Cazoo Group Ltd

Greetings. Welcome to the GAZOO 3Q21 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now turn the conference over to your host, Robert Byrd, Director of IR and Corporate Finance. You may begin.

Good morning, everyone. Thank you for joining the Kazoo Q3 earnings call and webcast, which we have just released and can be found on Kazoo's investor relations website at investors.kazoo.co.uk. We appreciate everyone joining us today. With me on the call is Alex Chesterman, founder and chief executive officer, and Stephen Marana, chief financial officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see the filings of Kazoo Group Limited with the SEC. Now, I would like to turn the call over to Alex, who will be followed by Stephen, and then there will be a Q&A session at the end.

Thanks, Ross. Good morning, and thank you to everyone for joining us today. We're delighted to be hosting our first earnings call as a publicly listed business on the NYSE, and we're excited to be sharing our record financial results for Q3. This has been a landmark quarter for our company. Not only did we successfully enter the public markets in August, raising proceeds of approximately $836 million net of fees to further accelerate our growth, but we also set many records across our key financial metrics, as well as making significant progress towards our long-term strategic ambitions. It's becoming very clear that our market-leading brand and fully digital world-class proposition is resonating strongly with consumers, and that the shift to online car buying and selling is accelerating. Customer feedback remains overwhelmingly positive, And our recently launched car buying channel, where we now buy cars directly from consumers, is being embraced by consumers and performing well ahead of initial expectations. We're extremely excited about the significant opportunities ahead and are more confident than ever that we will transform the car buying and selling experience in the UK and across mainland Europe when we launch there in the coming weeks. Before we go into the detail of some more recent events, I thought it would be useful to begin today's discussion with a reminder of our mission and why we are very well positioned for continued long-term growth. After that, I'll discuss our third quarter performance and outlook, and we'll then turn the call over to Stephen to walk you through our third quarter financial results in more detail. As we've shared with many of you, our mission at Kazoo is simple. We're pioneering the shift to online car buying and selling across the UK and Europe. A $700 billion market with less than 2% digital penetration, lagging almost all other retail sectors and ripe for digital transformation. It's an incredibly fragmented space with around 180,000 dealerships across the top 10 markets in Europe and no incumbent with more than a small single digit percent market share. By leveraging data and technology to improve selection, quality, transparency, and convenience, we're providing consumers with a far superior overall experience. Given these market dynamics, we launched Kazoo in 2019 to make buying and selling a car as simple and seamless as purchasing any other product online today. We've developed a powerful data and technology platform alongside critical physical infrastructure and a market-leading brand to create a world-class online retail proposition. We recondition, store, and deliver all our cars, allowing consumers to simply and seamlessly buy, sell, finance, or subscribe to a car entirely online. I want to highlight some of the key competitive strengths that are helping to build moats around our business and will enable customers our continued growth. First, our fully integrated business model and comprehensive proposition is delighting our customers. We have a world-class consumer NPS of approximately 80 and Trustpilot rating of 4.7 stars with 93% of our users rating their experiences either excellent or great. Second, we've developed unique capabilities with a market-leading technology platform a team of data analysts, and an end-to-end infrastructure network of vehicle preparation centers, customer collection centers, and car delivery transporters, underpinning our growth and profitability. Third, we've assembled a world-class team with a proven track record of accomplishments, including significant public market experience. Our senior team has been assembled from some of the leading digital consumer retail businesses across Europe. Finally, we have significant expertise and a track record of identifying and executing game-changing strategic deals. Over the past 18 months, we've made seven acquisitions and signed a number of commercial partnerships to accelerate our growth and enhance our team and proposition. As a result, we now have 11 of our own vehicle preparation centers in the UK, as well as four in mainland Europe in partnership with third parties. We've also opened 20 customer centers across the UK over the past 15 months, and we're the leading consumer car subscription player in Europe with subscribers across the UK, France, and Germany. Our ability to create a transformative consumer experience, a highly recognizable and trusted brand, and a world-class team within one of the single largest retail markets ripe for disruption is has allowed us to build one of the fastest growing businesses in Europe. Taking this all together, we've built a powerful business model with a clear pathway to long-term sustainable growth. Turning now to our third quarter performance. Our results reflect our continued growth trajectory as we leveraged our brand and unique platform in the UK, which we're in the final stages of preparing to replicate in mainland Europe. our third quarter revenues increased 267% to £174 million, and our retail gross profit per unit increased by over £1,000 year-on-year and now sits at £801, up significantly from £467 in Q2. That's not to say that Q3 wasn't without its challenges, some of which may continue in the short term. We've endured shortages of staff as a result of COVID, and shortages of inventory as a result of logistics issues relating to driver and fuel shortages, all of which hampered retail volumes to some degree, but are all short-term issues, none of which we expect to have any long-term effect on the business. Ultimately, our record revenue performance came despite the fact that we had suboptimal levels of inventory available on our website during the period. indicating demand for our offering was even stronger than our results show. The biggest constraint to growth remains our ability to recondition cars in the volumes required to meet dramatically increasing consumer demand. But we've recently made a number of strategic moves to improve and increase our reconditioning capacity. We firmly believe that owning the reconditioning process brings significant operational and financial advantages, and our decision to bring reconditioning in-house in the UK ahead of schedule earlier this year was exactly the right thing to do, but bringing that process in-house has led to a recent dip in vehicles available for sale during the transition. Despite continued gains in production capacity and in improving the selection for our customers, our website inventory levels are still much lower than we would like them to be. We strongly believe that had we had greater stock levels available on the website, we would have sold even more retail units in Q3 and therefore continuing to scale our reconditioning output remains a key priority. Through the remainder of the year, we expect to make additional progress in growing our inventory levels and the acquisition of SMH has provided us with significant additional reconditioning capacity to support our future growth. Moving to profitability, Our retail GPU has increased again to over £800 in Q3, up from £467 in Q2, and an increase of more than £1,000 year-on-year, driven by our improved buying mix, continued operational efficiencies, and greater attachment rates of our ancillary revenue streams. In July, we successfully launched our car buying channel, purchasing vehicles directly from consumers. Previously, we only purchased cars from consumers as a part exchange or trading when they were also buying from us. Consumers have embraced our new and unique and differentiated offering with uptake to date well ahead of our expectations. And we've been very encouraged with the volume of cars we're already buying through this new direct sourcing channel. In Q3, we purchased 6,761 vehicles directly from consumers, up 552% year-on-year, diversifying our selection and improving our inventory acquisition costs. Within just a couple of months since our July launch, we've already seen the proportion of retail units sold that we source directly from customers rise to 10%, up from 2% this time last year and 6% in Q2. Whilst the wider industry is experiencing supply constraints, we've seen limited issues in this area to date and have become less reliant on external sources of supply following the launch of our direct car buying channel, which we expect to provide a significant volume of vehicles in the future. We're confident that this new direct sourcing proposition will significantly change our buying mix over time and help to further improve our future margins. Our plans for expansion into France and Germany by year-end remain firmly on track, and we continue to grow our teams and develop our operations and infrastructure in both markets. Entry into mainland Europe will drastically expand our addressable market and is a significant growth opportunity for us over the coming years. Our end-to-end testing is going well, and we could not be more excited about the future growth prospects across Europe. During the period, we also acquired Kazana, one of the leading data insights platforms in the European automotive space, and which owns one of the most comprehensive vehicle pricing data sets globally. This deal has enhanced our data team capabilities and will enable us to further optimize our buying and pricing of vehicles across the UK and Europe. Our strong performance this quarter is further proof of our compelling business model and the significant opportunity to grow our business. We have tremendous opportunities to continue to grow our share in this huge and highly fragmented market. Now turning to the key drivers of our future growth and profitability. As a reminder, we plan to leverage our highly efficient business model in the following ways. First, by growing our revenues. We expect the growth in revenues to be driven by an increase in market penetration in share led by the shift to online buying and supported by the material growth in our in-house reconditioning capabilities. Also, through increased TAM with our European expansion and expansion of our product offering and with the launch of further ancillary products and higher attachment rates driving lifetime value. Second, by increasing our GPU. We expect the growth in our GPU to be driven by a continued shift in our buying mix, including further success in the sourcing of cars directly from consumers, also through continued efficiencies in our reconditioning, logistics, and stock turn with scale, and further enhancements to our products, partnerships, and processes. Third, by reducing our CAC. We expect the reduction in CAC to be driven by the growth in adoption of online car buying, growing substantially from less than 2% today. Also through improved conversion rates over time, which will occur naturally as we grow our inventory. And with a higher proportion of direct traffic as a result of our brand investment, SEO, and repeat users. I'd like to take this opportunity to thank our amazing team that is now over 3,500 strong across the UK and Europe and who put the consumers first in everything we do. Whilst we're incredibly proud of these Q3 results, we are still in the very early stages of transforming the car buying and selling experience across Europe and look forward to continuing our mission to delivering the best selection, quality, transparency, and convenience to our customers. Now I'll turn the call over to Stephen to review our quarter financial performance and the outlook for the remainder of the year in greater detail.