Vroom, Inc. Q1 FY2023 earnings call

Long-term Roadmap

• Introduced in May 2022, with mid-term goal of breakeven EBITDA and long-term goal of 5%-10% adjusted EBITDA margin.

2022 Actions

• Strategically slowed business to improve customer experience, processes, insourced sales function.

2023 Focus

• Resume growth, sell aged inventory, improve variable costs, reduce fixed costs, convert balance sheet to cash.

First Quarter Highlights

• Adjusted EBITDA loss $65M within expectations, improved adjusted EBITDA excluding non-recurring costs by $10M. UACC sold rated ABS, sold non-investment grade securities for liquidity. GPPU improved, inventory turns up, sales, titling costs reduced, fixed costs cut.

Total revenue for the first quarter was $197 million, a 6% decrease as e-commerce units declined 5%. E-commerce gross profit per unit (GPPU) increased 107% to $2,552. Adjusted EBITDA loss was $65 million. UACC sold approximately $239 million of rated asset backed securities for proceeds of $238 million, and in April sold non-investment grade securities at 99% of par value generating approximately $23 million of additional liquidity. Inventory turns improved 21% sequentially, sales costs per unit decreased 11%, titling/registration/support costs per unit decreased 20%, and fixed costs per unit decreased 11%.

• 2023 ending cash and cash equivalent expected $150M-$200M.
• Second half EBITDA loss rate expected $45M-$50M quarterly.
• Expect GPPU to normalize in back half as unaged units sold.

• Securitization market conditions impacting liquidity and gains on sale.
• Higher than anticipated losses on UACC portfolio.
• Market conditions affecting ability to sell residual certificates and securitize.

Q: Great, Good morning and thanks for taking the questions. Just firstly on like the EBITDA guidance and the run rate here once you get through the age inventory, looking at the one-time factors that impacted first quarter, and what could impact the second quarter as well as some of the securitization expenses and accounting for the risks that were announced recently. We are arriving at something close to $45 million to $50 million EBITDA loss rate, a quarterly EBITDA loss rate for the second half of this year. Is that a fair assumption?

A: Great, Rajat. Thanks for much for the question. Yes, your math is pretty much right in line with what we have disclosed. If you look at our first quarter adjusted EBITDA that we reported was $65 million. We did discuss in our comments that, within that $65 million, we had $5 million of debt issuance costs in the first quarter. And those costs, the reason that we had to spend those because that transaction is currently on the balance sheet in a transaction that is off balance sheet that would be netted against the gain on a sale. So that was a $5 million adjustment. And then in addition to that, some of the other things that we have talked about, Tom talked about the January risk where we only had 2 months of the 3-month benefit. And if you take the $27 million that we talked about, that's a couple of million dollars benefit per month and we didn't get one of those months in the first quarter. So we expect that as an ongoing benefit. And then April, we announced an additional reduction in force and that was $15 million in annual savings and obviously we will see the benefit of that. We will see a couple of months of that benefit in Q2 and then get the full benefit of that approximately $3.5 million to $4 million benefit going forward. And then the final item that you mentioned as well was the GPPU and Tom talked about the, the $1,700 delta that we're seeing the $1,700 impacted GPPU because 77% of what we're selling right now are aged vehicles. And if you take that times our 4,000 units, that's worth about $6.5 million. And that gets you right in the range that you're, that you're thinking that's correct. That's the right way of looking at it.

Q: I apologize for my voice. I have come down to something this week, so hopefully I you can understand me. But I wanted to ask about the GPU pressure that you alluded to in the second quarter. I'm assuming that GPU will worsen sequentially from the first quarter given the EV reserve that benefited the first quarter. If you could kind of clarify that and whether there is any reserve benefit that we'll see in the second quarter, that would be helpful.

A: Yes, good morning, Sharon. Sorry, you're not feeling well. We would expect Q2 to be directionally around where Q1 is as we work through the H inventory. And as I mentioned earlier, we're very pleased with the GPU we're getting on our own H unit. And so, we really would like to sell through our H unit in Q2. And we're expecting pretty similar GPPU and Q2 as Q1. And then we expect a pretty sizable increase in Q3 and Q4 and GPPU as we'll just be selling primarily on aged unit.

Q: I was going to ask like at what point, when you're scaling this business, growing this business? Would you realize that the path to break even might end up being longer or you need to have more expenses come in to get that credit? What would make you arrive at the decision to perhaps liquidate and return the cash to shareholders sooner rather than later? And wait for the market to recover or the credit bankrupt to recover?

A: We focus literally every day on doing what's best for our stakeholders. And we have a plan in place that you kind of did the math and what the Q1 run rate would be with normalized things. And we're going to continue to focus on improving that number throughout the year and growth. And we're going to be very responsible to all of our stakeholders to create the maximum return. And so it's something that we look at every day. And right now, our plan is really on plan and we're going to continue focused on that, but obviously, our goal is to maximize return for all of our stakeholders.