it possible that the CAC looks as good as it does right now because there's just this unprecedented demand for used vehicles. So customers are just falling all over themselves trying to find these vehicles and that that could.

Normalize a couple of years down the line or a couple of quarters down the line once the market settles down.

Hi, Alex glad to talk to you and thanks for the Florida.

For the question so as we had said.

Just call our plan was to reduce our tax by about 50% of Ralph.

For the house and when we got to about 46% reduction since the very much in.

In line with what we had expected.

And we think that the way to think about cash and our approach is twofold..1 is you could just targeted for acquiring customers today.

And then secondly, targeting whats the building.

Aided brand awareness among consumers for the long term so a lot of what we're doing today.

Marketing strategy is not focused on immediate results because the fed results over the long term, we've seen with our peers as they build brand awareness.

There.

The higher price of the market increases, which then results in better front end gross profit. So a lot of our investment type of do it with the kind of long term strategy of markdown plan I think if we were just targeting customer acquisition for today and not for the long term the combo could drive to a much lower cash.

We wanted to but you don't see it would be the right approach given that we have types of investing for growth of over the long term.

So I think the reality of that type of reduction as part of the kind of operational and strategic focus that was matched to the like for results and a marketing campaign, no assets and really not connected to the market conditions overall.

As we Thompson of prepared remarks within months of patients definitely impacted gross profit, but what we're seeing with our unit and revenue growth is primarily in the vast majority are driven by our own results and very much in line with what we wanted to accomplish in the business.

Okay, Great that's very clear.

I guess, the I mean, clearly you've got a business model of it seems to be working is there urgency than on your part to try to expand out maybe expedite. The this business model to other regions or are you going to stick with your historical plan.

In terms of kind of a deliberate market by market region by region the rollout.

All of that Toby take that.

So when you might be on mute.

Hey, Thanks for that question, Alex We had previously as you referenced that we wanted to grow about 2 markets per year.

And as I mentioned in our prepared remarks of the vast majority of our year over year growth came from <unk> footprint.

We continue to see just tremendous potential from our existing and footprint.

The base for deliver in large volume per share, but we are growing our market expansion faster than that too that I had mentioned or we had talked about in the past.

I think we're going to continue gauging that.

And continue moving ahead of that target for 2021, we're excited about that and we're seeing really great reception of both the brand marketing campaign.

And the footprint expansion both immediately within the footprints.

And in the surrounding areas when we see cars being shift to nearby area of sort of of penumbra footprint.

Along side our existing markets.

Okay, Great maybe 1 last 1 then I'll turn it over you mentioned kind of the in footprint the existing footprint that you've got on the West Coast. There and you also mentioned that you have the ability of the kind of vehicle. The week I think of what you said to meet your 2021 targets is there.

Point on the somewhat.

The near Horizon, where you perceive bumping up against capacity constraints.

In your existing markets, where you would need to deploy additional capex or start, adding adding square footage, adding parking the parking spaces anything like that that could potentially constraining the growth. Thanks.

I think it's a good question and I know that with our peers day, 1 of an issue.

So I think the what we said in our remarks.

On this point, specifically related to kind of what we can process today, where the labor that we know of.

Our real estate can partner for a lot more.

Then the Congress, but obviously you need to hire and train labor force for more so we don't in the.

<unk> has been an issue for us it's not an issue for US right now because as we said we are in the very good place with the conditioning capabilities that we need for this year.

Obviously, given that our model does not assume there'll be mass of.

Reconditioning facilities, we are able to turn on additional facilities as we launch each market.

And then you know the.

The kind of variable there is labor force and that's kind of how we've approached.

Kind of thinking about what are we going to see needs are.

So I think we want to be able to grow production organically and we're able to do that with you know kind of on.

Of the model, we have today being really close to the customer.

Great. Okay. Thanks, a lot guys great quarter.

Thank you.

Our next question comes from the line of Sharon Zackfia with William Blair.

Your line is open.

Good afternoon, congratulations on the.

Quarter.

I guess, what I wanted to unpack what you were talking about when you mentioned.

Growth in your brand awareness faster all of ours.

And then some of your parents. The previously could could you kind of help us understand tactically what that really means and how you do that.

And then separately if I look at your units sold relative to your average monthly unique visitors. It looks like your conversion went up in the quarter can you talk about what's going on there or are you getting better leads is it something that ties into the brand strategy I'm just curious on that metric.

Sure. So I'll start with it for the first question, we can't really share. So many details right now were not what we can say is that you know over the last quarter or so we have got an access to a lot more data that allows us the measure what impact our brand campaign is having and this is probably.

The result of the fact that as you spend more money out of it you cannot get access to information that previously might not have been available to you for agencies and other partners.

And so that is allowing us to track the effectiveness of our branding efforts.

Well and to also set the midterm goals for our team in terms of what we want to accomplish as far as our brand awareness.

And so we believe that with the right investments over the next 6 to 8 quarters, we can achieve the really strong results and drive fast of low sooner.

That's versus what other folks have been able to do with you know what would hopefully be in out of it.

The less total spend.

Hopefully in the coming months and quarters, we can talk more about that but at this point of kind of directionally, whether it'd be useful to know how we're thinking about that.

In the past we've gotten questions about hey, what are the goals of it in the south and so we wanted to indicate where we are with me.

What are the kind of go into more detail than that right now, but hopefully in the future we will be able to.

And then I'll turn it over to Toby for the second part of the question I always have to deal with.

Thanks, a lot of for Great question on conversion mulch.

The multiple factors helped drive up our conversion.

Better targeting and marketing of course. Additionally, as Oded mentioned, we grew our inventory, which means having more inventory in the more cars for people.

Year to do the thing that we do which is match people with cars. When you got a larger pool of inventory some of that folks with and finally, we have been making great strides in our technology experience, we're continuing to actively invest in our web and mobile tech.

Technology experiences investing and improving the kind of removing friction for customers and improving features that make it easier to find cars and easier to connect with those cars. So we're saying low.

Notable levels of activity combined to really improve that conversion and that remains an ongoing focus for us.

That's really helpful. And then 1 last question on the F&I GPU was there any benefit there from the pricing environment.

Yes.

I believe you told people sort of that 1 on.

In terms of the of our F&I at a high level.

We have found that that is just a great.

The business area and the business line, it's incredible value add as you allude most people don't walk around with like $20000 in their pocket and so 1 of the top questions. We get from buyers or early in the early days of the shift from buyers was hey, I love the car I loved the experience you have financing for that and we said, yes, we can do that the combination of being able to.

For financing and warranty.

Is critical we're continuing to build technology and build out that entire product offering both from a intangible of the financial offering and the technology offering to keep improving what we offer to customers or there are variations with things like ISP and vehicle segment, we've talked in the past.

About the variations and F&I between what we describe as core cars of our certified cars versus value cars et cetera, but I wouldn't say that in this particular period, we saw wild variation based on the RSP.

Okay. Thank you.

Thank you.

Our next question comes from the line of that fade them with Wells Fargo. Your line is open.

Hey, good afternoon.

So on your 1000 unit increase in the full year.

The unit outlook to what extent would you describe this is flowing through the outperformance in Q2 as opposed to raising your unit assumption in the second half and then as we think about total top line could you talk a little bit about your expectations for price and where you expect the retail asp's to land.

At the end of the excuse me at the end of the year versus the 22000 level today.

Thanks for the question.

You know as you.

No. We just raised total revenue guidance by $85 million.

For the year, we also raised our unit volume guidance by 1000 cars.

So it's the combination of each 1 of the quarters and our trajectory of the.

The faster than we originally anticipated, but specifically towards the end of the year. We don't have very good a S speed visibility right now.

So if you really do the math there may be if ASB remains at the 'twenty 2 plus.

And the range there may be some upside for total revenue by the end of the year.

Gotcha so.

I guess another question on car sourced from customers up to 93% in the quarter and then your wholesale units up over 300% could you just talk about what you attribute to the external environment here and how should we think about modeling out. These these line item.

And so over the couple of over the coming quarters.

Uh huh.

1 of do you want to take that.

So I'll take that the.

The way, we kind of think about that and we've not really been buying cars at auction of it.

Then very opportunistically, given the pricing environment at auction I think.

Vast majority of inventory that we are getting is coming from a consumer it has historically and we very much kind of lean into that that's 1 of kind of driving our our inventory.

Needs.

I think.

Folks should assume that that's what we'll continue to do obviously.

Actually he would prefer to be able to get more kind of at Occidental can buy the in this environment, where prices are just way too high.

We really kind of.

Haven't felt like it made sense to do that but again I think that the end up talking about the in the past kind of the number of compensation, but.

Historically speaking, we did not really beginning to auction because of asinine numbers were not as good as they needed to be of course to be able to the market, but given where the numbers are now we actually are capable to do a much larger amount of cash from option if auction prices. We're in a better place and so longer term I would expect it in the occiput who've come down we would mean to the.

A little bit more so.

So that's kind of how we think about our inventory of kind of purchasing and I'll, let Toby talked about kind.

The inventory disposition into the wholesale.

Yeah on the wholesale side.

This is not like a massive focus for us at this point you know there are other players out there that are built out.

Big wholesale business.

A lot of ways, our wholesale disposition really is an offshoot of what is the core of what we're focused on which is acquiring the consumer cars to sell the consumers.

We're really putting our primary focus on that and the wholesale business, while it is valuable and it supports that consumer mission.

We have not yet built out our capture of the real opportunity of that thing as a standalone.

Standalone unit of hosting our own auctions at large scale et cetera, but.

We do think there's future opportunity of that but in terms of your question narrowly back about how to model that there may have been a little bit of of different in terms of of what was going on wholesale of this past quarter in terms of the shortage of cars at wholesale.

<unk>, they were saying that normalize and for the later part of the year and into the next year indications are that the market is returning to a more normal supply state and we wouldn't expect anything extraordinary of unusual either in terms of wholesale pricing or supply, particularly as new car supply comes back online following chip shortage.

3 of the earlier year, so from a modeling point of view cat.

It can't be Super specific on the taxes, but I think we're about the the returned to more of a normalized environment and the.

The latter part of this year and into early next.

Got it that makes sense and then lastly, just a follow up on on the F&I question is it fair to say the 900 ish level is the right way to think about this item.

In the near term or other reasons to believe that there could be some upside here in the back half of the year.

So.

As you know our midterm goals for F&I has to be somewhere in the 1200 to 1400 range right. So if we're in the 900 and now we're making good progress, but we still have ways to go.

And the way we're thinking about it is that we continue to improve our hiring and training of our staff.

The you know they do a better job the more productive, but they still have again a ways to go.

Thinking about the product and so on so.

You know always been our strategy to talk about growth in that area of from this level 2 of them to a higher level, how fast can we ramp up to that higher level.

Time will tell we're doing every effort to do that it may take a symbol of quarters to get to.

2 of the promise range.

Got it thanks for the time.

Thank you.

Thank you. Our next question comes from the line of Mark.

Fong with <unk> Your line is open.

Good evening, Thank you for taking my questions.

Congratulations on the quarter.

I thought I would just start with the question on GPU.

Thank you for.

Putting a number on what you thought the.

The price the the.

The environment contributed to the expansion, but that's the only is about something like $500 plus or minus of GPU improvement quarter over quarter.

Curious if you could help us unpack that how much was reconditioning, how much maybe of structural price gains.

Pricing power.

Anything else you can expand on that and then the second question just the.

Again on the sourcing.

Are you seeing are you able to isolate.

Whats going on in terms of all of the elevated pricing as you know between just the overall pricing environment and any impact that might be you might be seeing from for more companies getting getting into consumer sourcing.

Thank you.

So thanks for the question of all starts with the GPU compare it to Q1, so the couple of things going on.

Q1, as we said last time.

Was we had a little bit of hangover from Q4, especially on the reconditioning side right. So ex.

The costs, there was a little bit elevated and we had some improvement from this quarter as well.

I would say that though.

Plus of course, what we talked about market conditioning of the combination of them.

Of those 2 factors contribute to the to the big rise.

Obviously as we said in the comments you know the.

The market dynamics.

Dynamics was the bigger part of that and it's gonna be equalized in Q3. So that's why we suggest you look at the.

Average of the 2 quarters Q2, and Q3 to get a more normalized balance number.

Okay.

Okay.

Marvin on the second part of your question around sourcing it I think of it as a very valuable and important 1 what we saw was a true anomaly.

And the market and that was a rapid appreciation.

Something on the order of 25% of appreciation between January and April.

Used vehicles.

With that and that shortage environment, you saw a lot of folks saying Wow.

If you're an auction buyer if you source primarily through the auction you were having to pay very high prices to be able to source at auction. Fortunately for shift we were able to not rely on the auction channel to do our sourcing as we mentioned in this past quarter, 93% of our sourcing came from consumer.

The real advantage there we've spent years building out that capability and while we see others moving in that direction, we tend to say that the validation of a great strategy and we have no concern about that competitive environment and third we see a real competitive advantage on our part making that a key area.

In the past shift has been able to diversify and source elsewhere, but that core consumer of sourcing is always going to be a great and best way to get cars those of the cars that we save people what youre looking for that 1 owner no accident strong options package relatively lower price because if the slightly older car and that's always been the bread and butter in the core of what shift.

<unk> done really really well that proved out very nicely. This past quarter, and we think of that will continue to be true.

Additionally, because we've been so focused on consumer sourcing.

Have a wider spectrum.

Of what we sell so the ship value offering for example is a key differentiator. It is a unique capability to be able to source recondition and the merchandise that vehicles that and that that is an outgrowth of our years of experience and focus on the consumer vehicles and you just would never final day.

Of course really at an auction to buy them, we think of that as another key advantage and puts us in a strong position. We're excited about that and we've seen that the the advantage of that strategy play out here in this past quarter.

That's terrific. Thanks Tobey.

I could.

Ask a follow up question you know just the forward looking on your new markets.

The thank you only recently begun selling operations of a couple of those expansion of the city, but anything you're seeing with the.

With the buying operations or anything that you.

Could comment on how all of these new markets compare to 2 of the core of West Coast markets have you been operating in a while and just any insight there would be great. Thank you.

The other great question as I mentioned, we're just saying most of our growth of tremendous growth in the core footprint the.

That San Diego up to Seattle and kind of.

Canada, and Mexico West Coast region.

We're really excited about that Seattle being 1 of the newer markets as well, but Texas has landed very nicely.

While we don't see any need to rely on it for our 2020, 1 numbers and we see it really is the foundation.

Of our growth in 2022 and 2023 the.

The the wrap.

Would move to selling cars out of Dallas.

And.

Our being able to have both of the Dallas Fort worth and Austin, San Antonio markets up and up and running and selling cars is just real indication that we're bullish on the market that's going really well.

Furthermore, we're super excited about the idea of Texas being a great anchor for the central and Eastern United States, We built out our entire footprint on the west coast with interlocking mutually supporting region, but you know.

You can shop in la or San.

Francisco anywhere up and down the West coast, the now from Texas, and we see the out of the great day, each other to build out through the central and eastern United States. So we're feeling really bullish on that and there's been great reception of the shift offering there in Texas.

That's great to hear and.

Congratulations again, thank you.

Thank you.

As a reminder, ladies and gentlemen that star 1 to ask the question.

Our next question comes from a lot of that.

Cash them with Wedbush Securities. Your line is open.

Thanks, a lot of and good afternoon. My question is how you're thinking about managing growth versus profitability here. It seems like demand remains really strong and your inventory sourcing capabilities are really strong and while GPU might be coming in a day. It does seem like you're taking off of it.

The gas flow, but as it relates to growth first of all is that accurate and if so why why wouldn't you kind of drive more units. If you have the ability of the strong demand environment.

No.

So I'm not sure I understand your question because the growth pattern that we have exhibited the growing 5 times more than last year, and just raising our guidance by $85 million of think indicates of pretty fast growth.

You know we have to think about the way we grow the company in our existing markets and the infrastructure that we have to support all of that.

We are continuing to increase our capacity and things like.

<unk>.

Reconditioning.

For the has been growing just in the few months of been here by more than 25%.

Sales force is growth.

Growing serving our customers better. So we are doing everything we can to grow the top line.

In a very fast way our guidance again indicate that we're gonna grow revenue this year by 3 ex compared to last year of thought.

I don't think were.

Not trying hard enough the growth.

Okay. I was just noticing that your guidance implies in terms of quarter over quarter of unit growth of slowdown.

Relative to what you just did in the past quarter. So it seems like you had the ability to scale, but you are slowing down that scaling a little of that.

Yes.

Thanks for the better the market dynamics, where youre right now you.

The great inventory position, we want to maintain that.

But we also have to be cognizant that the market is expensive right for purchasing cars and in order to grow our GPU and maintain profitability. We have to think about how fast we grow the inventory at the same time. So there are many considerations here.

The stuff I think it's also important to remember that Q4, historically has very strong seasonality.

In the market.

I've kind of in the island, the tough lesson back in 2014 and 2015.

So in general we.

I tend to be quite conservative in our assumptions about Q for oded spoke about that in the in the prepared remarks.

And so you know across the board, we are pretty conservative in our assumptions about Q4.

Honestly if.

So part of our assumption here is that <unk> will come back to normal levels in Q4.

And potentially even you know we'll have a steep of seasonality curve the normal because of how Q2 and Q3 have gone right. So as it was the other than we'd be concerned about Q4, and obviously of ASP does not come down and that'll be upside to what we've already said.

Far as demand growth for the full year.

Got it thank you.

Thank you.

Yeah.

Our next question comes from the line of Ben.

<unk> with Cantor Fitzgerald the line.

Okay.

Oh, Hey, guys. Thanks for taking the question.

So your customer service vehicles of just going back to this came in at 93%, which is pretty significantly above some of your competitors.

Does this suggest that you might have some pricing power on the other vehicle acquisition side.

Down the road and maybe if you could kind of talk about how.

The.

Rising or the the sourcing of vehicles varies from newer markets versus older markets. None of the follow up on CAC of if I could.

It's a great question.

And I'm going to answer it both in terms of sourcing as well as selling we do believe in core of our strategy is the building out the shift brand as a destination for selling or buying your car does create long term pricing advantage of.

Allowing us to trade at reasonable market places on both sides of that day in.

In the short term, we do think we do have an advantage.

As I mentioned in the past quarter of being able to move our price and quickly along with the consumer market, so as to not necessarily the dependent or subject.

To the auction inflation that we saw and we were able to move through of 93 per cent.

Mark with that consumer sourcing, but again, the long term sourcing pricing does relate back to great customer experience and our brand journey and we're coupling both of those we believe we of the best customer experience in the industry of both sides for buying or selling your car and we want the brand that shift number 1 challenges that were great.

People don't know about it and so we do think of that brings with it both through the funnel conversion of advantage as well as.

The pricing power if that makes sense.

Okay, Great and then on the cash side, maybe if you could just talk a little bit about how CAC varies between you know some of your more established markets like San Francisco versus.

Some of the newer markets.

And then also.

Alright go ahead.

No go ahead finish the question.

The number 1 can you say.

<unk> it looks like your.

Marketing expense per unique visitor was up about 76%.

Which compares to a lot of pricing in the performance marketing space in Q2 up triple digits.

You know what are you guys seeing in <unk>.

Seeing any easing in kind of the impression costs.

On the performance marketing side.

Does that answer the question then I wish I could speak in more detail, but we haven't released kind of any data on how are you.

Older versus newer markets do as far as marketing and so what I can say is the following we have found in the I've spoken about the in the past the nonbanking unimportant until the upsides, we have found that given our presence in the various low pitches are already in.

Especially San Francisco, and Los Angeles that marketing nationally for brand is really beneficial we don't spend all of the $1 nationally, but a significant amount of we do as the obviously there.

The the the.

The cost of kind of more similar across the board.

The positive impact from that and then the second point.

And then I think it is really important to consider that we have very strategically.

Pushed spend more to brand and the way from digital spend we've for.

Loans over the years of building this company that building a strong brand in the movie where the clinical.

So we can't.

You Couldnt do that we just digital.

I and other the chip came into this business thinking that you could literally build the.

Whole company with just digital spend.

And so that's kind of not possible can do hit brand is really the crucial.

And so from from that standpoint.

We kind of don't just thinking about kind of customer acquisition costs from the digital fine we're kind of in the Mark holistic point of view, including the the brand.

The brand side of all kinds of claims.

Okay, great. Thanks, guys.

Okay.

Thank you.

Our next question comes from the line of Mike Ward with Benchmark. Your line is open.

Thanks, Good afternoon, everyone.

Just wondering if you could provide a bit more clarity on the walk and the gross per unit coming from Q2 to Q3, we're about halfway through Q3, and so have you seen the significant drop off already and the gross per unit or what are the other is it just the acquisition cost went up and some of those units kind of mature.

In from Q1.

From late Q for Q1, and now with the Q2, so what we're saying.

So.

What we have seen just the.

Let's go back in the thick.

The majority of the units that we sold in Q2.

Acquired in Q1, and before prices really went up right. Okay right for Q2, it was such a windfall of selling high after buying low.

What kind of the fee in Q2 for Q3 is a much flatter line and maybe even starting to show some signs of declining.

Price is we bought at the peak of the market and now we're selling it's still a good price, but clearly not as high of spread as we've seen in Q2.

So that's why 2 things a that's why we guided lower and also that's why we think that it makes sense to look at the 2 quarters together and doing the average because that's more like are.

Seasonal normal average would indicate.

So it's not the big collapse, so basically what we're seeing as we've come through July and August were seeing the transaction price is still remaining on the ecommerce side remaining.

Elevated.

North of $20000.21, $22000, but the cost of those has come up so youre not seeing the collapse in the market so to speak but you're just going with the expectation that basically the maturing process of the purchasing of the selling price differential.

Is that the right way to look at it.

Yeah absolutely.

You can see market dynamics and prices.

As well as the US and you can see the dairy hasn't been any collapse.

Right now I don't know, maybe a little depreciation in the wholesale market, it's less depreciation in the retail market, but it's not the same windfall and buying Gabe if those prices of meat.

We bought the stuff in the January February and then sold it.

Okay and part of that is just being conservative as youre looking at the numbers coming out because it seems to be the changing pretty quickly.

That's exactly right out of it though.

<unk>.

To consider the September it also usually are unique of months in the space because that's usually the time when you start to see seasonality in the the kind of have this very strong harvest right and then how much weaker September on the seasonality perspective.

So.

What we tried to do historically speaking of it.

Sell of much inventory as possible in August the go into separately moving less inventory and then of acquired inventory in September when prices have come down.

And so that obviously you know, but you still you can't tell all of your costs because that wouldn't make any sense and so you go into the September with some inventory that's going to have some GPU pressure, we know that that's normally the case and so the kind of managing for that and what we're guiding the 2 for the quarter and I do want to say 1 other thing which is not something you can track it.

Publicly available numbers, but I think it's something that definitely has.

<unk> in the space, which is that while the list prices for dealers are still of them in there. The strong we are noticing anecdotal evidence from consumers that the.

Discounts do you, let the offerings are beginning to be stronger than the war 30, or 60 or 90 days.

And so that will that's an indication to us that you will see some cash.

The reduction in prices coming into you know the future months and that's another reason why we're being conservative in our assumptions for the second half of the year as far as the gross profit.

Makes sense.

On the within SG&A I think in the first quarter you of the big marketing spend where you are kind of of doubling up does it come back down in Q2 do you have of <unk> marketing expense portion of SG&A.

Yes, the marketing went down from more than $15 million 2 in Q1 to less than the $11 million in Q2.11.

Clearly a total dollar of decline getting back to a more normalized range.

Yeah, great, but if you look at the whole SG&A, you've seen of yearly nice leverage effect of the.

Increasing the revenue.

And obviously not as much increase in income.

Perfect. Thanks.

Thank you very much.

All right.

Thank you.

Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.

Hi, guys. This is the 1 on for Mike I just have 1 quick 1 in terms of marketing are are there any major updates here are areas you can call out that are resonating with both buyers and sellers.

Yeah.

Well I think you kind of hard to say more than what we've said in the west.

And so far which is that we do.

Our cash by 46%, which is in Atlantic in line with what we had said that wouldn't be the case and we're seeing really positive momentum in.

The marketing that we're doing.

From from the consumers obviously on both sides.

Really excited about the data that we now have access to and kind of what that's allowing us to see in terms of what the reaction is we can't really the kind of go into more detail than that but we think that the marketing campaign, having a really positive impact, but I do want to underline 1 more time, but this is not a kind of 1 or 2 quarters out.

From this is the most headquarter.

Investments that you've been making for a long time, but that's how you book brand and we think that doing that will have very positive amid the medium.

2 of them in long term.

That's sort of the business.

That's not the listen perspective and from a gross profit percentage.

Got it thanks for taking my question.

Thank you.

Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon.

Hi, Brian graduation, congratulations on the great quarter.

Thank you.

So.

A couple of questions.

What's the follow ups.

First off just with respect to the the market the market growth, we've talked a lot of alpha.

Wayne.

Due to the new markets become more of a needle mover from a volume perspective for shift.

I hear what you're saying now you continue to outstrip the strength in your existing markets, particularly those in the western for the West Coast United States.

As you a portion of these new markets more east to be well, the what point do they really become a sort of state.

From a bad or more of the total volume growth of the company.

It's a great question, Brian. Thank you for that what we're saying is the we see the newest markets of the Texas market, the Seattle market likely to make a bigger difference next year. So in the 2022 timeframe and the reason is we have pursued a strategy that is go deeper.

In our existing markets.

Over time, which means they're pretty substantial market presence in each of those existing markets and so for a new market the catch up to that and make a significant difference it takes a little while but it doesn't happen like 3 months of more like it takes it about a year or so to start hitting the stride in terms of total volume all of that.

The different strategy than if we said hey, we're going to lots of 50 market for them each new 1 adds a little bit of a little bit of a little bit.

And we've articulated not not that strategy that we wanted to go deeper and get a lot more marketing and brand present leverage locally as well as create an ecosystem.

Our original strategy of our sort of say for original strategy and so that's why you might see the we see those.

Those markets, both incubating for a little longer and becoming part of an interlocking system.

Talk a lot about the.

The interlocking region that kind of support each other from a brand presence and total inventory of point of view.

No that's very helpful. I appreciate it.

Helpful. And then the second question I had just with respect to marketing the focus now.

For our brand building so.

You talked a lot of about the.

Shift that happened over the last 3 quarters and think of it to the prior question you discussed the.

Now the.

The lower marketing dollars Q1 to Q2.

So if your wife's we watched the market continue to unfold here what should we expect is it more of the same or will there be well all of the balance of saving of 'twenty, 1 where you see you were for its come in that that helped us this branding campaign.

Yeah.

I think for right now the best we can say is that.

To continue doing what we're doing I think Toby spoke in the prepared remarks that we believe that over at kind of 6 to 8 quarter investment. If we do the right unless 1 of them you can have some really positive.

<unk> on our brand and how much of aided awareness, we have and then that obviously has 1 of the tangible implications for our GPU and the customer acquisition cost.

Over the long term I don't think we can kind of say more than that at this point, but we.

We think that at minimum continuing what we're doing will be very much of the case for the next few quarters. Obviously, you know as our volume growth. The total dollar amount might increase but we're seeing that the cash where it is now is in a good place.

Got it.

Thank you very much and congrats again.

Thank you.

I'm not sure any any further questions in the queue I would now like to turn the call back over to George for closing remarks.

Great well, thanks for everybody for joining us and really tissue for your questions.

And when the Proto speaking to 1 of the 1 coming day.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.