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spk02: Greetings, and welcome to the Kazoo first quarter 2023 earnings call. At this time, all participants are on a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anna Gravalova, Head of Investor Relations, Thank you. Please go ahead.
spk00: Good morning, everyone. Thank you for joining today's call and webcast to discuss our first quarter 2023 results. You will be able to find today's press release on our investor relations website at investors.kazu.co.uk. We appreciate everyone joining us today. With me on the call is Alex Chessman, Founder and Executive Chairman, Paul Whitehead, Chief Executive Officer, and Paul Wolff, Chief Financial Officer. Before we start, 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 risk and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see the filings of Kazoo Group Limited with the SEC. Now, I will hand the call over to our Chief Executive Officer, Paul Whitehead.
spk03: Thanks, Anna. Good morning, everyone, and thank you for joining us today. I'm very pleased with our performance in the first quarter of 2023, We've achieved a lot in the last three months and outperformed our targets for retail GPU in the first quarter. We continue to be laser-focused on profitability. Over the first quarter, we right-sized our operational footprint by consolidating our vehicle preparation and customer centers and have significantly reduced our headcount and fixed cost base. Our focus on unit economics and the swift delivery of our restructuring are already resulting in a significant improvement in retail GPU. The retail GPU results in the first quarter, and especially in March, are ahead of our expectations and set another kazoo record, a testament to the immense effort made by the team. In the first quarter, retail GPU at £980 increased a further 64% quarter-on-quarter and was materially higher than in Q1 last year. In March this year, we achieved a retail GPU of over £1,200, which is our target average retail GPU for the fall year. The broader economic environment remains challenging, and we expect that to continue to be the case throughout 2023. However, we believe our fully digital proposition continues to resonate strongly with consumers, which is evident in our retail unit sales of over 13,000 cars in the first quarter. up 4% year-on-year, as the selection, transparency, and convenience of using our platform continues to draw consumers. Resale revenue for the quarter was £222 million. In total, including wholesale, we sold close to 17,500 units in Q1 and generated total revenues of £247 million, in line with our expectations. We remain focused on improving our unit economics, optimizing our fixed cost base, and maximizing our cash runway. We continue to target every area of the business to create further efficiencies and to enhance our data-driven capabilities using our proprietary data and algorithms to optimize our buying and selling and drive improved margins. We further enhanced our finance and ancillary products proposition to capture opportunities beyond the vehicle purchase. During the quarter, a record 52.5% of buyers arranged financing directly through our platform entirely online. We saw a higher number of applications with better customer quality and as a result, higher acceptance rates. This was a further improvement on the 51.5% we delivered in the last quarter of 2022 and up from 47.4% a year ago. Overall ancillary revenue per retail unit sold increased by 10% year on year to £708. Reconditioning costs continue to reduce as we consolidated our vehicle preparation centres and the team is driving relentlessly for greater efficiency when it comes to reconditioning vehicles for sale. All our sites are now on the same operating system, developed by the Kazoo team specifically for retail reconditioning, which allows us to ensure improved cost control and greater visibility. Logistics efficiency is improving after we completed the optimization of the network between vehicle preparation centers and Kazoo customer centers. Our post-sale costs remain a focus for us to reduce in the coming quarters. We are pushing for efficiencies and improved operating effectiveness in every area. Purchasing, pricing, finance and ancillary product attachment rates, logistics and post sales. And we expect to see further progress during the year. Our gross profit grew to £14 million in Q1, up 367% year on year, with gross margin improving by 4.7 percentage points from a year ago to 5.8% up from 1.1%. We finished the quarter with 215 million pounds of cash and cash equivalents and approximately 60 million pounds of self-financed inventory. Our cash flow in the quarter included about 13 million pounds of restructuring costs and about 25 million pounds inflow from working capital, mostly driven by the reduction in our inventory. We expect the underlying cash flows to improve in the coming quarters as restructuring benefits start to flow through our financial results. We anticipate that savings and expenses will start coming through in the second and third quarters, and by the fourth quarter 2023, we expect to see a year-on-year reduction in SG&A run rates of over £25 million per quarter, representing over £100 million of annualised savings going into 2024. As we guided previously, the cash utilization rate is expected to reduce to approximately £30 million per quarter by the end of the year, and we anticipate finishing the year with between £110 million and £130 million of cash and cash equivalents, and between £15 million and £25 million of self-financed inventory. We reiterate our guidance for 2023 and remain fully focused on delivering profitable growth. So in summary, the team has accomplished an enormous amount over the past quarter and our near-term focus is on improving our unit economics, optimising our fixed cost base and extending our cash run rate. We have a market-leading platform, brand, team and infrastructure. The UK used car market is huge. and the penetration of online car buying and selling is still well below other retail sectors, resulting in a massive opportunity for us to go after. I will now pass the call back to the operator, who will open up the line for Q&A.
spk02: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to register a question at this time. The first question is coming from Rajat Gupta of JP Morgan. Please go ahead. Great.
spk05: Good morning, good afternoon, and thanks for taking my question. I had a first question just on, you know, the retail GPU. Could you help us, you know, understand in a bit more detail the improvement from the fourth quarter levels, you know, of 600 pounds to, you know, the 1,200 in March? How much of that is driven by reconditioning, sourcing? You know, how much was pricing a factor? And any one-offs that we should keep in mind, you know, if you could get a little more details of that would be helpful and have a follow-up. Thanks.
spk04: Morning, Raja. This is Alex. So, yes, there was a notable improvement from Q4 to Q1, as you saw. There were no specific one-off things responsible for that. It was continuous improvement in all areas, buying, reconditioning, pricing, attachment rate on ancillary products. So it was spread across the board, that improvement, as we focused more on you saw that we reduced the volume of units that we sold to focus specifically on types of cars that would drive these higher margins and higher attachment rates on finance, which you saw, et cetera. So it's a combination of all of those things resulting from the decisions that we've taken.
spk05: Got it. And then just on SG&A, you know, the press release mentions that the savings are expected to flow through in the second and third quarters of the year. I'm just curious, you know, if you're able to provide us any color around how we should think about the cadence of EBITDA, you know, to the remaining of the year. Is it still safe to assume there was a sequential quarter-by-quarter improvement in EBITDA, excluding the restructuring costs here in the first quarter? Thanks.
spk04: I'll let Paul Wolf pick up more on that. But, you know, the reason we've said that Q2 onwards we'll start to see the majority of the improvement is that a lot of the actions that we took in early Q1, we didn't see the benefit of, for example, headcount reductions. Those headcounts remained on our books until the end of Q1. So you'll start to see that benefit in Q2 and beyond. But I'll pass the poll on what you thought, Andrew.
spk03: Yeah, thank you, Alex. So, I mean, we've obviously guided to a full year adjusted EBITDA of between minus 100 and minus 120, and we would expect the remaining three quarters will be relatively steady in terms of that delivery. I mean, we're continuing to take costs out of the business, but as Alex has described, Q1 was really a, whilst the GPU improved, the operating costs were exactly the same as they have been throughout 2022. We really hadn't, the activities, which were primarily 1,500 people, were unfortunately had to leave the business. And as you're fully aware, we reduced our number of sites materially, you know, 22 customer care centers down to down to seven, and then similarly in the prep centers, seven down to three. We've done that, but all of that happened sort of third week March. So actually the operating costs were still back at the 2022 level. So April and Q2 will be the beginning of our newer, lower run rate EBITDA, negative EBITDA, so better EBITDA. And we continue to take costs out all the way through the year. So there's now a sort of more steady improvement through the year through to that 100 to 110 that we've guided to.
spk05: Understood. That's helpful, Collar. And I'll jump back in queue. Thank you.
spk02: Thank you. The next question is coming from Catherine O'Neill of Citi. Please go ahead.
spk01: Great. Thank you. Yeah, I just had a question actually back on the retail GPU. I just wondered if you're at 1,200 pounds already in March, why you haven't sort of increased your guidance for the year if it looks like you're sort of increasing at such a rapid rate as you expected to then sort of stall at that level for the balance of the year? How should we think about that?
spk04: Hi, Catherine. Thank you. No, we are being sensible and cautious on guidance. We're delighted to have hit the 1,200 level in March already. But for the full quarter, as you saw, we were at 980, so not at the 1,200. So we need to maintain that. and improve that throughout the rest of the year, which we are confident that we can do, but we are maintaining our guidance. And as you saw, volumes in Q1 are traditionally seasonally strong, and so we expect to continue to see improvement on that 980 quarterly number throughout the year, but As I said, we're very happy we hit that number, the 1,200, already in March and expect to continue to grow from that.
spk01: Great. Thank you. And then I just wanted to ask about the broader market dynamics you're seeing in terms of supply and demand and whether you've seen any sort of notable changes in the quarter and then as we go into April.
spk04: I think that Paul Whitehead is best placed to comment on that.
spk03: Yeah, thanks, Catherine. The market itself is relatively stable. There are some green shoots coming in terms of new car supply, but it tends to be OEM by OEM from that perspective. Supply in the used car sector still remains relatively constrained because it takes a while for the new car supply to then have the knock-on impact on the used car supply, and hence why we continue to be focused on growing the percentage of cars that we source directly from consumers where we continue to see good progress, which is more in our control than being in the broader markets.
spk01: Thank you.
spk02: Thank you. At this time, I'd like to turn the floor back over to management for any closing comments.
spk04: Thank you all for joining us today. If you would like to follow up, then please do so directly with any one of us. Appreciate the time today. Thank you.
spk02: Thank you. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.
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