Q1 2023 Cazoo Group Ltd Earnings Call

Greetings and welcome to the Kazoo first quarter 2023 earnings call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host.

And I love it because I'm, sorry, Anna <unk> head of Investor Relations. Thank you. Please go ahead.

Good morning, everyone. Thank you for joining today's call and webcast to discuss our first quarter 2023 in Brazil.

You will be able to find todays press release Investor Relations website at investors don't consume don't Hello.

Don't Hickey.

We appreciate everyone joining us today with me on the call is Alex just a man founder and executive Chairman.

Paul White hat, Chief Executive Officer, and Paul <unk>, Chief Financial Officer.

Before we start I would like to remind you the company's safe Harbor language, which I'm sure you're all familiar with.

Management may make forward looking statements, including guidance and underlying assumptions.

Forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

For a further discussion of risks relate to tell her business. Please see the filings of Kazoo group limited with the FCC.

Now I will hand, the call over to all the Chief Executive Officer, Paul Whitehead.

Thank you Panna and good morning, everyone and thank you for joining us today.

I'm very pleased with our performance in the first quarter of 2023, we've achieved a lot in the last three months and outperformed our target the retail GPU in the first quarter.

We continue to be laser focused on profitability.

Over the first quarter, we right size, our operational footprint by consolidating our vehicle preparation on customer centers.

<unk> significantly reduced head count and fixed cost base.

Our focus on unit economics, and the Swiss delivery of our restructuring are already resulting in a significant improvement in retail GPU.

The retail GPU results in the first quarter and especially in March are ahead of our expectations and set another record.

A testament to the demands made by the team.

In the first quarter retail GPU and 980 pounds increased a further 64% quarter on quarter and was materially higher than in Q1 last year.

In March this year, we achieved a retail GPU have over 1200 pounds, which is our target average retail GPU for the full year.

The broader economic environment remains challenging and we expect that to continue to be the case throughout 2023.

However, we believe our fully digital proposition continues to resonate strongly with consumers, which is evident in our retail unit sales of over 13000 calls in the first quarter up 4% year on year.

Selection transparency and convenience of using our platform continues to draw consumers.

Retail revenue for the quarter with 222 million pounds.

In total, including wholesale we sold close to 17500 units in Q1 and generated total revenues of 247 million pounds in line with our expectations.

We remain focused on improving our unit economics, optimizing our fixed cost base and maximizing our cash runway.

We continue to target every area of the business to create further efficiencies and to enhance our data driven capabilities using our proprietary data and algorithms to optimize our buying and selling and drive improved margins.

We further enhanced our finance and ancillary product proposition to capture opportunity beyond just the vehicle purchase.

During the quarter, a record 52, 5% of buyers arrange financing directly through our platform entirely online.

A higher number of applications with better customer quality and as a result higher acceptance rates.

This was a further improvement on the 51.5% we delivered in the last quarter of 2022 and up from 47, 4% a year ago.

Overall ancillary revenue per retail unit sold increased by 10% year on year to 708 pounds.

Reconditioning costs continue to reduce as we consolidated our vehicle preparation centers and the team is driving relentlessly for greater efficiency when it comes to reconditioning vehicles for sale.

Oh last night, so now on the same operating system developed by the kazoo team specifically for retail reconditioning.

Which allows us to ensure improved cost control and greater visibility.

Logistics efficiencies improving after we completed the optimization of the network between vehicle preparation centers and because the customer centers.

Personnel costs remain a focus for us to reduce in the coming quarters.

We are pushing for efficiencies and improved operating effectiveness in every area.

Purchasing pricing financed and ancillary product attachment rates logistics and post sales.

We expect to see further progress during the year.

Our gross profit grew to 14 million pounds in Q1 O 367% year on year with gross margin improving by four seven percentage points from a year ago to five 8%.

Up from one 1%.

We finished the quarter with 215 million pounds of cash and cash equivalents.

Ultimately 60 million pounds of self financed inventory.

Our cash flow in the quarter included about 13 million pounds of restructuring costs and about 25 million pounds inflow from working capital.

Mostly driven by the reduction in inventory.

We expect the underlying cash flows to improve in the coming quarters as restructuring benefits start to flow through our financial results.

We anticipate that savings and expenses will start coming through in the second and third quarters.

The fourth quarter 2023, we expect to see a year on year reduction in SG&A run rate of over $25 million per quarter, representing over 100 million pounds of annualized savings going into 2024.

As we guided previously the cash utilization rate is expected to reduce to approximately 30 million pounds per quarter by the end of the year.

And we anticipate finishing the year with between $110 million and 130 million pounds of cash and cash equivalents and between 15 million and 25 million pounds of self financed inventory.

We reiterate our guidance for 2023 and remain fully focused on delivering profitable growth.

So in summary, the team has accomplished an enormous amount over the past quarter and our near term focus is on improving our unit economics.

<unk>, our fixed cost base and extending our cash runway.

We have a market leading platform brand team and infrastructure.

The U K and used car market is huge and the penetration of online car buying and selling is still well below other retail sectors.

Resulting in a massive opportunity for us to go after that.

I will now pass the call back to the operator, who will open up the line for Q&A.

Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.

Sorry to pick up your handset before pressing the star keys once again Thats Star One to register a question at this time.

The first question is coming from Rajat Gupta of Jpmorgan. Please go ahead.

Great.

Good afternoon, and thanks for taking my question.

I had a first question just on the retail GPU.

Could you help us.

Understand in a bit more detail.

The improvement from the fourth quarter levels.

600 pounds to the travel pondered.

In March.

Much of that is driven by reconditioning sourcing.

How much was pricing a factor.

And any one off that we should keep in mind, if you could get a little more details on that would be helpful and I have a follow up thanks.

Morning, Rajat this is Alex.

Yes.

Was a notable improvement from Q4 to Q1 as you saw there were no specific one off things.

He was responsible for that.

With improvement in all areas buying reconditioning pricing attachment rate on ancillary products. So it was spread across the board.

That improvement as we focus more on you.

You saw that we reduced.

The volume of units that we sold to focus specifically on types of calls that would drive these higher margins.

On higher attachment rates on <unk>.

Finance, what you saw at Petro solids.

It's a combination of all of those things, resulting from these decisions that we've taken.

Got it and then just on SG&A you know.

The press release mentioned that the savings are expected to flow through in the second and third quarters of the year.

I was just curious you know if youre able to provide us any color around how we should think about the cadence of EBITDA.

So the remaining of the year.

Is it still safe to assume there was.

Sequential quarter over quarter improvement in EBITDA, excluding the restructuring costs here in the first quarter.

Thanks.

I'll, let Paul will pick up more on that but you know the reason, which said that Q2 onwards, we'll start to see the majority of the improvement is that a lot of the actions that we took in early Q1, we didn't see the benefit all for example, head count reductions both head counts remain on <unk>.

Books until the end of Q1, so you'll start to see that benefit in Q2 and beyond but I'll pass the call on <unk>.

Default.

Yes.

Yes, Thank you Alex so.

I mean, we.

We've obviously guided to a full year adjusted EBITDA of between minus 100 minus 120.

And we would expect the.

The remaining three quarters will be relatively steady.

In terms of that delivery I mean, there are we're continuing to take cost out of the business, but as Alex has described Q1 was really a well the GPU improved the operating cost were exactly the same as they have been throughout 2022, we really hadn't the activities, which were primarily five one.

People.

We're fortunate to lead the business and as you're fully aware, we reduced a number of sites materially 22 customer cat census down to.

Down to seven and.

And then similarly in the in the prep centers seven down to three we've done that but all of that happened sort of.

Third week March so actually the operating cost.

It's a factor of the 2022 level.

April and Q2 will be the beginning of <unk>.

New lower run rate EBITDA.

Negative EBITDA, so better EBITDA and we continue to take cost out all the way through the year. So there's now it's sort of more steady improvement through the year through to that 100 to 110 that we've guided to.

Yes.

Understood.

That's helpful color and I'll jump back in queue. Thank you.

Yeah.

Thank you. The next question is coming from Catherine O'neill of Citi. Please go ahead.

Yeah.

Great. Thank you.

Yeah, I just had a question actually back on the retail GPU and I just wanted to get your 1200 pounds in March why you Havent sort of increased your guidance.

<unk>.

But for the year.

Right.

He also increasing at such a rapid rate or do you expect you can answer this still at that level for the balance of the year, how should we think about that.

Hi, Catherine Thank you.

No you know.

We are being sensible and cautious on guidance with the liked it to have hit the 1200 level.

In March already but for the full quarter as you saw we will.

At 980, so north of a 1200, so we need to maintain that.

And and improve that throughout the rest of the year, which we are confident that we can do but we are maintaining our archive.

As you saw we volumes in Q1, a traditionally seasonally strong.

And so we.

We expect to continue to see improvement on that line AC quarterly number throughout the year, but.

As I said, we're very happy we hit that number the 1200 already in March and expect to continue to grow from that.

Right, Okay, and then I just wanted to ask about just the broader market dynamics, you're seeing in terms of supply and demand.

Whether you've seen any sort of snake.

Changes.

Yeah in the quarter and then as we can.

Getting into April .

I think that and pull Whitehead is best place to sort of comment on that.

Thanks Catherine.

The market itself.

Relatively stable.

There are some green shoots coming in terms of new car supply.

But it tends to be OEM by OEM from that perspective.

Supply in the used car sector still remains relatively constrained because it takes a while for the new car supply for them to have the knock on impact on the used car supply and hence why we continue to be focused on.

Growing the percentage of cars that we source directly from consumers, where we continue to see.

Good progress, which is more in our control and being in the.

The broader market.

Okay. Thank you.

Okay.

Yeah.

Thank you.

This time I'd like to turn the floor back over to management for any closing comments.

Thank you all for joining US today, if you would like to follow up then Oh no. Please.

Please do so directly with any one of them one of us I. Appreciate your time today. Thank you.

Thank you. This concludes today's event you may disconnect your lines at this time and enjoy the rest of your day.

Okay.

Okay.

Yeah.

Yes.

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