CarLotz, Inc.

Good day and welcome to the SHIFT Technologies second quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Henry Bird, VP of Strategy. Please go ahead, sir.

Good afternoon and welcome to the Shift Technologies second quarter 2022 earnings call. Joining me on the call today is CEO George Harrison, President Jeff Clements, and CFO Oded Shine. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold. So 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 outcomes and results may differ materially from what is expressed or implied in any forward-looking statement. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statement. We undertake no obligation to publicly update any forward-looking statements, 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. With that said, I will now turn the call over to George.

Thank you, Henry, and good afternoon, everyone. Thank you all for joining us today. We certainly have a lot of information to cover today as there are meaningful changes happening at Shift. I will touch on our pending merger with Carlos, our new strategic plan, and our CEO transition. Jeff will go into more detail later in the call on major business changes we are enacting and how they interrelate with the Carlos transactions. Shift's vision is to be the end-to-end destination for car ownership. We're working towards achieving that vision both by internally building a great technology platform that customers love and by opportunistically adding valuable assets through M&A, like we did when we acquired Ferris dealer marketplace technology. First, Carlos Merger. As a step that ties directly into our broader vision strategy, I'm extremely excited today to be announcing that we are entered into a definitive agreement to merge with CarLots, a leading consignment retail used vehicle marketplace. Shift is the acquiring party and a successful company in this transaction. With our newly updated strategic plan that we will discuss shortly, we will be in a position to pursue a fully funded business plan and achieve profitability in 2024 as a combined company. And with the expected synergies and combined cash position of the merged company, we'll be able to do so without needing to raise additional financing. Oded will cover the specific transaction economics in his section. The Schiff and Carlos teams have known each other and their respective businesses for quite some time. Indeed, this is not the first time we discussed the possibility of coming together, since we've always seen a considerable amount of strategic and cost synergies with their combined entities. In the last several weeks, we've also had a chance to get to know Lev and his new leadership team at CarLots. On both sides, we're strongly convinced of the synergetic opportunities and cost savings presented by this merger to drive the combined company to a profitable future without needing additional capital. Our merger with CarLots will bring together the best, most profitable assets of both companies. Firstly, the two businesses have complementary geographic footprints. While Shift's presence is concentrated on the West Coast, Carlos has built a strong brand and has retail locations in the mid-Atlantic region. Together, we will cover a much larger geography without needing to launch and scale a new market. Secondly, we see a massive opportunity to leverage SHIFT's proprietary inventory acquisition engine, as well as our self-service online checkout at Carlos stores to drive cost efficiencies at our at-home delivery offering and make them significant profit centers. As we are building out our dealer marketplace, there's a potential to leverage Carlet's geographic presence to quickly scale this business to the East Coast. As with any merger, we anticipate a significant amount of duplicative costs between the two businesses, especially in DNA, and we seek to maximize efficiencies in the go-forward company. Notably, we believe the combined cash position of both companies will enable us to fully fund our updated business plan. Second, updated business plan. Today we are also announcing an updated business plan for which I will provide some initial context and Jeff will discuss in greater detail shortly. I've always believed in shifts ability to capitalize on the massive market opportunity and become sustainably profitable, leading player in the used automotive retail. And our merger with Carlos only augments this conviction. However, over the last several months, as we spend time and receive feedback from potential and current investors, It became apparent that our growth plan, which estimated achieving profitability of roughly 100,000 units in 2025, would be extremely difficult to finance in the current market environment. We needed to come up with an alternative plan that accelerates profitability with significantly lower volume and lower cash burn. To this end, we have developed a revised plan for the shift core business, which management and our board of directors are excited about. Notably, this plan will allow us to achieve fully positive unit economics inclusive of marketing spend in 2023, and combines company-wide break-even EBITDA in 2024. I would note that any synergies that we will recognize from the merger with Carlos would be accretive to this plan. That said, implementing these changes comes with a toll, including the need to eliminate roles across our corporate team and at our hub locations. For this reason, this decision to pursue this strategy was very difficult. perhaps the hardest one I've faced in my nine years as CEO. The board and I are very aware of the impact that this decision has on our team members. I want to express my deep appreciation for all that our effective team members have done over the years for Shift and our customers. I certainly wish that this decision was not necessary. As just founder and CEO, I was the responsible party for our growth trajectory, and I'm also responsible for the changes that we're making today. This one's on me. Communication to most individuals impacted by this change has already happened. We're committed to supporting them as best we can as they make this difficult transition. Third, CEO transition. Now I'd like to talk about something that's been in the works for some time and that is a really significant step in our company's life and its future. Last year, Chief Support of Directors Toby and I together engaged in comprehensive, thoughtful, and focused succession planning exercise. to help ensure that the company had the right leadership for the long term. Our ideal standard was an executive with a track record of operational excellence, experience in product leadership, and capacity to deeply understand complex e-commerce marketplace dynamics. It is with this in mind that last year we hired Jeff Clements as our president with the hope of eventually seeing him elevated to the CEO role. With the Carlos merger, now is the right time to elevate Jeff to the CEO role since it is important for the person driving the implementation of our merger and new business strategy to be the CEO for the foreseeable future. To this end, I'm excited to report that as a final step in our leadership discussion exercise, the Board of Directors has appointed Jeff to the role of Chief Executive Officer of SHIP effective September 1. Over the past several quarters, Jeff has proven himself as an outstanding leader with an aptitude for execution. He has a strong skill set necessary to lead shift at this stage of the company. He has the full support of the board and myself, and I'm committed to helping him succeed in any way I can. With this transition, I will maintain my current role on the board of directors as chairman of the board, and I'm welcoming Jeff as a new member of our board. With that, I will hand over to the incoming CEO, Jeff Clement, to further detail the go-forward strategy.