Vroom, Inc. Q3 FY2022 earnings call

• Long-term roadmap: Mid-term goal of breakeven business, long-term goal of 5%-10% adjusted EBITDA margin. Slowed down to improve customer experience, prioritize unit economics, profitability, and liquidity over growth. - 4 strategic initiatives:
  • Build a well-oiled transaction machine: Improved titling/registration, began building sales machine.
  • Build a well-oiled metal machine: Continued supply chain improvements, transitioned Stafford reconditioning center.
  • Build regional operating model: Reduced vehicle travel miles by 18% from Q1-Q3.
  • Build captive finance offering: Intend to expand captive finance, grow UACC third-party dealer business.
  • Q3 highlights: Improved adjusted EBITDA by $20M, Ecommerce GPPU $4,206, reduced adjusted SG&A by $21M, $16M securitization gain at UACC, reduced restricted cash by $59M, repurchased convertible notes, reduced titling/registration and support cost by $5.9M, reduced fixed costs by $4M.

Total revenues were $341 million, decreasing 28% as Ecommerce units declined 30%. Ecommerce GPPU increased 16% to $4,206. Adjusted EBITDA loss, excluding non-recurring costs, improved $20 million to $57.5 million. Restricted cash was reduced by $59 million sequentially. Repurchased $56 million face value of convertible notes for $18 million. Vehicle gross profit per unit increased 5% to $2,267, product GPPU increased 33% to $1,939, contributing to total Ecommerce GPPU of $4,206.

• Expect year-end liquidity near midpoint of $450M to $565M range.
  • Focus on unit economics over growth, plan to live within means, prioritize profitability and liquidity.
  • Sales function expected to be fully staffed in Q1 2023, but Q4 units expected to be impacted by sales transition and economic conditions.

• Macroeconomic conditions impacting demand.
  • Impact of large unexpected staff reduction at third-party sales partner affecting units.
  • Titling/registration delays leading to pressure on Q4 GPPU due to influx of aged inventory.

Q: About vehicle GPPU and SG&A leverage.

A: GPPU target range long term around $4,200, delivery fees down as experimenting with balance. SG&A has variable and fixed components; marketing cost per unit too high, titling/registration costs still high, logistics cost per unit high, fixed costs include headcount and contracts being rightsized.

Q: Quarter-to-date unit trends and drivers.

A: Macro environment, third-party sales force reduction, and focus on profitability all factors. Sales force reduction led to 32% contract decrease in 4 weeks after, but contracts per sales rep flat.

Q: Impact of Stafford IRC to TDA transition.

A: Not a significant impact, reduces fixed cost, improves environment for employees.

Q: Used car demand in Q4 and 2023.

A: Hard to tease out due to business transformation, competitors may be proxy, softness seen, outlook for 2023 depends on Fed rates and inflation, better view in Q1 2023 when fully staffed on sales resources