Cazoo Group Ltd

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.

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.

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.