Q2 2023 Vroom Inc Earnings Call

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Thank you for standing by and welcome to the rooms second quarter 'twenty to 'twenty three earnings call.

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After the speaker presentation, there will be a question and answer session.

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I would now like to hand, the call over to John Sanderson, Vice President of Investor Relations. Please go ahead.

Thank you operator good morning.

For the second quarter of 2023 earnings call.

On the call today are Tom <unk>, Chief Executive Officer.

Chief Financial Officer.

Please note this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at IR for them.

The second quarter of 2023 earnings release and earnings presentation are also posted to the Investor Relations website.

Before we begin please.

Discussion today includes forward looking statements within the meaning of securities laws, including but not limited to statements about <unk>.

Operations and future financial performance.

These and other forward looking statements are based on management's current assumptions and are neither promises or guarantees are subject to a number of risks uncertainties and other important factors that may cause actual results to differ materially.

Would you speak to the company's most recent SEC filings, including the risk factors section.

The recent Form 10-K for the year.

And at December 31, 2022.

As I stated by our quarterly report on Form 10-Q for the three months ended June 32023 for additional discussion on factors that could cause actual results to differ materially from those in the forward looking statements.

Please note further that today's discussion includes forward looking statements speak only as of the date of this call.

Assumes no obligation to update such statements based on future developments or otherwise.

The company May also discuss certain non-GAAP financial measures during today's call.

You can find a presentation of the most directly comparable GAAP measures and a reconciliation of those measures in the second quarter of 2023 earnings release and earnings presentation.

I'd like to now hand, the conference over to Tom short Chief Executive Officer.

Thank you John and thank you to all of our investors analysts roommates UHC colleagues and third party partners, who are joining us today, let's.

Let's start on slide three.

We introduced our long term road map at our May 26, 2022, Investor day, where we highlighted our mid term goal of a breakeven EBITDA business and our long term goal of a 5% to 10% adjusted EBITDA margin business.

We remain committed to our long term roadmap I am pleased with the progress we've made as we work towards these goals.

As we indicated on Investor day during 2022, we strategically slowed down the business, while we improved our customer experience improved our processes across titling and registration pricey, Marketi reconditioning and logistics and in source our sales function from our primary third party resource.

As we execute our strategy in 2023, we are resuming responsible growth selling through aged inventory improving variable costs per unit, continuing to reduce fixed cost and converting balance sheet items in the cash.

Our long term or Bath remains unchanged. During 2023, we are continuing to focus on our three key objectives and for focused strategic initiatives.

On slide four our second quarter highlights.

The second quarter, we recognized an adjusted EBITDA loss of $56 $3 million.

$5 million or 13% sequential improvement, which was within the range of our expectations.

E Commerce units grew approximately 5% sequentially.

This quarter is the first quarter with sequential growth since we realign the business and introduced our long term roadmap in the second quarter of 2022.

As we pivot the business towards responsible growth, we remain focused on reducing variable and fixed cost per unit, while driving the right mix of marketing investment unit growth rate and GPU.

E Commerce <unk> increased from 2000 and $552 to $2954 sequentially benefiting from GPP you on an H units, which was in excess of $5000. During the second quarter as a result of legacy title issues, 80% of our units.

Sold where help greater than 180 days compared to 77% in the first quarter, 75% in the fourth quarter of 2022 and 49% in the third quarter of 2022.

We expect sequential reduction in our mix of H units with the third quarter mix expected to be less than 40% from eight units and we expect the fourth quarter H mix to be sequentially better than the third quarter.

As we work through the remaining aged inventory, we expect to have normalized the aged inventory levels, which we expect to produce higher overall GPU.

We are making progress on our long term road map and our four strategic initiatives.

We reduced our adjusted SG&A of $2 $2 million sequentially on higher unit volume.

<unk> increased marketing investment, we reduced adjusted SG&A of $5 $7 million sequentially.

We repurchased $18 million face value of our convertible notes for $7 million.

Reducing our leverage at a substantial discount.

We are narrowing the range and improving the midpoint of our full year 2023 guidance to an adjusted EBITDA loss of $200 million to $225 million and adjusting our cash and cash equivalents to reflect the convertible note repurchases.

On slide five during the Investor day, we outlined the unit economic drivers behind our four strategic initiatives that we believe are key to building a profitable business and we have been providing quarterly updates on our progress on each driver. This slide is an update to our second quarter progress by economic driver.

GPU was $2954 $402 sequential improvement driven primarily by strong GPU on an H units.

80% of units sold in the second quarter were aged as I mentioned, our GPU for an H units was in excess of $5000. We expect sequential reduction in our mix of aged units and expect improved GPU with the mix improvement, we expect our third quarter mix to be less than.

40% from aged units and we expect the fourth quarter, aged mix to be sequentially better than the third quarter.

We continue to see strong product GPU as we develop and grow our captive financing capability.

Yeah.

We've reduced our all in logistics cost per unit by 17% sequentially.

Our improved titling and registration processes resulted in a 43% improvement in inventory turns sequentially.

We reduced our selling cost per unit, 26% sequentially.

We reduced our titling and registration and support cost per unit, 29% sequentially.

We increased our marketing spend $3 $5 million sequentially in order to facilitate unit growth by ramping up unit acquisitions to grow inventory in the second half of the year. Our unit acquisitions had essentially been on idle since we pivoted the business in the second quarter of 2022, our increased <unk>.

<unk> spend was required to restart the unit acquisition engine, we continue to source primarily from consumers.

We reduced our fixed cost per unit and 12% sequentially.

Lastly, our advanced analytics teams functional business teams and tech teams continue to build data assets analytical assets and tech assets that we believe in the long term will provide a competitive advantage across title and registration pricing conversion unit in product margin and supply chain.

Costs.

Slide six I am very proud of what our roommates in UAC colleagues have delivered over the past year, excluding securitization gain in non recurring costs, we continue to reduce our losses. Despite absorbing significant GPU pressure caused by our legacy titling and registration issues in 2022.

Dave.

We have improved e-commerce GPU, the last three quarters as we sell through our aged inventory.

Continue to make progress on our long term roadmap. We are at the churn where we are beginning to resume responsible growth. While we continue down the road of improving our operations and reducing our fixed and variable costs, we expect GPU to normalize in the back half of the year. When the majority of our sales are expected to be on an aged.

<unk>.

Now I'll turn it over to Bob to discuss second quarter results in greater detail Bob.

Thanks, Tom.

I'll start with a summary of our financial performance on slide eight.

All comparisons are against the prior quarter unless otherwise noted.

Total revenue of $225 million increased 15% as ecommerce units increased 5%.

As mentioned in the first quarter call. We're in the early stages of ramping up the business, while remaining focused on positive unit economics.

E Commerce, GPU increased 16% to $2954.

As we expected and discussed during the first quarter earnings call, we realized the negative impact of selling through age vehicles, which was approximately $11 million.

This impact was offset by GPU in excess of $5000.

<unk> units.

Adjusted EBITDA loss improved $8 5 million or 13% to $56 $3 million.

The improvement was driven by reduced operating costs.

Growth in higher GPU.

On the expense side, we further reduced our fixed and variable operating costs.

Higher unit volume.

As we continue to pursue our three key objectives and more focused strategic initiatives.

We remain focused on maximizing our liquidity and strengthening our balance sheet.

In the second quarter, we repurchased 18 million face value of our convertible notes for $7 million further reducing our leverage.

We also completed the sale of non investment grade notes related to the 2023 dash, one securitization and completed secured repo financing and securitization interests at ACC.

Improving available liquidity at the ACC to approximately $93 million at the end of the quarter.

As we continue to sell through the remaining aged inventory and begin to ramp up unit acquisitions.

We increased our cash and inventory quarter over quarter.

Negatively impacting our cash position.

We expect our cash and inventory balance to reduce and normalize in the second half of the year as we sell through the majority of remaining aged units, allowing us the floor a higher percentage of our inventory balance.

Let's move to slide nine which provides a bridge from first quarter 2023, the second quarter of 2023, adjusted EBITDA as well as cash and liquidity.

E Commerce gross profit improved sequentially by approximately $2 million.

Sequential unit growth along with strong GPU.

H units drove this increase.

In addition to our improvements in E Commerce gross profit.

We continue to reduce our variable and fixed cost structure as we drive efficiencies throughout the organization.

In total for the quarter, we improved adjusted EBITDA by approximately $8 $5 million.

Moving to liquidity.

Second quarter, adjusted EBITDA loss and net interest expense are the primary drivers of cash utilization within the quarter.

Additionally, due to certain floorplan requirements related to our acquisition ramp up cash and inventory increased $11 million sequentially.

We expect this cash to be recovered during the third quarter.

Next we repurchased 18 million face value of our convertible notes for $7 million reducing.

Reducing our leverage we.

We may continue to Opportunistically repurchase notes from time to time to reduce our outstanding indebtedness at a discount.

Subject to market conditions and availability.

These factors resulted in $238 million of cash and cash equivalents on the balance sheet at quarter end.

Which was within the range of our expectations.

Additionally.

It is important to understand the earnings from the ACC business have been used to pay down warehouse lines.

We can draw against these lines as a source of liquidity.

At the end of the second quarter, there was approximately $93 million of available liquidity at ACC, which when combined with our cash balance resulted in greater than $330 million of total available liquidity.

We remain focused on capturing balance sheet opportunities to improve our available liquidity.

Next.

Let's turn to our full year cash and cash equivalents and liquidity outlook on slide 10, we expect the 2023, ending cash and cash equivalents balance of 137% to $187 million.

Which is consistent with our previous guidance adjusted for convert repurchases of approximately $13 million that were completed in the first half of the year.

As mentioned previously.

We expect to recover a significant portion of our cash inventory balance as of June 32023 during the second half of the year.

We expect this to occur as we continue to sell through the H units and replace them with fresh inventory.

Additionally.

We expect approximately $74 million of available liquidity at ACC at the end of the fourth quarter.

We continue to hold the residual certificates associated with our securitization completed earlier this year.

If we decided to sell those certificates in the second half of the year proceeds from the transaction could contribute up to an additional $25 million of liquidity.

As a result.

At the mid point of liquidity could be up to $261 million. Thank you for your time and attention. This morning with that I'll turn it back to Tom for a few closing remarks Tom.

Thanks, Bob turning to slide 11, I'm incredibly proud of what our team has accomplished this quarter. We continue to transform virtually every aspect of the business to improve our customer experience improve our processes drive operational efficiencies reduced fixed and variable cost decrease our cash burn rate and reduce our convert.

Notable that while we still have a lot of work to do I believe we are well positioned to resume responsible growth and continue our business transformation as we execute our long term roadmap and pursue our mid and long term goals. Thank you for your time today and operator, we are ready for questions.

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Please standby, while we compile the Q&A roster.

Our first question comes from the line of Sharon Zackfia.

William Blair.

Hi, good morning, Thanks for taking the call I guess a question on responsible growth.

I'm sure that's the rate of growth that you feel like you can satisfy.

In a profitable manner.

From the outside it's kind of hard to understand what that might translate to on the back half of this year as we enter 2024. So if you could give us any kind of context on the rate of growth that you think the company can support at this period I think that would be helpful.

Yes, good morning, Sharon.

We're we're very focused on figuring out the right balance like our number one objective as cash burn as we work towards our long term goals and so.

We're not going to grow excessively.

Yeah.

Sure.

At the risk of burning additional cash are hurting unit economics. So we're working through right now what's the right level of marketing investment whats the right unit growth rate and the rate GPU and based on those three things as we worked through those that and our cash burn which is our primary driver of that.

Again, our yield.

The growth and that's why we're not providing really guidance on what our unit growth rate will be at this time.

Okay, and then can you give us some more color around the sales functions that you brought in house and how the performance there is relative to your expectations, if theres anything else that kind of meaningfully still needs to happen to get to that.

Really optimized sales function.

Yes, so we've been pleased with in sourcing our sales team from our primary third party partner earlier in the year and I would say that it's met our expectations pretty much exactly as we expected.

As we look towards the longer term, we continue to make significant investments in our site to make it a more digital experience and so that's really the main lever that we're going to see as we look towards the <unk>.

The long run as well as we do have several initiatives within our sales team to provide them additional tools to be more efficient.

Thanks for that.

Sorry.

I'd say, it's basically on plan and as we expected.

Okay, and then is it fair to say that you plan to end the year with minimal aged inventory that we won't be talking about this hopefully in 2024.

Yeah, and just to comment on that it's interesting. We've had this plan since the fourth quarter and were.

It's been kind of stunning to me were remarkably on plan each quarter as to where we thought we would be.

And.

All of this aged inventory essentially all of it as a result of our legacy titling issued and in the future to the extent, we do have any inventory that days that would all be math based meaning we're running these very sophisticated pricing algorithms that said based upon market depreciation rates and when we bought the car it may make sense the whole.

The car longer, but I think it will be very de minimis and it would be embedded in and our pricing algorithms. So it wouldn't be something to call out having said that I think we may have a very small amount at the end of the year still related the title and registration.

And we Havent really calculated it for next year, but I think my guess would be a pretty de minimis and after the fourth quarter, we probably won't be talking about it.

Okay, great. Thank you.

Thank you thank you Sir.

Thank you once again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.

As there appear to be no further questions in queue I would now like to turn the conference back to Tom short for closing remarks, Sir.

Thank you everyone for your time today and have a fantastic day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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