Cazoo Group Ltd

Greetings. Welcome to the GAZOO third quarter 2023 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 call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Anna Gavrilova, head of investor relations. Thank you. You may begin.

Good morning, everyone. Thank you for joining today's call to discuss our results for the third quarter of 2023. 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 are Alex Jesserman, Founder and Executive Chairman, Paul Whitehead, Chief Executive Officer, and Paul Wolf, 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, please see the filings of Kazoo Group Limited with the US Securities and Exchange Commission. Today's call will not be recorded and will not be available for replay. We kindly ask you not to record it and not to transcribe it. I will now hand the call over to Paul Whitehead.

Thanks, Anna. Good morning, everyone, and thanks a lot for joining us today. I'm very pleased with the results we are reporting today and that we have delivered another quarter of meaningful improvement in our profitability. We've achieved a lot over the first nine months of this year. We've restructured our operational footprint and headcount to better match the scale of our business. And at the same time, we've consistently been driving improvements in our unit economics quarter on quarter against the backdrop of a deteriorating economic environment. Interest rates are much higher than a year ago, and inflation is persisting far above the 2% target set by the Bank of England. High cost of living and cost of credit are causing volatility in demand for youth cars. At the same time, the supply of new cars has been rising towards levels seen before the COVID pandemic. This has had the effect of aggravating the misalignment of supply and demand in the used car market, and daily depreciation for our stock selection has been higher than normal market conditions. Despite all of this, we have continued to focus on unit economics and we managed to maintain quarter-on-quarter improvement in retail GPU. reaching a new Kazoo record of £1,470 per unit. The improvement was achieved across several areas. We took a number of steps which helped to partially mitigate the impact of higher interest rates on customer demand, and most significantly, we focused our web platform optimization efforts on enhancing customers' digital finance journey with our finance-first approach. Despite these improvements, our finance attachment rate declined to 49.8% from our record performance of 53.2% in the previous quarter. And we are implementing a range of actions to target areas such as pre-eligibility and pre-approval with the goal of enhancing our future performance in this area. We also initiated a program to enable our delivery specialists and our Kazoo customer centers to sell Ancillary products offline when we hand over the purchased car to the customer. This has proved to be a growing source of ancillary revenue for us, helping to increase attachment rates for the products we offer. And we've made further progress in reducing our reconditioning costs as we focus on the efficiency of our operations. And we continue to work on optimizing our car acquisition pricing by combining our own proprietary data with third party sources. And there is still further scope to sustain and grow our retail GPU by targeting opportunities across all these areas, with particular focus on faster stock turn as well as further efficiencies in our operations through digitization. In the third quarter, we sold 9,525 retail cars as our fully online proposition continues to resonate with customers, and we generated revenues of 173 million pounds. These results were in line with our focus on unit economics. Retail GPU at £1,470 increased by 14% quarter-and-quarter and by 201% year-on-year. Average retail GPU for the first nine months of 2023 was £1,215. Growth profit of £11 million increased by £1 million year-on-year, driven primarily by higher retail GPU at a lower volume of units. Growth margin improved by 350 basis points to 6.5%. Ancillary revenue per retail unit sold at £735 increased by 29% year-on-year, and the finance attachment rate of 49.8% represented a 6.7 percentage points improvement year-on-year. Both metrics, however, declined quarter-on-quarter due to factors related to higher interest rates. we continued to reduce fixed and variable costs in line with expectations to extend our cash runway. Our cash position remained strong, with £151 million of cash and cash equivalents plus approximately £35 million of self-financed inventory as of September 30, 2023. We announced in September that we had entered into a transaction support agreement with certain noteholders and shareholders in connection with the contemplated transactions. We are updating our cash balance guidance for 2023 year end to take into account such transaction-related costs, which were incurred in the third quarter and will be incurred in the fourth quarter. We now expect to finish the year with between £100 million and £115 million of cash and cash equivalents, and between £20 million and £30 million of self-financed inventory. Higher interest rates, high used car prices, rising insurance premiums, and the recent spikes in fuel prices, driven by geopolitical conflicts, means higher costs of car ownership for customers. Demand for used cars will remain volatile, and against this backdrop, our priority is to continue to deliver better economics for units sold. And we expect retail unit sales in Q4 2023 to be around 8,500 units. and the full-year retail sales to be between 40,000 and 42,000 units. Total unit sales, including both retail and wholesale, are expected to amount to be between 50,000 and 52,000 units. Given that we have averaged £1,215 retail GPU for the first nine months of this year, we expect the average retail GPU for the full year to be higher than previous guidance. and we now expect to end the year with average retail GPU approaching £1,250, and the exit rate is expected to be around £1,400, which reflects normal market seasonality and a challenging economic environment. We are maintaining our adjusted EBITDA forecast at between negative £100 million and negative £120 million. Our top priorities remain to further improve unit economics, reduce ethics cost base, and extend our cash runway as we work towards our goal of reaching profitability. Thank you very much, and we'll now take any questions you might have.