Q4 2021 Carlotz Inc Earnings Call
Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good day, and thank you for standing by welcome to the car lots fourth quarter and full year 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 a question. During the session you will need a press star one on your telephone please be advised to today's call.
May be recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Susan Lewis V. P of Investor Relations. Please go ahead.
Thank you good afternoon, everyone with me on the call is the least solar Sano, our recently appointed chairman of the board Michael bore car lots as co founder and outgoing Chief Executive Officer, and Tom <unk>, Our Chief Financial Officer for those of you, who don't know Luis before his role as chairman.
He was our lead independent director and that's also CEO of ACA. Our partners. We are glad to welcome him to today's call.
Before we get started I would like to remind you of the company's safe Harbor language, which I'm sure you're all familiar with the statements contained in this conference call, which are not historical facts may be deemed to constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 actual future.
Results may differ materially from those suggested in such statements due to a number of risks and uncertainties all of which are described in the company's filings with the SEC, which includes today's press releases.
If any non-GAAP financial measure is used on this call a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release now I would like to turn the call over to Luis.
Thank you Susan good afternoon, everyone and thank you for joining us to discuss our fourth quarter and full year 2021 financial results. Our initial thoughts on 2022 and also importantly, the announcement over and you'll see.
We started 2021 with tremendous growth plans during the year, we made significant investments in all areas of the business have expansion marketing technology and building the organization to execute our growth plan, we wear and today, we still are strongly committed to operating our unique and differentiated consignment business model with.
We believe generate value for both sellers and buyers across the country and the highly fragmented used vehicle marketplace.
As you know the used car market has undergone unprecedented disruption with the price of used vehicle pricing over 30% new car production down dramatically and use of our inventory at levels not seen in recent memory much of this stems from the chip shortage.
Our new house has not been growing unit sales as quickly as expected and our inventory mix has been less desirable due to a higher penetration of lower aged vehicles with higher average price points and also a higher penetration of dealer owned unit worried to auctions.
These factors have created and continue to create significant challenges to our business and despite our efforts our financial results fell significantly below our expectations.
As a result, the board of directors agreed that a new CEO will help to steer the company forward into the future. Consequently, we're extremely excited to announce that left ear CEO carhartt Dot com is joining us CEO and member of the board of directors starting April .
We believe that we have experienced track record and passion to help grow. This business that has led to successful consumer centric E Commerce Friday, doubling sales and improving profitability. During his three year tenure at car parts Dot com.
We believe there are many.
It's between car parks dot com to correlate that in our view make lab and a yield CEO for this business. For example, both companies operate in industries that are very large and highly fragmented.
And both businesses are consumer facing operationally complex.
Technology enabled.
We believe less experience with operations and marketing will offer significant benefits to the company that we expect will yield the top and bottom line results.
During last stewardship Harper stock comp the stock experienced significant growth and he focused the team on effectively executing the strategic vision has resulted in increased sales and improved profitability.
We really look forward to less joining us and introducing led to you very soon.
Well, we expect our new CEO to take time to fully evaluate the business and communicate his vision and argue our consignment model will continue to be a call at the French here.
As part of that we emphasize our commitment to serving our corporate sourcing partners. We have maintained these relationships and have run many new pilots. During these challenging times and this sort of in this challenging pricing environment.
Finally on behalf of the entire board I'd also like to take a moment to say thank you to our outgoing CEO Michael Moore for his significant contributions to the company Mike will continue to consult with Carlos for the next 12 months. So the lab and the company will have access to Mike's vast institutional and industry knowledge.
The goal of making this transition very smooth.
<unk> would like to say a few words before we discuss the financial results Mike.
Thanks, Louise our founding Carlos almost 12 years ago, and bringing the company to this point has by far been the most rewarding and challenging experience of my career.
Remember our first consignment guests an exact making model vehicles. He brought to US I believe then and still believe today that the car lots consignment model is the best way to buy and sell used cars.
April for my incredible teammates who've been a critical part of this journey I have loved working with you and say thank you for your hard work passion integrity and dedication to our core values. I'm also excited about lab stewardship of this business as I look to the future I believe the company is in great hands, and I look forward to supporting less in any.
The way that he asks I'd now like to turn the call over to Tom to discuss financial results for the quarter and the year Tom.
Thanks, Mike.
As you've heard us discuss as the industry began experiencing unprecedented supply chain disruptions that impacted us meaningfully and required us to make several unplanned adjustments even with these challenges we achieved several of our objectives in 2021 to name a few we agree on it.
Significantly we grew the F&I income by 139%.
We launched our first brand marketing campaign, we expanded our team, adding expertise within us and corporate including the addition of a product team within our technology group and as announced yesterday, we launched the beta of removal at.
Despite our efforts our results did not meet our initial growth projections.
These challenges continue into 2020 to used car prices are still at historic highs, which makes the consignment model more challenging inventory remains limited and while no. One can say with certainty. It does not appear that the chip shortage will be resolved soon.
Given these ongoing challenges we are taking several actions with the aim of improving the operating and financial results of the business.
First we are altering our real estate growth plans with the exception of one hub plans to open in 2022 to reduce the utilization of cash until the sourcing environment improves.
Even with this pause we have a lot of capacity in physical infrastructure for approximately 5500 units of inventory, which should allow for continued growth.
Currently hold approximately 2000 units available for sale below our desired levels due to sourcing challenges.
All of these are real estate right.
Plan to significantly reduce our real estate related operational financial costs and commitments in 2022.
Second we plan to reallocate time and resources toward improving the productivity and efficiency of our current base and especially our processing centers.
2021, all of our new hubs, including processing Center operations.
During the period to ramp up and you held to maturity. These processing centers are usually operating at suboptimal levels.
These new laws have been challenges given our sourcing strength it may take longer to mature in this sort.
Sourcing environment, we are consolidating processing in some regions.
Is it a better matching demand, although labor model to reduce those inefficiencies.
As we consolidate processing centers.
We believe we'll be able to reopen them easily and the future of in sourcing improves and capacity as needed.
Third we plan to continue to grow our consumer sourcing initiative, we believe consumer sourcing should reduce our reliance on auctions.
In addition, consumer sourcing vehicles generally have higher sell through rates and GPU.
Lastly, we plan to manage our cash further reducing our SG&A and some areas, including corporate support for global expansion.
Safi.
I will now go through our financial results.
Regarding our financial results. Please refer to our press release available in the Investor Relations section of our website.
So the fourth quarter revenues were $83 1 million, an increase of 124% versus last year for fiscal 'twenty one.
Revenues were $258 5 million, an increase of 118% versus last year.
Revenue growth in Q4 was driven by an increase of 139% and F&I revenue and 49% increase in retail units sold and a 40% increase in average selling prices.
For the year revenue growth was driven by an increase of 127%.
Revenue, a 57% increase in retail units sold and a 35% increase in average selling prices.
Gross profit for Q4 was $2 4 million, a 4% decline versus last year.
Q3 gross profit in Q4 was negatively impacted by lower front end profits ammonia.
As well as processing center inefficiencies, partially offset by strong F&I results.
Included in gross profit as a decrease in the lower of cost or market reserve of $157000. While he did work through most of our aged inventory. During Q4, you still see slower days to sell in a portion of our inventory currently that has resulted in a continued higher level of inventory than we do.
Desire.
This will be a major focus of improvement through the balance of 2022.
For the year gross profit was $10 $6 million.
Fourth quarter retail GPU and $758, excluding the reserve decrease adjusted retail GPU is $700 like gross profit dollars retail GPU is impacted by lower front end profits on the owned inventory.
Processing center efficiencies, partly offset by strong F&I.
For the year retail GPU was $1208 in adjusted retail GPU.
1209.
SG&A expense, excluding stock compensation and depreciation was $30 million in Q4, and $93 1 million in 2021 <unk>.
SG&A for Q4 for Q4, and the year were driven by significant investments in marketing technology, and both corporate and other personnel costs.
Net loss was $14 2 million for the fourth quarter and $39 9 million for the year. Our adjusted EBITDA loss was 27 8 million for the fourth quarter and $82 5 million for the year.
With respect to the balance sheet at year end, our cash and marketable securities were $194 million as.
As we focus on the fundamentals of our business maintaining a strong cash balance will be in primarily.
We are committed to managing our cost structure against sales and margin performance to improve the profitability of the business.
Turning to inventory vehicles available for sale or approximately 2100 at year and below our target.
We believe our low inventory position and the desirability of our inventory are responsible for our lower than expected rate of retail units sold and GPU in Q4, and the slow start in Q1 and 2022.
I would now like to discuss some factors impacting 2022.
First as mentioned earlier, we expect to open one new.
Second we expect the sourcing environment to continue to be difficult for this year.
Third given our assumptions regarding the resourcing that we expect retail GPU to remain challenged.
We'll focus on maximizing gross profit dollars and GPU through improvements in processing center efficiency.
This has negatively impacted GPU and gross profit recently.
Also we are shifting the sourcing mix towards consumer.
Which has recently been our fastest selling and most profitable sourcing channel.
Partially offset auction purchases.
Also expect continued strength in F&I to partially offset some of the in GPU reasons.
Fourth as mentioned earlier, we plan to reduce SG&A in some areas, including corporate support.
Pension and our model.
Yeah.
And fifth we believe unit sales trends are being negatively affected by several macro factors like inflation vehicle affordability due to rising gas prices.
So since lab has joined us in April .
We will be communicating his vision over the next few months, we will not be providing full year guidance at this time.
However, it is an update regarding Q1 trends retail units sold and GPU remain challenged versus Q4, 2021 now.
Now operator, Lewis and I will now take some questions.
Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And our first question comes from the line of Matt Curtis with William Blair. Your line is open. Please go ahead.
Hi, Thanks for taking my question so.
So I guess starting with sourcing.
And then you just reiterated your commitment to the consignment model.
So far in 2022 are you seeing any increase in consignment volume sequentially as a percent of total cars.
Thanks, Matt for that question.
<unk> seen some pick up.
Tumor <unk>.
Commercial launch out from sourcing.
And we are obviously still can integrate consumer sourcing side of the business as well.
And that's why we can tell you at this point.
Okay, and then I think Luis briefly touched on some of the hub performance, but just to reiterate could you talk about how the new hubs have been performing relative to the older hubs.
Yes, as we mentioned.
In the prepared remarks, you talked about it earlier in other quarters.
The new hubs are not been ramping as expected and we feel like a lot of that is due to the constraints. We have on sourcing right now and the source of <unk>.
Auction more than we even like when we sourced from auction.
It's a less desirable units of inventory.
Is it takes longer to sell.
So that's why our focus is now on shifting as much as we can to our consumer sourcing.
Okay, and finally for me I guess I guess, given the CEO transition.
I mean, you talked about a number of elements.
We will be changing in 2022, but you know in terms of lower SG&A spend them.
Cause on hub openings, but more broadly and maybe longer term bigger picture could you talk about what changes in long term strategy might be ahead, if any relative to the previous one.
Yeah, I think as we mentioned it.
Remarks, again that are aware.
<unk> is joining us we're very excited about his background that he brings to the company.
And we really want to wait for him to get in and do a full evaluation of the business.
To be able to communicate better once you get a forward strategy is going to be.
Okay understood well, thank you very much and good luck going forward.
Alright. Thanks.
Thank you and our next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is open.
Please go ahead. Thank you very much yeah. Thank you could I think three questions from me if I may the first one that's a nice seems to be like a source of strength.
Can you elaborate on what the drivers are.
I'm, sorry, I didn't I didn't hear the very first part of that question.
F F N I.
Oh, that's right.
Yeah.
Yeah, we are continuing to see very strong demand.
And attrition rates are up.
As well as.
The balance of the contract we rolled out some new products.
In the last half of the year and so those are performing well.
<unk>.
Nothing really good job.
Okay, and the customer and getting those products out.
Okay. So.
It seems like these sounds like sustainable trends.
We believe it is yes.
Okay.
Taking the question can you comment on the latest pricing dynamic between.
Retail and wholesale and.
And any meaningful or start of a change in trends there obviously in monitoring some of the available data. It seems like some of the auction prices were starting to moderate a bit.
Are you seeing any.
Encouraging sign off.
Start of a normalization process, so it's not yet.
Yeah, it's been sort of hit or Miss and you've gone through the past year, we've seen.
The margins compress and then widen a little bit and I think theres still compressed from what they had been historically.
Some of the wholesale prices have that also what most recently, but again.
We still think it'll be challenging at least in the near term.
You know based on consignment versus just going to auction.
Of course for some of the accounts that we deal with.
Understood and then.
So just finally, what was the hub expansion.
I guess on the old on the back burner for the time being.
What our.
These near term operational priorities.
Well again as I mentioned as we talked through the prepared remarks.
We're focusing on ways to reduce cash utilization you talked about consolidation of some of our processing centers.
Until we see sourcing and proven demand pick up.
Talk about obviously the path so.
No.
Saves from capital because they do require capital upfront.
And we've talked about some.
Right sizing of our hub level staffing levels.
Based on the demand that we're seeing today.
Okay. Thank you.
Thank you and again if you have a question at this time. Please press Star then one.
Yeah.
And I'm showing no further questions at this time and I would like to turn the conference back over totally solar Thano for any further remarks.
Thank you operator, and thank you all for participating in this call I would like to finish by emphasizing how excited we are that Matt is joining the company as CEO and certainly look forward to introducing him to you in the near future. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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