Vroom, Inc.

Thank you for standing by and welcome to Room's first quarter 2023 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 will need to press star 1 1 on your telephone. I would now like to hand the call over to John Sanderson, Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Vroom's first quarter 2023 earnings call. Joining us on the call today are Tom Short, Chief Executive Officer, and Bob Prokoriak, Chief Financial Officer. Please note this call will be simultaneously webcast on the investor relations section of the company's corporate website at ir.vroom.com. The first quarter 2023 earnings release and earnings presentation are also posted to the investor relations website. Before we begin, Please note that the discussion today includes forward-looking statements within the meaning of the federal securities laws, including but not limited to statements about rooms, operations, and future financial performance. These and other forward-looking statements are based on management's current assumptions and are neither promises nor guarantees and are subject to a number of risks, uncertainties, and other important factors that may cause actual results to differ materially. We direct you to the company's most recent SEC filings, including the risk factor section of Vroom's most recent Form 10-K for the year ended December 31, 2022, as updated by our quarterly report of Form 10-Q for the three months ended March 31, 2023, for additional discussion of factors that could cause actual results to differ materially from those in the forward-looking statements. Please note 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 on 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 2023 earnings release and earnings presentation. I'd like to now hand the conference over to Tom Short, Chief Executive Officer. Tom?

Thank you, John, and thank you to all the investors, analysts, roommates, UACC colleagues, and third-party partners who are joining us today. Starting on slide three, we introduced our long-term roadmap at our May 26, 2022 Investor Day, where we highlighted our midterm goal of a break-even EBITDA business and our long-term goal of a 5% to 10% adjusted EBITDA margin business. I am pleased with the progress we have made as we work towards these goals. As we indicated on Investor Day, we strategically slowed down the business in 2022 while we focused on improving our customer experience, improving our processes across titling and registration, pricing, marketing, reconditioning, and logistics, and we insourced our sales function from our primary third-party resource. As we execute our strategy in 2023, we intend to resume growth, sell through aged inventory, improve variable costs per unit, continue to reduce fixed costs, and continue to convert balance sheet items into cash, all while living within our means. Our long-term roadmap remains unchanged. During 2023, we will continue to focus on our three key objectives and four strategic initiatives. On slide four, our first quarter highlights. Before I discuss first quarter performance, please note a change we have made in the presentation of adjusted EBITDA and other non-GAAP measures. In previous quarters, we added back movements related to fair value adjustments of finance receivables. We continue to hold the residual certificates from our 2023-1 securitization. In order to better reflect the current state of our finance receivables and the economic impact of those receivables to the company, we are including fair value adjustments of finance receivables in all adjusted EBITDA metrics. Bob will speak more to this during his section. During the first quarter, we recognized an adjusted EBITDA loss of $65 million within the range of our expectations. We improved adjusted EBITDA excluding non-recurring costs by approximately $10 million or 14% sequentially. During the quarter, UACC sold approximately $239 million of rated asset-backed securities for proceeds of $238 million. and retain the non-investment grade securities and residual certificates. In April, as a result of an improved securitization market and the portfolio performance of our 2023-1 securitization, we sold the non-investment grade securities at 99% of par value, generating approximately $23 million of additional liquidity. Given the current market condition, we continue to hold the residual certificates. I'd like to comment on our strategy with regard to UACC securitization. On the right terms, we intend to sell the residual certificates, recognize a gain on sale, and have the transaction off balance sheet. If the market conditions are not favorable, we expect to hold the residual certificates, keep the transaction on balance sheet, and realize the return on these residual certificates over time. During the quarter, we booked $5 million of upfront expenses related to UACC securitization given that we held the residual certificate and the securitization remains on balance sheet. Had we sold the residual certificates, these upfront expenses would have been reflected in the gain on sale from the securitization. Excluding these upfront expenses relating to the securitization, our adjusted EBITDA excluding non-recurring costs for the quarter would have improved by $5 million. E-commerce gross profit per unit, or GPPU, increased from $1,233 to $2,552 sequentially, benefiting from GPPU on unaged units and electric vehicle inventory reserves taken in Q4. During the first quarter, 77% of our units sold were held greater than 180 days compared to 75% in the fourth quarter of last year and 49% in the third quarter of last year. During our Q4 earnings call, I mentioned that we expect to sell through the vast majority of our aged inventory in the first half of 2023. As we sell through aged inventory, we have tightened our definition of aged units to greater than 180 days from greater than 270 days. We expect a significant portion of our sales in the second quarter to be from aged units, which will put significant pressure on GPP-U in the second quarter. We expect the back half of the year to show improved GPP-U as we sell a higher mix of unaged units. We are making progress on our long-term roadmap and our four strategic initiatives. We are in the process of ramping up acquisitions and marketing spend to resume growth while simultaneously continuing to drive operational efficiencies and cost reduction throughout the organization. We continue to make improvements in transaction processing, including titling and registration. As we've mentioned, our goal is to become best in class in titling and registration. We have and will continue to be very focused on reducing variable and fixed costs. As a result of the operational improvements we've made across all aspects of the organization, we're able to operate with significantly fewer resources. In January and April, we completed reductions in force that we expect will result in approximately $42 million of annualized cost savings. Finally, we repurchased $15 million space value of our convertible notes for $6 million, reducing our leverage at a substantial discount. Moving to slide five. During Investor Day, we outlined the unit economic drivers behind our four strategic initiatives that we believe are key to building a profitable business model. And we've been providing quarterly updates on our progress on those areas. This slide is an update on our first quarter progress by financial level. First, product and vehicle GPP-U. GPP-U was $2,552, a $1,319 sequential improvement primarily driven by the inventory reserve in Q4. 77% of units sold in the first quarter were aged, and we expect a similar mix of units sold in the second quarter. As I mentioned, we expect a significant reduction in the mix of aged units in the second half of the year, relieving pressure on GPPU. Our GPPU for unaged units, or units we've owned less than 180 days, was comparable to our Q3 2022 GPP-U, which was $4,206. Unaged units continue to generate GPP-U in line with our expectations. We also continue to invest in improvements in our pricing engine, which we expect to unlock increased GPP-U. We continue to see strong product GPP-U as we develop and grow our UACC captive financing operations. Our logistics costs, consistent with our long-term roadmap and 2023 objective to reduce costs per unit, we reduced our normalized all-in logistics costs per unit by 7% sequentially. For comparison purposes, we have excluded certain accruals related to third-party logistics that were released in the fourth quarter. Our inventory. Our improved titling and registration processes resulted in a 21% improvement in inventory turns sequentially. As mentioned previously, we are ramping unit vehicle acquisitions to facilitate unit growth in sequential quarters, and we expect to continue to improve our inventory turns. Our sales costs. We fully transitioned from our third-party sales provider as of the end of January of this year. Consistent with our long-term roadmap and 2023 objective to reduce costs per unit, we reduced our selling costs per unit 11% sequentially. Our titling, registration, and support costs. In the fourth quarter, we mentioned significant progress in our titling and registration processes. At the end of Q1, over 94% of our units were available for sale or pending sale, compared to 87% in the fourth quarter and 52% in the third quarter of last year. Consistent with our long-term roadmap and 2023 objective to reduce costs per unit, we reduced our titling, registration, and support costs per unit 20% sequentially. Additionally, $12 million of restricted cash that was previously trapped on the balance sheet was released within the quarter as a result of our continued improvement. For marketing costs, we increase our marketing spend $1.6 million sequentially to facilitate unit growth going forward. For fixed costs, in January and April of this year, we completed reductions in force that are expected to deliver an additional $22 million of annualized fixed cost savings. Consistent with our long-term roadmap and 2023 objective to reduce costs per unit, We reduced our fixed cost per unit 11% sequentially. Lastly, our advanced analytics team, functional business teams, and tech teams continue to build data assets, analytical assets, and tech assets that we believe in the long term will provide a competitive advantage across title and registration, pricing, conversion, unit and product margin, and supply chain costs. Moving to slide six. I want to take a moment to recognize the significant improvements that our roommates and UACC colleagues have delivered over the past year. Excluding securitization gain and non-recurring costs, we continue to reduce our losses despite absorbing significant GPPU pressure caused by our legacy titling and registration issues in 2022. We expect to see continued improvement as we sell through the aged inventory that is pressuring GPPU and continue to focus on cost per unit reductions. We have reduced our annualized adjusted SG&A from $684 million in Q1 of 2022 to $264 million in Q1 of 2023, a reduction of over $400 million annualized in only 12 months. While we continue to make progress on our long-term roadmap, we are at the turn where we are beginning to resume growth while we continue down the road of improving our operations and reducing fixed and variable costs. While our route is uphill for GPP-U in Q1 and Q2 as we sell through aged inventory, we expect GPP-U to normalize in the back half of the year when the majority of our sales are expected to be from unaged vehicles which are currently delivering GPPU consistent with our long-term roadmap. Now I'll turn it over to Bob to discuss the first quarter results in greater detail. Bob?