Vroom, Inc.

for additional discussion of factors that could cause actual results to differ materially from those in the forward-looking statements. Please know further that today's discussion, including the forward-looking statements, speak only as of the date of this call, and Vroom assumes no obligation to update such statements based upon future developments or otherwise. The company may also discuss certain non-GAAP financial measures during today's call. You can find a presentation of the most directly comparable GAAP measures and a reconciliation of those measures in the first quarter 2022 earnings release and management presentation. I'd like to now hand the conference call over to Bob Mylod, Executive Chairman. The floor is yours.

Thank you, Liam, and thank you to all the investors, analysts, and roommates who are joining us for today's first quarter earnings release. We have quite a lot to cover today, one of the most important of which is today's announcement of executive leader changes. Specifically, I'm very pleased to announce the promotion of Tom Short from Chief Operating Officer to Chief Executive Officer. At the end of today's call, I hope you'll understand and appreciate why our board of directors is supremely confident that Tom is exactly the right person at the right time for Vroom. I could not be more excited about his ascension to CEO, and I and my fellow board members are committed to doing everything in our power to help Tom and Vroom succeed. Speaking of our board, we continue to be very engaged with management in shaping the direction of the business and have been having a number of discussions over the last few months about how to improve our operations and results. As you saw in our press release today, we have added the title of independent executive to my existing title of chair of the board. As independent executive chair, my job will be to counsel and advise Tom and help him with any of the critical decisions that he will be making in the coming year. My title is also meant to make clear that I and the Board are eager to be by management's side closely monitoring the results of today's actions and also being at the ready to continue to oversee any further course corrections that are necessary from here so that Vroom is in a position to win. I'd like to acknowledge that the past several months have not looked very much like winning. We know we fall into an ever-increasing bucket of companies that had attracted significant investor interest despite large losses. because the markets were less focused on the pursuit of profit in exchange for delivering fast growth and large market share gains. Valuations of companies with that business profile have been decimated this year, and the market is very clearly demanding much nearer-term visibility to profitability. We know full well that Broome is squarely in this bucket. But to be clear, while we know that much of our valuation has to do with these macro market forces, we also know we have a lot of work to do on improving our operational execution. As in recent months, we have come up short in delivering a delightful experience to each and every one of our customers. Many of our challenges have revolved around the titling and registration of the cars that we buy and sell to and from our customers. We have always known that this is a tedious process, one which requires a symphony of well-orchestrated handoffs from the many participants involved. The buyer's the sellers, the many consumer finance companies that lend to our customers, our floor plan lender, and of course, state DMVs, each with their own local rules and procedures that continue to evolve throughout the pandemic. It is manual and time-consuming. In the past several months, with the hypergrowth of our business putting more and more strain on this important operational motion and recent developments in the way our partners handle this paperwork, we fell behind. The result has been too many customers that have bought cars from us and who have not been able to register their cars in a timely manner prior to their temporary license plates expiring. When this occurs, those customers are left with a car that they bought from us but which they might not be able to drive. That is an unacceptable outcome for even one single customer, let alone the many that this has happened to. It has also put a strain on our relationships with the various states' DMVs on who we and our customers rely to process our title and registration requests. And, of course, it impacts our financial performance. It lowers inventory returns and increases the likelihood of markdowns. It increases customer returns or customer make-good payments, which are harmful to gross margins. It also increases operating expenses associated with customer service calls, or our employees making repeated efforts to obtain titles and tags. In the last few months, we have been incurring excess customer make goods and legal expenses as we seek to remediate customer issues and address the concerns of certain state DMVs or regulatory bodies on whose doorsteps many of our customer complaints have arrived. From a balance sheet perspective, it has resulted at times over the last few months and our cash being inefficiently used to finance too much inventory, too many receivables, and too much restricted cash. All of this activity has added up to losses that are too high and negative cash flows that are in excess of those losses. I'm going to leave it up to Tom and Bob to talk in detail about what we are doing, and in fact have already done in many of these areas, to dramatically change this unacceptable dynamic. But I'm going to summarize it very succinctly. We are choosing to slow down until we get this right. Our goal is to take what is currently a challenge for us, title and registration processing, and fix it to a point that it becomes a towering strength and a source of competitive advantage. At this moment, with these operational challenges I just described, and with this stock market as a backdrop, we're pretty sure that investors are less interested in hypergrowth and far more interested in understanding how we are going to marshal our resources. As Bob will explain, if we do this right, and we strongly believe that we will, we expect to get to the moment when we are more nimble and ready to resume our growth. And we look forward to getting there because when we do, we'll be doing so with what I think is an extraordinary set of assets. First and foremost, I believe that we have built an incredible brand that has tapped into a megatrend that is not ever going away. the desire of customers to purchase their cars in a way that is consistent with what they have come to expect from the likes of Amazon or DoorDash. They want to transact digitally and they want their purchase delivered to their doorstep. I've been at this e-commerce game long enough to know that this trend is only heading in one direction as newer digitally demanding generations grow up and have the means to buy cars. And as we have reiterated over and over again, the market is absolutely enormous and still largely unpenetrated. Thus, we are not overly concerned about a temporary pause in our growth because we expect the lion's share of digital commerce market share gains won't happen until 2023 and well beyond. Another asset that we have is our ability to source, recondition, and price our cars. Despite our challenges, our customers are in large part in love with their Broom cars. When that red Broom delivery truck rolls into a residential driveway with a shiny car, it is a magical customer moment. We know we are already good at delivering those magic moments, and we are going to get better at it as we reduce delivery times and increase the percentage of our customers who experience this last mile magic. If we do it consistently without incurring the backend registration challenges that reduce NPS, we will gain loyalty and take a whole lot of market share. Yet another valuable asset is the newest addition to the Vroom family, United Auto Credit Corporation. We completed that acquisition in Q1, and it is of enormous strategic importance to Vroom, as it will ultimately allow us to earn the full economics associated with car loans on a very substantial percentage of our transactions. This is the type of asset that our bigger competitors, Carvana and CarMax, have benefited from for years. We now have that arrow in our quiver too, and it will make Vroom a better, more profitable company. As we scale this important cross-sell activity, the resulting financial benefits should show up in a meaningful way over time. But as Tom and Bob will explain, UACC's earnings for the remainder of 2022 will still largely emanate from a strong business that is built on its own. These earnings are substantial, and they immediately contribute to Vroom's consolidated financial results, as illustrated in today's first quarter announcement. We hope that by giving you this visibility on UACC's capabilities and earnings power today, you will gain increased confidence that Vroom's strategic and financial position has been dramatically bolstered. And then lastly, I believe that our greatest asset is the management team that is going to go after this vision to become a large profitable business. It starts with Tom here, and it goes from him to every member of the room management team. As I get ready to hand the call over to Tom, I want to give him a proper introduction by pointing you to our first slide of our earnings presentation. When you examine Tom's domain knowledge in the areas where we need management expertise, And when you appreciate that Tom knows what great looks like because he has been a leader at some of the greatest consumer-branded companies that depend on world-class logistics and operations to succeed, I hope you will join me in concluding that we could not have found ourselves a person that is more out of central casting for what Vroom needs now. I'd like to close my remarks on one final note. I want to thank Paul Hennessy for his six years of service at Vroom. He is responsible for cultivating each and every one of those assets that I just recounted. And he leaves a team behind, every one of which, including Tom, that he recruited, mentored, and put in a position to take the baton from him. I know I speak for Tom and Bob in wishing him well in his next endeavors. And with that, please allow me to hand it over to Vroom's new CEO, Tom Short.

Thank you, Bob, for that warm introduction. Good morning, everyone, and welcome to our first quarter earnings call. Before we dive in, I'd like to thank Paul for building one of the largest used automotive dealers in the country and for recruiting me to Vroom. I'd also like to thank all of our roommates and our third party partners for their support in serving our customers. Now let's start on slide four. I'm very excited that we completed our acquisition of United Auto Credit Corporation or UACC in February. I'd like to welcome all of our associates at UACC to Vroom. At UACC, we've already completed our first securitization during the quarter, resulting in a gain of $30 million, and we expect to complete another securitization in 2022 and anticipate a similar size gain. Our expectation is that UACC will generate total securitization gains of $65 million to $75 million in fiscal year 22. Our integration of UACC into our business is on track, and UACC is already originating loans for Vroom customers. We exceeded our expectations in the first quarter, coming in ahead of our guidance. We delivered a higher level of e-commerce units than we forecasted. Our e-commerce gross profit per unit, or GPPU, was more than $250 ahead of guidance and much more than our fourth quarter exit rate. We expect to further improve e-commerce GPPU for the full year versus the first quarter. Our adjusted EBITDA loss of $107 million was ahead of our expectation thanks to our e-commerce segment results and the benefit from the gain of our first securitization by UACC. Our reconditioning network transition out of ADESA is on track as we allocate throughput to other sites. We intend to transition our remaining logistics hubs from Odessa locations by the end of the third quarter. We reached record e-commerce last mile hub delivery in the first quarter at 76% and maintained a high level of consumer sourcing. Yesterday, we announced our realignment plan. As we look forward, our plan is to prioritize unit economics over growth, reduce operating costs, and maximize our liquidity. Our outlook for 2022 reflects this realignment plan. As we focus on these three objectives, we will scale back the business while we focus on improving GPPU, improving our operating processes, reducing operating costs, and dramatically improving our customer experience. Compared to Q1 annualized, we expect to end the year with higher e-commerce GPPU lower operating costs, and year-end liquidity of $450 million to $565 million. The high end of our estimated liquidity range is approximately $35 million less than our cash on hand at the end of Q1. Announcing our realignment plan. Let's go over the foundation of our realignment plan on slide five. As part of our realignment plan, we intend to live within our means while accelerating our path to profitability and dramatically improving our customer experience. First, we intend to prioritize unit economics over growth. We intend to leverage our national brand while we focus on regional operations that drive density. As we drive density, we expect our operating costs to reduce and we'll be able to provide faster delivery times to our customers. We believe we have significant opportunity to optimize our pricing engine when we buy and sell vehicles. We intend to maximize the power of UACC. Second, we are focused on reducing our operating expenses, reducing marketing costs by focusing on our highest ROI marketing channels and aligning spend with reduced volumes, resizing the organization to focus on profitability over growth. refocusing our technology spend to drive cost efficiency and productivity. Third, we will focus on maximizing our liquidity and preserving cash while we position the business for profitability. We intend to reduce and convert major balance sheet items into unrestricted cash. We are focused on dramatically improving our customer experience, including our titling and registration process, while we improve our liquidity by freeing up restricted cash. We expect to end the quarter with approximately half a billion of liquidity at the midpoint of the range. Turning to slide six, as we look to the future, our goal is to build a profitable business model and then accelerate growth. We believe four very focused initiatives will position the company for a profitable business model. First and most importantly in the short term, we are investing in building a well-oiled titling and registration machine. As Bob indicated earlier, as we've scaled the business, our processes, systems, and infrastructure have struggled to keep up with the growth. We are focused on leveraging technology to improve our current manual titling and registration process. We expect to improve our cycle time, minimize manual steps and resources, add significant automation to the process, improve our unit economics, and most importantly, improve our customer experience. Second, we intend to build a well-oiled metal machine. How we buy, move, recondition, sell, deliver, and price vehicles. We are rationalizing our near-term reconditioning capacity following the ADESA exit and our expected unit volume. We intend to maintain third-party partners while also pursuing low capital in-house opportunities and reconditioning line haul and last mile. Our goal is to optimize the end-to-end supply chain by synchronizing how we buy, move, and recondition units to reduce cycle times reduce supply chain costs, and improve customer delivery times. We intend to build into our pricing engine our end-to-end supply chain and UACC captive finance model to improve the customer value proposition while optimizing our unit economics. Third, we will build a regional operating model leveraging our national brand. We intend to sell nationally but operate more regionally around our reconditioning centers and transportation hubs. We expect to build density in regions to drive marketing and supply chain economics while improving customer delivery times. We have a significant opportunity to reduce the number of miles our vehicles travel, which will reduce inbound and outbound shipping costs. And fourth. We will build a captive finance offering with our recent acquisition of UACC. We are very pleased with our acquisition of UACC and intend to continue to grow their core business as well as grow our captive financing for Broom customers. We believe we can improve conversion rates and improve unit economics while improving the customer experience. The U.S. automotive market is massive, highly fragmented, with low e-commerce penetration compared to other retail categories. We offer a broad assortment of thousands of vehicles with no haggle pricing, purchased on your favorite device from anywhere our customers choose, delivering their vehicle right to their driveway. We believe e-commerce penetration will continue as it has in other retail categories. Like other e-commerce retailers, we believe key to delivering a compelling e-commerce value proposition and a profitable business model is a seamless buying experience, a seamless, efficient, and predictable supply chain with density as a key driver of supply chain economics, and the ability to make credit available to our customers. We believe our four focused initiatives will position us to capitalize on the significant market opportunity. Turning to slide seven, I look forward to providing everyone more detail on our forward outlook at our upcoming investor event on May 26th. We will provide more detail on our three key objectives, prioritizing unit economics over growth, reducing operating expenses, and maximizing liquidity, as well as our four focus strategic initiatives. Most importantly, build a well-oiled titling and registration machine. Build a well-oiled metal machine. Build a regional operating model that drives density. Build a captive financing offering. I'll turn it over to Bob now to go through our financial performance in the first quarter and give you more detail on the forward outlook. Bob?