Q2 2023 Shift Technologies Inc Earnings Call

Good afternoon, and welcome to the chefs technologies second quarter 2023 earnings Conference call.

Participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Please note. This event is being recorded I would now like to turn the conference over to Susan Lewis Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to the chefs technologies second quarter 2023 earnings call.

Joining me on the call today are CEO and.

I'm the CFO Oded shein.

During our remarks, we will make some forward looking statements, which represent our current judgment on what the future may hold and while we believe these judgments are reasonable. These forward looking statements are not guarantees of future performance and involve certain assumptions risks and uncertainties actual outcome.

And results may differ materially from what is expressed or implied in any forward looking statements.

Please refer to our filings with the S E C.

All discussion of the factors that may affect any forward looking statements.

We undertake no obligation to publicly update any forward looking statement, whether as a result of new information future events or otherwise after this conference call.

During the course of the call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials.

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

Thank you Susan and good afternoon, everyone.

Pleasure to be here and speak with you for the first time as CEO of shift.

Today, I would like to spend the majority of our time discussing the future I will share my observations since I joined shipped in June and discuss our strategy to drive significant improvement in our operational and financial performance and finally I'll provide a brief update on our review.

Strategic alternatives.

Before we discuss those items that.

Ed will begin by reviewing our second quarter financial results.

Note that these results do not reflect how we are thinking about the business as we go forward.

Furthermore, they do not reflect the savings from the restructuring announced on July 11th.

Okay.

Thank you Ivan and good afternoon, everyone.

Total revenue for the quarter was $47 3 million retail units sold were 1998 and wholesale units sold were 187.

Adjusted GPU was 1522.

The F&I and other component was 865 and <unk>.

Continued to be impacted by a difficult financing environment and high interest rates.

Adjusted SG&A was $23 6 million versus $28 3 million in the first quarter.

The 17% sequential improvement was driven by a reduction across all areas of SG&A with the largest reductions in selling expense and marketing.

We expect SG&A to decline in future quarters due to the recently announced restructuring plan and other strategic initiatives to drive productivity and efficiency.

Aiman will speak more about shortly.

The restructuring plan alone is expected to reduce SG&A by approximately 14 million on an annual basis.

Adjusted EBITDA loss for the quarter was $20 6 million, a 14% improvement from the first quarter.

We ended the quarter with $32 2 million in cash and cash equivalents.

In addition to adjusted EBITDA loss other uses of cash in the second quarter included working capital.

Interest expense and costs related to close hubs and the debt restructuring.

I'd now like to make a few comments with respect to liquidity.

Sure.

Going to the end of the quarter, we initiated an amendment to our floor plan with ally to align our credit line with our current business trends.

The agreement provides us with additional flexibility by eliminating the minimum liquidity financial covenant.

Second.

We have recently disclose it.

Evaluating all avenues to raise additional capital, including negotiating with our existing debt holders.

We will provide updates as they become available.

I will now turn it over to you.

Thank you oded.

When I joined in June I recognize the importance of changing the course of the business quickly specifically the need to urgently improve results reduced the cash burn rate of the company and raise additional capital to achieve positive unit economics and subsequently profitability.

Before making any changes, though I wanted to understand the major challenges in Norway, Here's what I found.

First the company's processes and procedures were overly complicated.

Wondering, though where customer relationships are productivity or efficiency and profitability.

Second the company for its size, what spreading yourself too thin by targeting why geographic focus and neglecting market share opportunity in our own backyard.

Like the localization strategy.

Third the company has gone through several changes in strategy over the last 18 months to adjust the industry and capital market factors, creating distraction and making it hard to achieve results amongst shifting priorities.

And lastly.

From a macro and industry perspective, we continue to see our customers impacted by interest rates that we haven't seen in decades and used car prices that are still at historically high levels, resulting in higher monthly payments and lower overall affordability.

While we cannot change the macro and industry trends, we can address the other challenges I meant to fight and focused on what we can control.

A few of these challenges the dealerships before and have fixed them by focusing on the fundamentals of selling used cars, simplifying processes and procedures and creating a localized customer experience.

We're doing the same thing that shift with a renewed sense of determination I know Jamie.

And we have already started making changes in July we announced the restructuring designed to streamline our operations and reduce our cost structure.

The organizational structure shifts more ownership to the teams in our stores, who know our customers and inventory bets.

And reducing SG&A.

And we will continue to identify other areas of cost improvement.

And since then we have put initiatives in place to drive all the three strategic priorities, which are.

One.

Expand GPU through operational efficiencies and improving F&I.

To optimize the customer experience to increase conversion and three drive unit sell through and market penetration.

Let's go through each strategic priority and it will highlight the opportunities and initiatives.

First we will expand GPU through operational efficiencies and improving.

The two largest opportunities for ship to expand GPU or by increasing the F&I attach rate and improving the reconditioning process.

To improve our F&I attach we have made several changes, including establishing a new compensation structure, adding a new lending platform to serve more customers and updating our F&I sales process to better educate our customers after the benefits of the products we offer.

With respect to reconditioning I believe we can materially improve the time it takes to recondition of car buying.

Cementing best practices to optimize the workflow of each location.

Resulting in improved productivity and lower costs.

For example, we have already reduced the maximum biological cars, we acquired for retail, which will naturally lower ore processing times.

Our second strategic priority is to optimize the customer experience to increase conversion.

We believe we have a leading technology forward omnichannel experience.

As I mentioned earlier with our restructuring we are further refining the experienced by putting more responsibility in the hands of our sales teams and our locations are closest to the customers and our inventory.

We're listening to our customers.

In response to customer feedback and in an effort to improve transparency, we have removed the shift service fee.

We have also reworked or lead management process and are empowering the team with the addition of trade hung a dual degree with localized and solution based experiences to drive customer satisfaction and loyalty.

And our third strategic priority is driving unit sales to end market penetration.

In addition to reworking our lead management process. We have also adjusted our lead generation strategy prioritizing our higher ROI marketing partners.

We expect these changes to marketing to result in higher quality leads rather than the quantity and drives local market share and market efficiency.

As you can see the initiatives driving our three strategic priorities are all based on the fundamentals of buying and selling cars and providing a great experience to our customers.

We're moving quickly and decisively to generate results.

Now I'd like to provide a quick update on our review of strategic alternatives.

Since I joined I have worked closely with the board of directors on the process.

But that said, we recognize the need to raise capital to see results from our updated strategic priorities and initiatives.

The process is ongoing and we will provide updates as they are available.

We are dedicated to the success of this company and the value of success will create for all stakeholders.

I would like to reiterate that the reason I joined shape has not changed.

There's an immense opportunity to improve the performance of the business and reached profitability.

With the right strategy processes and procedures in place we're a great team to execute we can achieve positive unit economics, and subsequently company wide profitability.

I would like to take a moment to thank our talented team everyone has been engaged and extremely supportive of change in order to improve our results.

This team wants to win and I believe we are in the restaurant to do so.

Because of our ongoing review of strategic alternatives, we will not be taking questions.

Thanks for your time and have a good evening.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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