Q2 2023 Cazoo Group Ltd Earnings Call

Speaker 1: Greetings, and welcome to the CAHSA's second quarter and first-class 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker 1: A brief question and answer session will follow the formal presentation. If anyone should require... You may also have a question... or question.

Speaker 1: 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 Dr.

Speaker 1: Anna Gavrilova, Director of Investor Relations. Thank you. You may begin.

Speaker 2: Good morning, everyone. Thank you for joining today's call and webcast to discuss our second quarter and first half 2023 results.

Speaker 2: You will be able to find today's press release and accompanying presentation on our Investor Relations website at investors.cozoo.co.uk

Speaker 2: We appreciate everyone joining us today. With me on the call are Alex Chestman, Founder and Executive Chairman, Paul Whitehead, Chief Executive Officer, and Paul Wolf, Chief Financial Officer. Before we get started, I would like to remind you of the...

Speaker 2: assumption. Okay.

Speaker 2: Forward-looking statements are based on expectations that involve risks and uncertainty that could cause actual results to differ materially.

Speaker 2: For a further discussion of risks related to our business, please see the filings of Gazoo Group Ltd. with the U.S. Securities and Exchange Commission.

Speaker 2: Now, I will hand the call over to Paul Whitehead. Thanks Anna. Good morning everyone. Thank you for joining us today.

Speaker 3: I will talk you through the major changes we have made to our business this year enabling us to significantly improve the unit economics.

Speaker 3: I will then hand over to Paul Wolf who will cover our financial results and guidance.

Speaker 3: We've achieved a great deal in the first half of this year.

Speaker 3: In the current challenging economic environment, we are pleased with our decision to pivot from fast growth to full focus on unit economics and preserving cash.

Speaker 3: Over the past three and a half years we have demonstrated that we can sell retail cars online at scale.

Speaker 3: Customers have purchased over 130,000 retail cars on our website since December 2019.

Speaker 3: And our proposition continues to resonate strongly with consumers.

Speaker 3: We continually work hard to make it transparent, convenient and a great customer experience to buy and sell cars on our website.

Speaker 3: We have a great value proposition, market leading platform, talented team.

Speaker 3: established brands, and then end-to-end infrastructure in the UK.

Speaker 3: The UK represents a significant and attractive opportunity with its 7 million used car transactions worth £100 billion annually.

Speaker 3: low online penetration and a fragmented retailer base.

Speaker 3: We have three priorities for 2023.

Speaker 3: First, full focus on UN economics.

Speaker 3: We have improved resale GPU from £596 in the last quarter of 2022 to £1,290 in quarter 2 2023 we are reporting today.

Speaker 3: Finance at the catchment rate is at an all-time high thanks to the strengths of our proposition.

Speaker 3: meaning that ancillary revenues continue to grow.

Speaker 3: We are delivering progress across all components of Resell GPU and are making meaningful progress.

Speaker 3: on our path to achieving our goal of possible growth in the future.

Speaker 3: Our second priority is optimization of our fixed cost base.

Speaker 3: following the announcement of our revised 2023 plan in January

Speaker 3: We restructured the organization swiftly and decisively by reducing the headcount

Speaker 3: closing a number of our customer and vehicle preparation centres, and exiting a European operation.

Speaker 3: This generated around £100 million in annualised SG&A savings that is largely already in our own right.

Speaker 3: In this last quarter we've identified a further £20 million of annual i-CAT savings, which will be delivered in the second half of this year and so fully benefit at performance in 2024.

Speaker 3: Thanks to higher retail GPUs and the cost savings we have already made today.

Speaker 3: We are reporting another improvement in adjusted EBITDA in line with our guidance earlier this year.

Speaker 3: Our third priority is preservation of our cash balance.

Speaker 3: We have proactively managed expenditure and can report that we have spent less than planned on both restructuring and the EU exit.

Speaker 3: All in all, positive results on all three objectives.

We are now a leaner and more efficient organization with a path to deliver better profitability, right sides of the bay and with a view on returning to growth in the future.

Our results, summarised on slide 5, came in line with expectations.

The results summarised on slide 5 came in line with expectations and our focus on unit economics.

The second quarter was our strongest yet in terms of retail GPU at £1,290.

During the second quarter we generated revenues of £171 billion sterling.

A 44% decrease year on year.

The decline in revenues due to lower volumes, which is in line with our focus on unit economics rather than volume.

We sold over 9,000 cars to retail consumers.

And we also sold just over 2,000 cars to our wholesale channel.

and we are winding down the subscription business to focus on retail. This is a solid result given the challenging economic environment.

Our volumes were also impacted by broader industry factors, not least the higher cost of living to the consumer as a result of higher interest rates and inflation.

In the first six months of the year we generated retail GPU of £1106.

880 pounds higher than a year ago.

Revenue was £419 million and we sold over 22,000 retail units and over 6,500 wholesale units.

Ancillary revenue for the first six months of the year was £17 million, a drop of only 2% compared to the 22% decline in retail units.

as we continue to improve the customer journey on our website and price our products and offers competitively.

Ancillary revenue per resale unit was £765, up 25% year on year.

with the finance attachment rate at 52.8%.

We anticipate that the cost of living, ability to get finance,

and cost of used car finance will continue to be critical factors as customers consider their next used car purchase.

Our operational footprint is now much more aligned with our target for 2023 and we believe we are right-sized to return to profitable growth in the future.

Since the beginning of the year, our Kazoo customer centres were consolidated from 21 down to 7. We optimised our Retail Vehicle Preparation centres from 8 down to 3, plus 1 wholesale times.

The retail resurfacing capacity of the site is more than 85,000 cars annually.

and it can be expanded if we activate currently MOSFORD site.

We have a customer services site in Southampton and an office in London.

All of these sites are strategically located in geographically optimal locations.

driving efficiency in our logistical operations.

We operate a significant transport fleet with both multi-car vehicle transporters to move cars between our vehicle preparation centres and customer centres.

and single car transporters to deliver and collect cars from consumers.

Headcount was further reduced by around 150 employees in the second quarter as we continued to review costs and identify areas where, with the right focus and the implementation of supporting technology, we will not need as many resources. We have now exited Europe completely.

and are fully focused on the UK market, as that's where the largest opportunity lies for us.

I want to expand on some of the components that are driving improvements in Retail GPU.

propensity of that car to attract finance.

as well as the likely demands from our online customers. We have also priced our ancillary products and finance options more competitively compared to a year ago.

Finance detachment rates have been over 50% over the last three quarters and we are seeing strong growth in ancillary revenue.

due to the investment we are making continuously in the consumer's online journey on our platform, and introducing new opportunities to drive ancillary revenues, such as offering to customers to add ancillary products at the time of collection or handover. We acquired a vehicle and factor in logistics costs.

and we then sell the vehicle via our platform and the data from this cycle feeds back into the model to continuously improve the accuracy of our estimates and unit economics.

I'm pleased to say that we are delivering improvement across all the key drivers behind retail GPUs.

In Q2 2023 we improved retail GPUs by £310 since Q1 and by over £600 since the last quarter of 2022.

We spoke about better inventory selection, finance attachment rates, and ancillary revenues earlier in the presentation.

We continue to buy about half of the vehicles we retail directly from consumers.

and that's been fairly stable. We would like to increase the share and we're working on our proposition to drive more direct buying and past exchange.

Refurbishment costs continue to come down as we tighten our operations and become more efficient, in line with our standards and promise to the customer and as we continue to extract further efficiencies from our supply chain.

We have made good strides in improving inventory management, which is resulting in publishing cards on our website quicker and delivering cards faster once they've been ordered.

We are guiding to a 2023 Retail GPU of average of £1200 and approaching £1500 at the end of this year.

We see that a lot of progress has been achieved to date with much more to go after to be better, faster and more efficient.

I will now hand over to Paul Wolf, who will take you through cost-fading and financial results.

Thank you, Paul.

Paul has talked you through our performance at the revenue and gross profit levels.

SG&A costs consist of all people costs with the exception of those directly involved in reconditioning cars, which are included in retail GPU, marketing and advertising costs, property and facilities management, legal and professional fees, license fees for third party products.

and other smaller cost items. Through the restructuring changes executed earlier this year we have removed about a hundred million annualized SG&A costs across all these areas.

Some of the hardest decisions were around people, where we derived almost half of the savings.

As I said during the full year results call in March, we had planned to look again at all costs post the restructuring to see what else we can do. In Q2, we identified a further 20 million of cash costs that will be removed in the second half of the year and will fully benefit 2024.

These additional savings span many areas of SDNA with the exception of marketing where we believe we should continue to invest in our great brand and proposition.

Outside SG&A we've also identified cash savings in lease costs and capital expenditure.

We will continue to review costs regularly as we look to improve the efficiency of our operations. Out of the 72 million year-on-year improvements in adjusted EBITDA over H1 2022, well over half was generated from SG&A savings. Looking now at the operation

rather than volume, our units and revenue declined in H1 2023.

Retail units of 22,438 were 22% lower than the corresponding period last year, with total units including wholesale 29% lower.

In line with the lower units, total revenue was 28% lower than last year.

However, as you can see from our results today, this strategy has enabled us to significantly uplift our unit profitability.

Growth profit of 23 million stated after including 3 million of losses as we run down the subscription business.

was 17 million higher than last year. H1 retail GPU of 1106 pounds was 880 pounds higher than H1 last year. An increase of 389%.

A big improvement, driven by our focus on unit economics and better results across all the components of retail to the year, as Paul described earlier.

SG&A costs before depreciation and amortization of 98 million represented a 54 million saving year on year, equivalent to a reduction of 36%.

STNA costs will continue to reduce into H2.

This resulted in an adjusted EBITDA of minus 70 million.

less than half the losses we made in the corresponding period last year.

And please remember that in Q1 2023, we were still largely operating with the same cost base as last year, as our restructuring took effect at the end of that quarter, so the Biggory BIDAR uplift took place in Q2.

15 hour cash flow. Total loss for the period was 150 million compared to 241 million in the same period last year.

Working capital was a significant cash inflow in the period.

as we reduce the level of inventory in line with the lower volume plan compared to our growth last year.

Within investing activities, we have reduced our spend on technology development and on PPE, and we are divesting rather than acquiring businesses.

Financing activities are adverse to the same period last year when we derived the benefits of the convertible note issue and the increased stock in loans to finance inventory growth. The negative movement in inventory financing in H1 2023 somewhat offsets the working capital improvement noted above.

Overall, we saw a 61 million pounds cash outflow over the periods, leaving us with cash and cash equivalence of 195 million at June 30th, 2023. This is in addition to around 35 million of self-funded inventory.

In terms of guidance, we are on track to deliver against the guidance we made at the start of the year. To recap, the guidance for 2023 is the following.

Retail unit sales of 40,000 to 50,000 units. Retail GPU for the year approaching 1200. With the exit retail GPU approaching 1500. Adjusted EBITDA loss of 100 million to 120 million pounds.

Year-end cash position in the range of 110 to 130 million pounds.

Yeah, hi there. We'll wipe it here. So yeah, Trent and July , we're seeing continued focus on our unit economics. The market remains challenging, but seeing continued good improvements on all levels of the unit economics, whether that be GPU or the variable cost that sits beneath that. OK, thank you. And the second question is about average price per car in retail segment. I think on my calculation, Q2, there was about 5% in.

What we have been doing though in our inventory makes us been targeting our inventory based on desirability and based on GPU. So what kind of can we acquire that drive our artillery revenues, for example? So and as a result, some of that has seen some...

reduce the overall kind of headline price. But I think the key to focus on is the improvements we've made on GPU because we've targeted our buying more around that now.

Okay, thank you.

It appears there are no further questions at this time. I would now like to turn the floor back over to Anna to remove us for closing comments.

Okay everyone, thank you for joining the call today. Thank you for your attention and your questions. If you have any further questions, please feel free to reach out to us at investorsatcazews.co.uk. Thank you and have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.