Q4 2021 Shift Technologies Inc Earnings Call
Hello, and thank you for standing by and welcome to the shift technologies fourth quarter and fiscal year 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference maybe recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Henry Burke Vice President of strategy. Please go ahead.
Good afternoon, and welcome to <unk> technologies fourth quarter and fiscal year 2021 earnings call. Joining me on the call today are co founder and CEO of Georgia power.
Jeff Gomez CFO like that child.
In our remarks, we will make some forward looking statements, which represent our current judgment on what the future may hold and why.
We believe these judgments are reasonable before that these statements are not guarantees of future performance and involve certain assumptions risks and uncertainties.
Real outcomes and results may differ materially from what is expressed or implied in any forward.
Please refer to our filings with the SEC.
Sure.
Factors that may affect any forward looking statements. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise after this conference call.
In the course of the call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials with that said I will now turn the call over to George.
Thank you Henry.
Good afternoon, everyone and thank you for joining us on our fourth quarter and full year 2021 earnings conference call.
Lot of exciting news to cover including our Q4 and 2021 results.
To put this kind of marketplace assets from technologies.
2022 objectives.
Some thoughts on our profitability model.
Thank you for bearing with us as we walk you through these mentioned it.
What are the details are available in our shareholder letter and new investor presentation on our IR website.
I'll start with a quick reflection on 2020.
We finished the year with 637 million in revenue.
Anything over three year over year growth.
At 196 million in Q4 was not only above our guidance range.
Then the entirety of our 2020.
We expanded into Texas and now have full service model.
Our in house recognition on that.
Hallmark of operational excellence.
Oh, yeah, the output from this team with Rowan.
Only they can drove down cost and then Q4, we saw a 41% year over year decrease in average reconditioning costs.
We see this as further validation of our long held thesis that he and how quickly can these.
He is essential to building a large profitable auto e-commerce .
Okay.
Sorry to hop between condition, approximately 750 cost per week.
We will continue to expand capacity at 2020 progresses.
<unk> is more than sufficient to meet the high end of our 2022 volume guidance.
We made great progress in improving our unit economics, one will get adjusted GPU, 57% year over year to $2126.
Reconditioning.
Walmart H, one stable consistent and reliable implemented F&I per unit was a major highlight of H two.
In Q4, we had other adjusted GPU per unit of $1162.
That's not the unit has grown nearly two five X since the end of 2019.
We launched our first brand campaign in Q1 2021.
At the beginning of our long term strategy. He did the shifts and a trusted consumer brand.
Over time, greater awareness will diminish our need for down funnel marketing.
Can we drive cap and price to market leverage.
Turning now show shift has about 15% aided brand awareness in the markets in which we have a physical footprint.
Congress from a year ago, but still plenty of opportunities.
Thanks to our regional operational approach, we believe we can achieve about 50% brand awareness over the next few years, but what total investment than our peers.
We invested in our people across the organization.
Yes.
Thank you for we undertook the hiring initiatives to prepare us for close in 2022 and as a result, we are well stops to drive and haven't been on your ownership.
I can't overemphasize, how grateful and proud I am of our team for all that they were able to accomplish last year.
Despite it would be one of the most complicated and dynamic has come off its perhaps ever while continuing to navigate dependent.
Covid had.
To present, new challenges, most recently with a significant spike atomic bomb dairy cheeses.
Which had some impact on our operations in December January and February they're reflected in our Q1 guidance.
Nevertheless, our performance in 2021, only increasing the companys 19th I believe it's successful.
Business towards profitable thank.
Thank you chip team members for all your hard work over the past year, especially to those in the field at all.
Turning now to 2022 is off to a great start.
We're excited to be announcing today, our agreement to acquire the dealer listed marketplace assets compared to balances.
Transaction was fully funded by $20 million senior unsecured debt facility with a syndicate.
The acquisition and debt facility are expected to close in the second quarter of 2022.
I checked with long envisioned building a digital marketplace with both dealers and independent sellers unlisted cause alongside shifts or inventory offering customers access to a greater assortment of Poland and third party vehicles with all the transactions fulfilled through ship proprietary logistics network for the <unk>.
18 months sales were off engineering team has been developing digital marketplace platform for third party inventory, including our proprietary <unk> USA Onboarding platform. He lives can manage the entire transaction via this platform and easily schedule and at home delivery.
It is the ideal solution for dealers to participate strategically in e-commerce grow market share and develop long term relationships with customers.
As technology, along with the established dealer relationships will allow us to accelerate our vision of becoming the destination marketplace ownership, enabling us to launch the very first Alpha version of third party listings on our platform at the end of Q2 2022 years.
A year from now and then to scale it quickly.
We see several immediate and long term.
Benefits to the marketplace, including expanding our inventory assortment through access to third party sources.
E Commerce unit sales growth and drive margin expansion.
And provide further leverage on our marketing and brand.
Turning next to our objectives for the core business in 2022.
Today, we haven't released an investor presentation that provides a detailed view into how we envision achieving breakeven profitability for next Dx.
Ever since our founding with consistently worked to be prudent stewards of capital. They are investors Trust us with.
I'm proud that our team has shown our beliefs do more with us achieving significantly better unit economics at a smaller scale and spending less to grow to assign that appears.
This year and then you used to come we will continue to strive for an optimal balance between growth and driving incremental profitability with the ultimate goal of having a very profitable business that can self fund continued rapid expansion.
The operational efficiency actions, we will be undertaking Franklin to are critical in this regard in a minute Jeff will walk us through a few of these initiatives.
I feel confident about our capital position to fund. These efforts in 2022, and we will also look to strengthen our liquidity position. This year as we continue to be prudent stewards of our cash we believe our investments in excellence in reconditioning and strong growth in our GPU. Both on the front end and in F&I, coupled with rapid scaling and a clear path to.
Ability create the right combination and to attract additional capital as we work to capitalize on our market opportunity with.
With that I'm excited to turn the call over to our President Jeff <unk> to talk a bit more details about what we would have planned for the year.
Jeff.
Thanks, George when I kinda shift in the fall of 2021 I knew that I was joining a company that was both rapidly scaling unit achieving triple digit year over year growth, while also increasing the GPU.
As George noted earlier, our GPO expansion with a blend of market conditions significant reconditioning efficiencies and improvements to our F&I product offerings and sales capability.
As we constructed our 2022 plan we knew the next frontier of our path to profitability with to drive SG&A operational efficiency.
Our 2022 planned blend rapid unit growth improved GPU and significant cost leverage improvement by focusing on four core strategies and I'll walk through today.
We will continue to drive strong unit growth through market expansion and deepening our existing footprint, especially in California and Texas.
Second we will further expand GPU by continuing to invest in machine learning driven pricing optimization on both sides of our marketplace.
Additional reconditioning efficiencies and further improving our F&I value proposition.
Third we are very excited by the technology enabled efficiencies that we will that we can deliver across the end to end customer lifecycle, beginning with the customer discovery in shopping by introducing new customer empowered checkout flows and by streamlining our fulfillment and post purchase experience.
These platform improvements will be accelerated as we combine and integrate the great talent at shifting there into a unified team.
Fourth we are continuing to evolve and improve our personalized sales into enrollment experience.
We will combine technology and a personal touch to enhance the customer experience leading to improved conversion and operational efficiencies.
Executing this strategy in 2022, what's that shifts on a trajectory to strengthen our brand as an innovative customer centric modern used auto e-commerce retailers, while achieving adjusted breakeven EBITDA at a much smaller scale than our peer set.
I will now turn the call over to a dead to review our financial results and walk you through our path to profitability Oded.
Thank you, Jeff and good afternoon, everyone.
We have shared quite a bit of information with you today, so I'll try to be as efficient as possible and walk through our Q4 and fiscal year of 2021 results all of which either met or exceeded the guidance provided on our last earnings call.
Our 2022 guidance and finally the model, we published today that illustrates our path to profitability.
I'll start with some highlights from our Q4 and 2021 results.
For full details please reference to Q4 shareholder letter posted on our Investor website.
Financial results total revenue for the fourth quarter grew to $196 million, an increase of 167% starts with prior year periods.
With E Commerce unit sold.
Sold growing to 6441 units up 95% year over year.
Adjusted gross profit per unit reached 1900, <unk> 10 in the quarter, representing nearly four X year over year increase.
Adjusted GPU for the full year was 2126.
A key contributor was our other adjusted GPU or F&I.
<unk> 1162 per unit, representing a 47% increase year over year.
Adjusted EBITDA loss for the quarter was $43 7 million or a loss of 22, 3% compared to 39, 4% loss rate last year.
For fiscal year 2021, our adjusted EBITDA loss was $137 6 million.
Or 21, 6% of revenue.
Compared to a loss rate of 35% last year.
A quick highlight on our cash position.
We ended Q4 with cash and cash equivalents of $194 3 million, including $11 7 million in restricted cash. Additionally on the liquidity front in Q4, we entered into a $100 million floor plan facility provided by ally doubling our previous facility.
At year end, we utilized $83 3 million under the facility with additional $17 million from Perth.
Now to guidance.
For the first quarter, we expect revenue to be in the range of $205 million to $215 million roughly doubling our Q1 2021 revenue of $106 million.
For the year, we expect revenue to be in the range of 1 billion to $1 1 billion.
We also expect ecommerce retail units for the full year to be in the range of 34 to 38000 units.
Adjusted <unk> for the quarter is expected to be in the range of 1500 1600.
For the year, we expect adjusted GPU to be ahead of our 2021 GPU 2126.
A reminder, that 2021 included approximately a 150 of price depreciation tailwind in Q2 as we have previously discussed.
Our adjusted EBITDA loss for the quarter is expected to be in the range of $46 million to $48 million for the year, we expect adjusted EBITDA loss margin to be in the range of 12% to 15% inclusive of the investment in the marketplace business and the significant improvement.
The 21 six loss in 2021.
For my final section I'd like to walk you through the financial model that we shared to date.
Following our success in the rapidly growing our E Commerce unit sale.
Revenue in GPU in 2021.
And our trend in continuing growth evident in 2022, we have better visibility into our path to achieve EBITDA breakeven point and into profitability.
Breakeven EBITDA can be attained at the 100000 retail units, which equates to roughly 3 billion in revenue.
Our volume growth is going to come from our legacy markets in California, and the Pacific Northwest, where our current share is significantly lower than some of our competitors.
New markets, we launched Texas in 'twenty, 'twenty, one and expect to launch more major markets.
And new lines of business, including the marketplace.
Grow GPU to 3800.
We have previously shared that we believe we can get to 2005 hundred GPU with our existing line of products.
The strength of our business over the past year has given us the visibility and confidence that we can outperform that and increased GPU to approximately 3000 with operational improvements.
This algorithm reconditioning efficiencies F&I attach rate wholesale business et cetera.
Additionally, the contribution of new business opportunities, including a captive finance business. We believe can add at least $700 per unit and our service and repair business.
<unk> contributed an additional 300 per unit.
Brings us to our estimated breakeven GPU of 3800 to 4000.
Finally, improve SG&A efficiencies by right sizing marketing CAC too.
1000 per unit sufficient level to maintain continuing growth.
Redesigning the sales and fulfillment processes to drive higher conversions and leverage corporate overhead.
We plan to achieve these benchmarks over the next three or four years, but we will not stop there we see the opportunity to grow further into the future and build scale and profitability for years to come.
Thank you audit and Jeff again, I want to congratulate and thank all the shifts team members support great 2021 for all of their hard work as we strive to deliver another fantastic year of performance in 2022.
We're excited about the opportunities that are ahead of us and bringing shipped closer to being umbrella business that is self funding its growth and strong profitability.
That weren't on the cheap or whats your questions.
Thank you.
Finder to ask a question you will need to press star one on your telephone.
Draw. Your question, we have a lot of exciting news to cover including our Q4 and 2021 results.
Our 2022 objectives and finally, some thoughts on our profitability model.
Thank you for bandwidth us as we walk you through these materials further details are available on <unk>.
Shareholder letter and new Investor presentation on our IR website.
Again reminder, first question.
Ask a question. Please press star one our next our first question from Zack pattern with Wells Fargo. You May proceed with your question.
Hi, This is Eric on for Zach I was wondering if you can comment on you mentioned that Omnicom was a headwind in January and February if you can sort of quantify what that impact has been and how you are thinking about the cadence of unit cost over the course of the year and so what are the drivers to get to there.
Thank you we don't have a kind of quantified number we can share today, we definitely can point to areas, where it was a challenge though of course, Gwen Omnicom started we definitely felt that there was some concern among customers point in terms of buying so there was some slowdown in sales when it was first announced in there.
Not significantly but somewhat.
Nonetheless, and then secondly, which was probably a bigger topic had to do with the fact that as on cases grew we were obviously suffering from that as well as everybody else and so we had people out and commissioning we had people out in field operations.
At the executive level as well across the entire org and so the fact that we did not have everybody you'd be able to work because they needed to impacted our ability to fulfill customer needs and at times as well as <unk>.
Impacted our reconditioning.
All of these for a specific period of time and also increase our cost a little bit because we had to rely on more all the time.
So that was at definitely kind of impact in January and early February and that's reflected in the guidance that we gave for the quarter.
Thank you. Our next question comes from Brian Nagel with Oppenheimer. You May proceed with your question.
Hi, good afternoon.
Hi, Brian .
My first question, probably one two together just with respect to the acquisition that was announced today. So I guess two parts one just maybe discuss the giving given your technology backgrounds.
The build versus buy decision and then secondly, just as far as this portion of your business will ramp up.
Following the acquisition how should we think about that you know I guess essentially the size the size of this marketplace business versus the core used car business and just the underlying economics of that business versus the business today.
Great. So I'll start and then I'll I'll, the photo or that on that on the economics question the answer so to.
To start with kind of build versus buy we've talked about wanting to do a marketplace for years I think Brian you and I, probably talked about that for first time with that.
Lauder at three years ago, and it's always an issue how do we get the capabilities in terms of people to do that work. In addition to all the call because I would have to do we are fundamentally builders.
I found the companies or.
15 years of my life.
And we would like to build our own thing but.
We also have a lot of core work to do in our core business and so devoting time to this has been a challenge. So when we looked at off on our roadmap for the long term it felt like it would be at least two years before we could build this ourselves so given the totality of the work that we need to do across the entire business and given the long term model that we shared recently.
Today, you can see kind of how much stuff, we have to do on that front as well.
This was a very opportunistic in terms of how this all developed I've known the CEO off there for a little while now and he came to US telling me what they had done and it was extremely impressive. They had spent 18 months building really great technology, which was very very complementary to what we do and how we build things.
Without any disruption and having to run on that day to day business because.
Just kind of how bad is developed and so that was a really appealing proposition you don't often have a situation where a bunch of great engineers and a bunch of great product people get to work on a product without having been having disruption and can build everything end to end in a really great way.
So as we learn more about the technology, we became very excited about it and found the opportunity to be super interesting for us and the benefit of that is going to allow us to accelerate the marketplace business by at least.
Two years right. So we're going to launch it and then kind of beta way that Q2 towards the end of the quarter, whereas Alternatively, there's probably would have been a 2024 proposition in terms of when we could do at the leverage on that business is extremely important and we will be <unk> expect to see over time, leveraging marketing right because of that.
Have more inventories of conversion should improve we will also be able to be more selective in what inventory, we sell that we own because we'll be able to supplement that with inventory from the outcome and so the customer experience will improve our GPU should improve and our marketing costs should come down in conversion should improve so.
Overall, that's a really big plus we've seen marketplace has worked really well in other verticals and you know, it's a serendipitous situation for us that Jeff.
<unk> shipped in October had actually spent.
Building a marketplace at Walmart and so while we haven't planned on demand marketplace with expenses. Obviously also super valuable here, so with that I'll turn to order to kind of walk through of the human economic as part of your question.
Thank you.
So the impact financial impact on 2022 is immaterial. That's included in our guidance, but it had very little or no impact on it.
When we think longer term. It is not included in the break even model at this point.
We need to have a little bit more experience with this business and see the ramp up in order to be able to assess how it.
Impact the longer term picture.
But in any case, we think it's going to be a very good business for us and probably the break even point will be earlier than.
The core business when.
When you think about unit economics.
You get benefit in revenue from F&I.
And also had a much lower cost structure, selling and the marketing than the core business.
So again overall we.
I think thats, a very good opportunity for us.
That's great and then if I could thank you very much Matt if I could just one.
So a question for you.
With respect to you thanks for laying out the.
The breakeven the path towards your break even in today's call.
How should we think about the funding needs of the business.
To get to that breakeven point.
So we feel very comfortable our liquidity position.
Disappointed now we ended the year with nearly $200 million in the bank. When you think about the growth of the business.
We primarily going to fund inventory growth through our floor plan.
Pardon me.
<unk> signed a new floor plan facility in Q4 that doubled our capacity in before and we think that can be scaled even higher as we move forward to.
Satisfy inventory growth means.
That being said.
We have to think about the future as well we feel very good that 2022.
We have sufficient liquidity to cover all of our needs.
For forward and we will want to further strengthen <unk>.
Equity this year.
It can take many different forums, we just showed that we can issue additional debt it could be equity or whatever form that.
He is acceptable to the company into the market.
And then finally in the meantime, we're taking steps to be prudent stewards of cash.
And we identified means to enhance our cash spend efficiency. So obviously cash flow is a big focus for us.
Brian I'll, just add to that that you know when you look at last year and the excellence into the condition that we saw coupled with the growth in GPU. Both on the front end and the backend as well as the rapid scaling that we saw last year and we will continue to see this year.
Plus now a very clear path to profitability will do all of those factors together are the right factors to attract new investors to shift we just attracted and units are shipped with softbank coming on both the debt and an equity investor.
And we believe that others will come in the coming quarters as well.
I appreciate it thank you congrats.
Thank you. Thank you. Our next question comes from Rajat Gupta with Jpmorgan. You May proceed with your question.
Great. Thanks for taking the question.
Just to follow up on the funding question.
Yes.
The fact that you know.
Okay.
All these options as you go further down the road, but I.
I mean, given we are.
Still somewhat of an uncertain macro environment.
Our system integration.
Fairly high gas prices.
It could be in a pretty.
Long term market for us.
Wire.
Yeah.
The market might not be that accommodating.
So why don't you why.
Why not considering an equity raise today.
Even though the stock would be raising quite a bit but why not consider something like that today in order to derisk and allow us to focus even more on.
During your competitive advantage.
And I have a formula.
Hi, Thank you for the question like I said, we are always paying attention to opportunities to on capital and we'll continue to do that we can't control what the market does what we can control with our own behavior.
And then can sure that we execute really well.
Obviously additional capital is something we will consider and we will aim to add to our liquidity position. This year, but I don't think I can say when we will do that that's probably would not be probably.
Got it fair enough.
On the full year guidance for.
Adjusted GPU.
Could you give us a sense of what youre assuming in terms of.
Strong pricing environment.
Journey the mix mix of your business has also changed in terms of the vehicles.
And your guidance implies a pretty.
A significant uptick in ESP was last year and seemingly more consistent with where it is in the first quarter.
But I'm just curious like what what's your view on used car pricing and what informs that adjusted GPU guidance. Thanks.
Okay. So two parts, let's start in pricing at the end of the year and beginning of this year.
<unk> seen our ASB.
Very high level.
Car prices has appreciated for the majority of 2021 at this point, we see some stability and going forward we expect.
Pricing to be normalized as we've seen in the previous year are set out in 2018 19.
Where there was moderate depreciation throughout the market.
So our asp's for 2022 is going to be higher than 2021.
But we'll probably peaked at the.
At the beginning of the year.
As for GPU guidance, what we're saying is that for the year, we expect GPU to come in above last year at <unk>, which was $21 26.
And we believe that the strong performance is going to come from key two key areas. One is continuing improvement in F&I last year in the second half of the year, especially we've seen dramatic improvement in F&I.
And we think we can build on that and reconditioning, which was the big story of the first half of last year all of the improvements we've seen them.
George.
<unk> spoken about it as well.
So that's that is.
As the basis for our guidance.
Understood right.
Thanks for the color I'll jump back in queue.
Thank you. Our next question comes from Seth Basham with Wedbush You May proceed with your question.
Thanks, a lot and good afternoon. My first question is related to the longer term model.
Of the $700 do you expect to get for GPU that you expect to capture from the captive finance opportunity that's going to take a fair amount of capital to build out I assume when you're thinking about moving in that direction do you expect to build it or buy it what kind of unit volumes you need to have to support it.
So thanks for the question at this point, we don't have all the factors to answer your question detail.
But I would say the following.
Captive was always.
In our plans for the future.
The question about the captive is usually of scale because in order to finance. The captive do you have to be active in the ABS market and repeat issuer.
Issuer, so you need to have some kind of scale.
Before we talked about the scale of them.
At least $1 billion in revenue and as you've seen from our guidance, we'll be able to get there by the end of this year.
Which means that we can start planning and C of the timing of when we're going to launch it we don't have specific.
Plans of when and what form it's going to take.
But I can tell you one thing that when we talk about this 3800 GPU. It includes only $700.
GPU coming from the captive.
And if you look at our competitors and other possibilities you know that you can basically double that F&I contribution.
So the premise here that things are going to are we going to start slow and build it up from there.
The good news is that it gives us opportunity to grow the GPU even.
Above the 3800 to 4000 with additional catheter money.
Got it fair enough and my second question is related to the acquisition of fare.
First of all can you disclose what you paid for it and how long do you expect to recover.
The cost of that acquisition and then Relatedly. The economics that you reference there to third party units just to confirm you expect only be making revenue.
And I portion of marketplace units not on any other portions of the transaction.
Thanks, Seth this is George so.
Kind of a couple of things here. The total acquisition price is $15 million in cash and two 5%.
Equity.
It is fully funded through a 20 million dollar debt facility from Softbank.
And the details about that that facility out available in our shareholder letter.
As far as the interest rate and so forth.
So the transaction is fully funded.
<unk>.
From that perspective.
As far as kind of how we think about the unit economics of the business end and what are the possible yeah. No arm approach to generally developing products is a testament approach, meaning we try various things that hypothesis that we go in with towards that particular point and then we learn what works the best.
We have I think a few approaches and then Berman with and then depending on what land is the best we will be able to then pursue that as far as how we charge deals for us I think the critical thing to remember for US is that we're not looking to list every single day less car on our platform right.
If you think of for example, northern California today.
You have something like 2500 cars listed on our platform.
If we wanted to marketplace to be 20% of that you know, although sales we'd be adding about 500 dealer listings.
Now that would be a pretty significantly increasing the total inventory and then one on the non California, but you only need about 10% to 20 dealers to get to 500, the cost and so this is an opportunity where we think dealers will have an exclusive opportunity wanted to work with us.
It'll be hard to get in to be a partner and.
And we will be able to get really good cars as a result.
Because I think demand will be higher than the amount of room that we can offer it in the early days.
Could you list a list we were.
We'll probably experiment with charging a certainty.
And also potentially taking on the lines show in F&I as you all know that Bob mentioned, but there'll be different experiments that will try out and see what land.
Best.
Thank you.
Thank you. Our next question comes from Marvin Fong with <unk> you May proceed with your question.
Great. Good afternoon, Thanks for taking my questions first one.
Well, maybe we can talk about the customer acquisition costs in your model and your view on getting CAC down to $1000 and.
You know I I see the slide on your on your presentation about how some of your peers have.
Spent more on there Brian spends but just curious on your confidence in getting to that $1000. I mean, I think one of one of the peers you decided it's still it's still in the high almost at $2000, even though they spent.
The triple digit millions on branding brand marketing so.
Maybe you can just elaborate a little further on your confidence in getting back down to below $1000 per unit.
So we think that the.
A few things to kind of be focused on here number. One is that we are a regional kind of playing right. So we are pushing things from a regional perspective, we might buy ads nationally at times, but that for the purposes of reaching customers in the regions, where we have operations, we're not trying to build our brand awareness everywhere. What we care about is places where we have operations.
That allows us I think to have a significant advantage over our peers about doing something more on a national level. Because you can capture a lot more market share in the regions, where you operate.
Will that then have greater word of mouth, which really drives down your.
Europe .
So that's number one secondly, we.
Are heavily focused on SCO, which helps in this regard as well and we're really happy with how those efforts are going in with the metal Adobe support.
Driving top down as well and then thirdly, a really crucial component of driving down cap if converted the banner year conversion the lower your tank because today.
Who will come to chefs might not convert and then we're spending money in marketing to them, but not not selling to them and so that is why as Jeff spoke in prepared remarks, driving conversion up both on the site and with our sales team is a critical initiative for US this year and it frankly will continue to be quite for a long time.
While this is not in our model, we believe that the market places as laxity will be help us in that regard or by increasing conversion across the entire funnel.
Lastly, we do know that one of our peers are at about $1200 intact, even though theyre going full on national and in that regard and so we don't think that $1000.
<unk> got much lower than where the that youre already is so we think it's a very reasonable number I think frankly.
Internally a lot of folks believe that ultimately you can do a lot better than a 1000, but we wanted to be very realistic in the numbers that we put forward for the next two years.
So that's that's kind of I believe the full answer.
All of them are starting to help US go ahead.
No we think that in the long term the cat can be significantly lower than a thousand but we kept at a 1000 in the breakeven model because we wanted to emphasize that we are a growth company and we're going to continue to grow and in order to grow aggressively you need to invest in marketing.
The reasons.
Great. Thanks, Thanks for that and maybe a follow up question just I imagine youre still working out some details on the acquisition, but just you know in terms of sort of the you know.
The inventory, you'll be bringing on from the dealers and curating that I mean, well well there'd be a conscious effort to sort of.
Keep the inventory that you're listening from dealers kind of distinctive from from the type of vehicles you guys offer or will we expect that kind of like fine the same making model in yours.
How are you planning to manage that.
So for sure we're still gonna still kind of working on that right.
Done a lot of thinking about hydro puts the marketplace, but as I said in an earlier question, we will test and learn our way into what is the best way to do that.
We one of the things we're excited about what's there that that team actually has.
Really strong relationships with the dealer community they had.
Hundreds of dealers selling prefer in the personal inclination up there, which is not the marketplace business that was a different business, but nonetheless, those relationships that really.
Paul and he has a team internally that has to work with these deals for a long time. So that's really valuable to us because we don't have to build that ourselves and how we can rely on on that team to help us.
Bring that courts, they've already actually signed up a lot of customers on the dealer sites to be in the Alpha test and so that will be super helpful to us as well generally if you look at our market based businesses you want to start slow and then expand right. So today, something like 70% of what Amazon sells it from the market.
Even though in the listings total is actually much higher than 70%, but that was not the case 10 or 15 years ago, Walmart as well as a significant Michael listen today, but had virtually no matter if their business five or six years ago. So you want to start slow and then over time grow it.
I think that in our.
Reasonable Wayne out 10, 20% over the next few years of marketplace listings would be a significant value add to shift and will really help with conversion and customer experience, but if we can do make do more great but for now we're kind of starting a reasonable place where we can manage things well.
Great. Thanks, Jonathan.
So just add something about inventory.
That being a marketplace business, we would not be purchasing the inventory so from a capital need.
Need to finance that from a capital demand this is very light.
Mhm.
Right understood, Thanks quoted and George.
Thank you.
Thank you. Our next question comes from David Cohen with True Securities. You May proceed with your question.
Yes, Thanks a lot.
Two questions one on the on the guidance for Q1 GPU.
If I just look at the compare that with where we were in fourth quarter. The GPU number reflect.
The impact from Omi Corona are there other factors at play that's kind of led to a sequential decline.
And then on the or on your marketing spend how are you thinking about spending on brand versus performance channels.
Through the course of this year.
Thanks for the question, let me start talking about GPU and then.
George can talk about the marketing question.
So we're very excited about what's going on in Q1, because we are seeing and guided to double our revenue over last year. We're also very excited about.
On the GPU guidance, we provided for the year was going to be higher than last year and when you think of it last year was aided to some degree by the very strong market dynamics, though going above that is an accomplishment.
And we're going to do that with improving F&I and reconditioning as we said before.
Specifically with Q1 guidance.
Couple of important factors to mention one is that GPU is seasonal seasonal variances were historically Q2, and Q3 are the highest quarter for us while Q4 with all the competition for the customer dollar with everything going gone into holiday season.
Is lower and then usually there is some hangover into Q1, so historically Q4 and Q1, the lowest GPU quarters.
Uh huh.
Specifically again to Q1.
As you mentioned there was an impact of the omicron breakout on the reconditioning and debt.
Clearly is going to hurt us in Q1, however that was resolved by the February timeframe in.
In the February so our capacity is strong and it's not going to have any impact on future quarters, we actually look forward to strong performance.
In future quarter, and then finally in Q4, we made a great effort to replenish the inventory due to our strong sales in the quarter.
Now at times.
We bought some of these cars during a period, where pricing was still going up and then selling them in Q1 at a time, where price is flat or maybe even a little bit lower so that put additional pressure on.
Q1, but again, we feel very strongly about our guidance for the year.
And with regard to marketing and kind of mix of digital and the brand.
I don't think we can speak to specifically, what we might do in the.
Coming quarters, but we can speak in a more general way that we will continue to invest in brand.
We might at times slow that down and then accelerated other times there are a lot of factors at play and how you make those decisions.
Sometimes it's good to give it a rest for a little bit.
And the creative that you think could get old and you might want to introduce new creative and in which case you might want to take some time between network Creatives.
In the end doing heavy brands. So we're trying to take the best practices. We can in that regard and ensure that they have success and then obviously, we'll continue to use digital marketing.
As we have in the past in order to do the things that we need to do the brand investment as we talked in the past is more for the long term and we feel really good about our ability to over the next several years drive towards 50% aided brand awareness with the type of spend that we estimate it in the investor presentation, which is obviously significantly lower than that.
Peer set have done so far so we think that's a really powerful tool that we have for the medium term.
To both drive aided awareness, which then will improve our conversion across the funnel.
In terms of driving customers to ship in converting those customers and what we sell comscore in terms of price to market I've spoken in the past about how even one percentage increase and price to market is a $250 additional gross profit improvement on the front end.
So no.
Our price or market today, okay, but we know that we can do a lot better we've seen others increase that place the market significantly with having a better awareness and so we think we'll accomplish that as well. So we think the investment Atlantic worthwhile, but will probably manage it in a careful way both with not only this year, but in the years to come.
Got it.
Thank you George Thank you good day.
Okay.
Thank you. Our next question comes from Tania Anderson with William Blair. You May proceed with your question.
Hi, Good afternoon, I just have a follow up on that a favorite technologies acquisition.
What would be the key trough our dealers to lift for sure first of all their platforms.
So again, our model envisions us fully closing the transaction right. So we're not just a listing site. We actually have full purchase transaction and then we offer fulfillment through our unique logistics network that we maintain ourselves in each region, where we operate which is obviously a huge differentiator from anybody else, but no.
One else has this kind of regional local network and logistics that we offer.
The deal was I think that well see a ton of different benefits number one they all have exposure to new customers.
Especially in within region. So for example think of a dealer and say San Jose, California today that deal is attracting customers within 10 to 15 miles of their location.
People, who live in Martin County for example are not going to want to come get that far but with our model with local logistics you can actually exposed to a customer in Lyon county to that vehicle and enable fulfillment for.
For the customer.
At the home and that's a huge advantage of new customers coming through with new customers exposure. Then you hopefully see an increase in time to sell which is probably the single most valuable thing for the dealer because they have cost of parking and they have cost of Copeland capital, which limits their ability to.
Two.
It kind of grow it and of course, it doesn't isn't how Microsoft So that's one big bucket of all benefit the second bucket of benefit is the fact that they don't have to have a finance manager do that transaction and they don't have some of our sales person do that transaction as well, which saves on cost and again to go back to the point I made earlier, we're not looking to list every single dealer inventory long shift where.
To have select dealers and working with US who will increase our inventory, but we'll be kind of getting something very special in their exposure to the shift.
Okay, and then just a follow up I appreciate that you don't really aren't ready to talk about the captive finance, but what we are wondering is if this acquisition in any way maybe.
First as Youre in turn home planning accelerates your movement to doing that in house at all I'm Chuckling a platform like some capability. It has right now.
Yeah, So look I'll I'll speak to it a little bit more sense of what I spoke to about counter before I've been looking forward to doing capped it ever since I started shift like I got into this business for the purpose of building a captive finance business. We learned along the way that you have to have a lot more scale before you can build the captive business for all the reason, though that this milestone related to the <unk>.
ABS market that scaled roughly eight 1 billion in revenue and so we're kind of getting that and getting to that level and I'm super excited about it.
We have in the past done a lot of the internal work to be able to enable that captive business.
And we feel really confident I believe you'll be able to stop that process and kind of build out a captive business in house.
He asked me, if we aren't able to sell more cars.
With the help of a marketplace model than we had anticipated selling with the core shipped on inventory that will only help the catheter business because <unk> really does require frequency of issuance in the ABS market. So if we you know we're envisioning a 100000 of units in a few years and now with the marketplace. We end up doing 20 or 30 more.
That'll just be a greater opportunity for captive and Sony.
I'm thinking about that benefit we have not provided any midterm or long term guidance for the months of placing very clear we need to launch its first and have a few quarters overtime with the marketplace to be able to do that but.
That is a good hypothesis to have that with more capital more volume from the marketplace captive will be an easier model the build outs, because we will be able to be more selective in what.
Causing yourself with a doctor.
Okay. Thank you.
Thank you. Our next question comes from Mike Grondahl with Northland Securities. You May proceed with your question.
Hi, guys. This is Allen on for Mike just two quick ones what percentage of vehicles are sourced directly from customers during the quarter.
And what was the customer acquisition cost for the quarter I might have missed that on the shareholder letter.
So <unk>.
94% of all vehicles purchased came from customers, which is consistent with our.
The past few quarters.
And I'm sorry, what was the second question.
Hi, just overall customer acquisition costs for the quarter.
Okay.
Hum.
Right.
It.
It was just under $2000 goes back to 1980 acre b to be precise.
Great. Thank you.
Thank you. Our next question comes from gunshot wound with Cantor Fitzgerald you May proceed with your question.
Oh, Hey, guys. Thanks for taking my questions and I appreciate a bit more color around your path to profitability.
So looking at the model total SG&A SG&A expense per ecommerce unit has increased every year since 2017, which I would assume is largely attributable to the new market expansion can you give us any color quantitative color around this market cohorts from an SG&A perspective.
And as a follow up you know you're in three of the top five markets in the U S and U.
Mentioned, you have a significant opportunity to scale in California your own market in the Pacific Northwest.
If you were to cut market expansion entirely what would this do to your operating expense per unit profile timing to reach scale to expand on that a captive finance or your timeline to profitability. So I guess really what I'm trying to get out here as you know the market looks like it's pricing and higher odds is slipping into a recession. So if you needed to achieve.
She breakeven cash flow quickly how would you do it and what investment what does it take.
Thanks for the question.
When we talked about the path to breakeven.
We all always note that whatever we presented to you is a fully growth model.
Where we want to end up at breakeven and then some and.
Enable us to continue to grow for years to come.
However.
There is always an alternative to focus more on cash preservation, and maybe even get closer to the breakeven level.
And you do that by as you mentioned you can moderate.
Growth rate into new market because no market.
Not necessarily capital investment, but you know between staffing and marketing can be.
It can be expensive.
And also focus on them.
SG&A efficiencies and improvement I have to say that for 2022 SG&A is top of mind for us. So if you think about 2021 and before I mean scale was important and we really grew our jeep.
GPU in that.
Quite a significant way.
But this year, we are focusing on how to improve SG&A through product technology.
Not just relying on on people.
So.
We think that's going to have.
Implications on our model for this year and also for the future. So that's that are an important part in our path to profitability and when you look at the slide you see that there is continuing.
Continuing improvement on the SG&A side as we go forward.
The same with marketing you know again this is a growth plan. If we wanted to sacrifice some of the growers for the purpose of breaking even earlier.
We can do that by moderating our marketing expense no question about that.
Okay, and so you know I know carvana has broken out kind of their market cohorts.
Which is similar to kind of your what you take marketing expense similar you know I think they were original cohorts in our 2018 analyst day deck, where it you know $440 per ecommerce unit on CAC in 2017 years were 580, so should we kind of be thinking about.
Your pack from your older cohorts and that kind of mid 100 dollar range $500 around there.
I can't speak to specific numbers and marketing and I think it is important to note that.
Our brand marketing is much newer and it's time, many carvana started doing brand marketing much earlier and by the time they share cohort data would have been a few years of them doing it. So we haven't done that yet.
Accordingly.
Point, there and so we'll probably.
In Grand total spanning more right now than you know.
Because we're catching up versus kind of had we started a long time ago.
But we.
We definitely do see better unit economics in our most mature markets and there's no question about that and that's true across the entire business.
Also I do want to say like we've not been in the business of watching many market 10 ones and we just I mean, you noted as well so.
The sharing coordinate it a little bit harder for us to do because we only have these kind of few regions that we've launched I think you know in the future as Texas market start to mature we'll be in a better position to be able to share the kind of cohort analysis that you're asking for.
Okay. Thank you.
Very helpful. So I appreciate the color thanks, guys.
Thank you. Our next question comes from Mike Baker with D. A Davidson you May proceed with your question.
Ah Okay. Thanks, two questions just following up on.
Why dealers would want a list on your marketplace. Because there are a lot of other marketplaces out there and more growing it and we're actually you've been hearing it's pretty competitive too.
There's a lot of dealers or are actually selling cars directly to some of your competitors. For instance, we think carmax is out there buying cars directly from from dealer. So how competitive just to follow up on that question. How competitive do you think is going to get to get dealers to listen to you and then a second question I've talked about in our path to profitability of three to four years.
<unk>.
Has that been pushed us up and move forward because of this acquisition or is it going to take longer to get there because this acquisition might be dilutive in the short term just how does that three to four years compared to what you may be thinking you know six months ago.
So let me take the first question again.
Said earlier, we don't need every single dealer or anywhere close to every single dealer listing with us since we're gonna be a full transaction marketplace.
And we want marketplace cost to be in reasonable 10, 20, 30% of our prototype lifted in a given region. We're not talking about that many of those that have to be on a marketplace. Right. Now we have about 25 minutes I've listed in northern California. So we wanted to add 500 dealer partners to that that would be about 20% growth in our inventory.
That's very significant.
We would need to probably 10 to 20 deals at most two took us well that's when their hundreds of dealers in this region that we put at Barclays.
One of these kind of things I always kind of one of the very same as German brands has been 11 stores.
In the Bay area, we probably won't be one one or two of those stores on our platform not everybody because we wanted to be able to increase the footprint of that store in a significant way across the entirety of the Bay area. So you get all of them that would not be what it might be beneficial secondly, kind of on that point.
We are unique of the e-commerce sites and that we sell a much cooler.
A cause in terms of age than our peers do.
So there is a whole segment of kind of independent dealers out there that mostly third party there are six plus years old.
And our online platform don't really touch eight plus year old cost and so for that cohort of dealerships shift is one of the few places where they can less with the reason being that that's much more of a local or regional approach with a shipping nationally it doesn't make sense to ship, a 10 or 12 or even a 15000 ton nationally given.
The cost and so our model is very unique in that regard and I think that'll be an advantage, but that more independent dealership cohort to be lifting with with shift.
So I'm sure they'll be.
All of these things there's competition, but as we've seen for example, with Amazon and Walmart right like everyone is listening with Amazon and then a lot of the same folks are also listening with Walmart, but.
There's plenty of them for more than one sets up a marketplace and I think the same will be true without a motive as well.
I will turn to audit for the for the second motion.
So let me talk a little bit about the economics of the marketplace No impact financial impact on 2022, and then going forward it depends how fast we ramp it up.
Small initially and then bigger with starting to contribute to our bottom line before the core business as we mentioned I think your other question had to do with.
Why are we shouldnt get now and not six months ago. So let me just.
And then our first full year as a public company.
We wanted to see the results for 2021 and have some visibility into 2022.
And we liked what we saw so far so we thought this was a good time to share with you how we feel about the future both.
Path to breakeven and then beyond.
And then last point to kind of emphasize again the model that we've put forward. It does not include the marketplace at all in the outer years.
And so as we launched the marketplace and kind of see how it's scaling then we would need to update that.
With the marketplace as well and we think there'll be a lot of synergies as I discussed earlier and marketing et cetera, but the model you have out there as a standalone <unk> core business model.
Okay. Okay.
Just a quick correction I think you used the word no impact on 2022 at the impacted in the Purion I cant be sure theres going to be exactly zero.
Okay. Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to George Eriksson for any closing remarks.
Well. Thank you everybody for joining the call and we look forward to talking to you.
Thanks for that.
Yes.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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