Shift Technologies, Inc.

Hello, and thank you for standing by, and welcome to the SHIFT Technologies fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Henry Byrd. Vice President of Strategy. Please go ahead.

Good afternoon and welcome to the Shift Technologies fourth quarter fiscal year 2021 earnings call. Joining me on the call today is our co-founder and CEO, George Harrison, our president, Jeff Clements, and our CFO, Odette Shine. During our remarks, we will make some forward-looking statements which represent our current judgment on what the future may hold. And 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 statements. 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. Good afternoon, everyone, and thank you for joining us on our fourth quarter and full year 2021 earnings conference call. We have a lot of exciting news to cover, including our Q4 and 2021 results, the penny acquisition of marketplace assets from player technologies, our 2022 objectives, and finally some thoughts on our profitability model. Thank you for bearing with us as we walk you through these materials. Further details are available in our shareholder letter and new investor presentation on our IR website. I'll start with a quick reflection on 2021. We finished the year with $637 million in revenue, representing over 3x year-over-year growth. At $196 million, our Q4 was not only above our guidance range, but greater than the entirety of our 2020 revenue. We expanded into Texas and now have full service markets across the state. Our in-house reconditioning team has become a hallmark of operational excellence at Shift. All year, the output from this team was ever-growing, while concurrently, the team drove down costs, as in Q4, we saw a 41% year-over-year decrease in average reconditioning costs per unit. We see this as further validation of our long-held thesis that in-house recon is essential to building a large, profitable auto e-commerce platform. We currently have the staffing and facility capacity to recondition approximately 750 cars per week. We will continue to expand capacity as 2022 progresses, but current capacity is more than sufficient to meet the high end of our 2022 volume guidance. We made great progress in improving our unit economics, growing full-year adjusted GPU 57% year-over-year to $2,126. While reconditioning success was a key hallmark of H1, stable, consistent, and reliable improvements in our F&I per unit was a major highlight of H2. In Q4, we had other adjusted GPU per unit of $1,162. F&I per unit has grown nearly 2.5x since the end of 2019. We launched our first brand campaign in Q1 2021, which marked the beginning of our long-term strategy to build SHIFT as a trusted consumer brand. Over time, great awareness will diminish our need for down funnel marketing and ultimately drive cap and price to market leverage. Our internal analysis shows SHIFT has about 15% aided brand awareness in the markets in which we have a physical footprint. Great progress from a year ago, but still plenty of opportunity to improve. Thanks to our regional operational approach, we believe we can achieve about 50% brand awareness over the next few years, significantly lower total investment than our peers. Finally, we invested in our people across the organization, including growing our leadership team. In Q4, we undertook a hiring initiative to prepare us for growth in 2022, and as a result, we are well-staffed to drive another banner year for shifts. I can't overemphasize how grateful and proud I am of our team for all that they were able to accomplish last year, despite it being one of the most complicated and dynamic used car markets perhaps ever, while continuing to navigate the pandemic. COVID has continued to present new challenges, most recently with a significant spike in Omicron variant cases, which had some impact on our operations in December, January, and February that are reflected in our Q1 guidance. Nevertheless, Our performance in 2021 only increased my confidence in our team's ability to execute successfully as we scale this business towards profitability. Thank you, SHIFT team members, for all your hard work over the past year, especially to those in the field and at our hubs. Turning now to 2022, which is off to a great start. We're excited to be announcing today our agreement to acquire the dealer listing marketplace assets from Clare Technologies. This transaction will be fully funded by $20 million senior unsecured debt facility with a 6% coupon from SoftBank. The acquisition and debt facility are expected to close in the second quarter of 2022. At Shift, we've long envisioned building a digital marketplace where both dealers and independent sellers can list their cars alongside Shift's own inventory, offering customers access to a greater assortment of owned and third-party vehicles with all the transactions fulfilled through Shift's proprietary logistics network. For the last 18 months, FAIR's WordPress engineering team has been developing a digital marketplace platform for third-party inventory, including a proprietary dealer-facing onboarding platform. Dealers can manage the entire transaction via this platform and easily schedule an at-home delivery. It is the ideal solution for dealers to participate strategically in e-commerce, grow market share, and develop long-term relationships with customers. This technology, along with FAIR's deeply established dealer relationships, will allow Shift to accelerate our vision, becoming the destination marketplace for car ownership, enabling us to launch the very first alpha version of third-party listings on our platform at the end of Q2 2022, or a year from now, and then to scale it quickly from there. We see several immediate and long-term benefits to the marketplace, including expand our inventory assortment through access to third-party sources, accelerate e-commerce, e-commerce unit sales growth and drive margin expansion, and provide further leverage on our marketing and brand investments. Turning next to our objectives for the core business in 2022, today we have released an investor presentation that provides a detailed view into how we envisioned achieving break-even profitability over the next few years. Ever since our founding, we've consistently worked to be prudent stewards of capital that our investors trust us with. I'm proud that our team has shown our belief to do more with less, achieving significantly better unit economics at a smaller scale, and spending less to grow to our size than our peers. This year and in the years to come, we will continue to strive for an optimal balance between growth and driving improvements in profitability, with the ultimate goal of having a very profitable business that can self-fund continued rapid expansion. The operational efficiency actions we will be undertaking in 2022 are critical in this regard, And in a minute, Jeff will walk us through a few of these initiatives. I feel confident about our capital position to fund these efforts in 2022, and we will also look to strengthen our liquidity position this year as we continue to be prudent stewards of our cash. We believe our investments in excellence in conditioning and strong growth in our GPU, both on the front end and in F&I, coupled with rapid scaling and a clear path to profitability, create the right combination to attract additional capital as we work to capitalize on the market opportunity. With that, I'm excited to turn the call over to our president, Jeff Clements, to talk in a bit more detail about what we have planned for the year ahead. Jeff?