Vroom, Inc. Q2 FY2023 earnings call

Key Points

• Introduced long-term roadmap at 2022 Investor Day with goals of breakeven EBITDA and 5%-10% adjusted EBITDA margin.
• In 2023, resuming responsible growth, selling aged inventory, improving variable costs, reducing fixed costs, and converting balance sheet to cash.

Second Quarter Highlights

• Adjusted EBITDA loss improved by $8.5 million or 13% to $56.3 million.
• E-commerce units grew approximately 5% sequentially.
• E-commerce GPPU increased from $2,552 to $2,954, with GPPU on unaged units exceeding $5,000 offsetting impact from aged vehicles.
• Progress on strategic initiatives: reduced all-in logistics costs per unit by 17% sequentially, improved titling/registration processes with 43% inventory turn improvement, reduced selling costs per unit 26% sequentially, reduced fixed cost per unit 12% sequentially.

Total revenue was $225 million, increasing 15% as e-commerce units grew 5%. E-commerce GPPU increased 16% to $2,954. Adjusted EBITDA loss improved by $8.5 million or 13% to $56.3 million, driven by reduced operating costs, unit growth, and higher GPPU.

Full Year 2023

• Narrowed adjusted EBITDA loss guidance to $200 million to $225 million.
• Expect cash in inventory balance to reduce and normalize in the second half as aged units are sold through.
• UACC available liquidity expected to be approximately $74 million at the end of the fourth quarter, with potential additional $25 million from selling securitization certificates, leading to yearend midpoint liquidity up to $261 million.

Cash and Liquidity

• Ending 2023 cash and cash equivalents expected to be $137 million to $187 million, adjusted for convertible note repurchases.

• Legacy title issues impacting aged inventory mix, with 80% of units sold in Q2 held greater than 180 days.
• Factors causing actual results to differ from forward-looking statements, as outlined in SEC filings including Risk Factors sections.

Q: Hi, good morning. Thanks for taking the call. I guess a question on responsible growth. I mean, there's, I'm sure that's the rate of growth that you feel like you can satisfy in a profitable manner. But you know, from the outside, it's kind of hard to understand what that might translate to in the back half of this year as we enter 2024. So if you 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?

A: Yes, good morning, Sharon. We're very focused on figuring out the right balance, like our number one objective is cash burn as we work towards our long-term goal. And so, you know, we're not going to grow excessively, you know, we're at the risk of burning additional cash or hurting unit economics. So we're working through right now, what's the right level of market investment? What's the right unit growth rate and the right GPPU? And based on those three things, as we work through those and our cash burn, which is our primary driver that's going to yield growth. And that's why we're not providing really guidance on what our unit growth rate will be at this time.

Q: Okay. And then can you give us some more color around the sales functions that you've brought in house and how the performance there is relative to your expectations, if there's anything else that kind of meaningfully still needs to happen to get to kind of a fully optimized sales function?

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

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

A: Yes. And just to comment on that, it's interesting, we've had this plan since the fourth quarter, and we're -- it's been kind of stunning to me, were remarkably unplanned 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 issues. And in the future, to the extent we do have any inventory that's aged, it would all be math based, meaning we're running these very sophisticated pricing algorithms that have said based on market depreciation rates, and when we bought the car, it may make sense to hold the car longer, but I think it will be very deminimis and it would be embedded in and our pricing algorithm, so 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 title and registrations. And I -- we haven't really calculated it for next year, but I think my guess would be pretty deminimis and after the fourth quarter, we probably will be talking about it.