Auto1 Group U/Adr

Thank you, Philip, and hi, everyone. Welcome to the Auto One Group Q3 26 earnings call. Q3 was the most profitable quarter in Auto One's history. We delivered record GPU, record adjusted EVTA, and our best ever adjusted EVTA margin. We sold 243,000 vehicles at group level. This is up 11% year on year. Gross profit grew even faster by 16% to €298 million. And Group GPU increased by 5% to €1,234, the highest we have ever reported. Adjusted EBITDA grew by 46% from €52 million last year to €76 million in Q3. Our best quarter ever, while adjusted EBITDA margin climbed by 80 basis points to a new record of 3.2%. The main driver behind these strong sets of results is the successful rollout of our new trading system in both merchant and retail, leading to substantially higher GPUs, combined with strict management of SG&A per unit. Q3 was essentially a quarter of very strong operating leverage across our segments, and we're very happy with how smooth the rollout went given the scale of our business and the current environment. Let's take a deeper look into merchant segment performance. We sold 211,500 cars to our partner dealers in Q3. This is up 10% year on year. Merchant gross profit grew by 15% to 212 million euros. and Merchant GPU increased to €1,005, a new record, €39 more than a year ago and €46 more than in Q2. We have exceeded €1,000 of Merchant GPU for the first time. The introduction of our new trading system is now complete and it's delivering the expected meaningful GPU gains. We are very happy with how it went. Our cars are selling faster and faster trading means fresher stock, lower holding costs and quickly replenishing selection for our dealers. With the latest step up, we're tracking very well against our milestone target of 1,025 euro. Driven by strong GPU gains and disciplined SG&A performance, merchant adjusted EBITDA reached a new record of 80 million euro in Q3. This is up 30% year on year driven by increasingly strong operating leverage across the merchant business. Merchant adjusted EBITDA margin rose by 80 basis points to a new record of 4.5%. Demand for our B2B offering was very strong in Q3. The number of dealers buying on AutoOne.com grew to 36,500 or 18% compared to Q3 of last year and there's another new high. The average basket came down to 5.8 cars purchased per dealer from 6.2 a year ago, a 6.5% decrease. One driver here is the continued strong inflow of new dealers who start with smaller baskets and grow them over time. Merchant financing continues to perform well. At the end of Q3, our portfolio reached a size of €330 million. This is up 16% year-on-year. Outgrowing units sold in Q3. Our established one-click credit line, Order One Financing, is already available in eight markets, where dealers pay interest per day, which is then settled monthly. We believe it's time to accelerate the further rollout of Merchant Financing. which has been a bit slow over the past couple of months to my taste. That is why we're now launching Buy Now Pay Later over the next couple of months. We aim to bring financing to more dealers and we want to do it fast. Buy Now Pay Later is the version of merchant financing that works better in the markets we are targeting for the next round of rollouts. especially from a regulatory point of view. With this new product, dealers choose when to pay back their car after 60, 90 or 120 days with a simple fee added to the car price and then pay that together with the car. We plan to launch this new version of financing in Italy soon. followed by Romania, Hungary, Greece, the Czech Republic, and Portugal over the coming quarters. Our focus is clear. We will reach more markets and more partners and make financing an even stronger growth engine for Auto One in 27 and beyond. Merchant delivered its most profitable quarter ever, reaching €378 of adjusted EBITDA per unit. This is an increase of 17.6% year on year. We are very happy with a substantial operating leverage merchant delivered over Q3, primarily driven by strong GPU performance and disciplined SG&A management. GPU surged to €1,005 as a result of the successful rollout of our new trading system. As we indicated on our Q2 call, We had SG&A per unit at the Q2 level, and despite higher marketing investment, improved it further by €6 to €627, almost 3% lower than a year ago. Q3 merchant unit economics also made major progress towards our milestone targets. GPU is only €20, SG&A per unit only €2, away from their respective milestone targets. And as a consequence, adjusted EBITDA per unit is only €22 away from our €400 per unit milestone adjusted EBITDA target. Now let's take a look at the retail segment. Autohero sold 31,400 cars to consumers in Q3. This is up 16% year-on-year, continuing double-digit growth. During Q3, R2 Euro was essentially supply constrained, especially towards the end of the quarter, driven by the current macro environment, which we will talk about in more detail later in the presentation. Retail gross profit grew by 18% to 86 million Euro, up from 73 million Euro in Q3 of last year. Retail GPU increased to 2,777 Euro, This is €113 more than a year ago and €274 more than in Q2. We're very happy with the €274 step up quarter over quarter as a result of the successful implementation of our new trading system in retail. It's the first time that we radically improved the speed of our retail trading with an acceleration of roughly 20% year on year. Retail adjusted EBITDA improved by 56%. From a loss of 9.6 million euro to negative 4.3 million euro, our retail adjusted EBTA margin improved by 1.3 percentage points to negative 0.8% our best retail margin to date. Our ambition in retail is simple. We're making Autohero the go-to brand when buying a used car. And our brand keeps getting stronger. At the end of Q3, ADAPT brand awareness reached 39% across our markets, up seven percentage points year on year, and another new high. We're also faster than ever. Our average delivery time fell to 8.9 days, 13% faster than in the previous quarter, and below 9 days for the first time, powered by the largest logistics network for cars in Europe. Brand recognition and delivery speed are two key drivers of converting initial interest into purchases and hence continue to be a top investment focus for us. Our pan-European platform keeps opening up new and exciting ways to create value in retail. During Q3, we launched cross-border selling as a feature, but now in pilot mode. We have started listing selected cars from our German Auto Hero inventory to customers in Poland and Italy. And for our customers, this means an increase in selection. For us, it is an asset like sales option because a car only moves once it's sold. So far, it is margin neutral as additional taxes and transport are simply added to the sales price. It is early days and we're still fine tuning the selection and pricing, but we've already completed our first cross-border transactions and we're curious to learn more about its impact and future potential. Retail unit economics improved substantially over the course of Q3, driven by great GPU and SG&A performance. Retail GPU increased by €274 quarter over quarter to €2,777 as a result of the successful rollout of our new trading system. At the same time, we improved SG&A per unit on a year-on-year basis. SG&A per unit came down by around €110, to €2,913 and marketing per unit came down to €935 year-on-year. Together, this improved our adjusted EBITDA per unit from €-357 a year ago to €-137, an improvement of €220 and the best level we have seen so far. The same is true for adjusted EBITDA margin in retail, which improved by 1.3 percentage points to negative 0.8%. Let me now take you through the Q3 Group financials. In Q3, revenue grew by 10% to 2.3 billion euro and gross profit grew by 16% to 298 million euro, well ahead of revenue and units. Operating expenses were €223 million, up only 8% year-on-year and flat compared to Q2, against 11% unit growth and 16% gross profit growth, demonstrating strong operating leverage. Adjusted EBITDA was €76 million, up 46%, at a margin of 3.2%, the highest in our history. Over the first nine months, we grew units by 17%, gross profit by 20, and adjusted EBITDA by 27 to 194 million euro. Our balance sheet remains very strong. We continue to fund our asset base largely through non-recourse ABS facilities, which we see as evergreen working capital financing that grows with our asset base. Inventory increased to 878 million euro at the end of Q3, with the vast majority of the increase in merchant arriving very late in September. Our consumer finance portfolio grew to 783 million euro, with 683 million euro externally funded and our merchant finance portfolio grew to 330 million euro with 260 million euro thereof ABS funded. Across these three pools, we carried out 2 billion euro of assets and funded more than 80% externally and without recourse. As before, we had no corporate debt at the end of Q3. We continued to convert profit into cash in Q3. Total cash increased by 32 million to 707 million euro at the end of the quarter, up from 676 million euro at the end of Q2. Adjusted EBITDA contributed 76 million euro. Cash items below the adjusted EBITDA line, e.g. capital expenditure, tax, and general working capital changes, were an inflow of 24 million euro. The increase in our inventory and normalization of the LTV ratio consumed €73 million. Our consumer finance captive pool released €20 million through the issuance of Fund03, while underlying loans grew. And our merchant finance pool absorbed €14 million. Overall, this resulted in the €32 million of cash generation in Q3 that you can see on the slide. Now let's turn to the current macro environment and our updated guidance. I will walk you through a couple of the trends we are observing in Q3, how we are navigating those and our expectations on year-end trading. Macro headwinds have gotten stronger over the course of Q3. The fuel price increases we saw since February were tolerated by buyers and sellers for a few months. After they crossed a critical threshold around August, They started resulting in bigger gaps between buyer and seller price expectations. This means our supply is temporarily constrained and we have fewer cars available for sale than we would like. On Auto1.com, for instance, the average number of cars available for sale fell from 47,000 in June to 44,000 in September. The demand side continues to be very strong with interest in Auto1.com as a buying channel, keeping its powerful growth momentum. For example, the number of unique viewing dealers on our platform keeps growing in the mid to high 20s year on year. To put a number on it, had our supply side not been constrained, our merchant units would have grown by 21% year on year in Q3 instead of 10. On the retail side, the picture is very similar. Had our retail supply side not been constrained, units would have grown by 33% year on year in Q3 instead of 16. There are two pieces of good news around the current supply side dynamics. First, the effect is expected to be temporary. Assuming that fuel prices continue to stay around their current levels, We expect buyer and seller gaps to narrow again over the next 8 to 12 weeks. Second, the transactions are not lost to us. The revenue is just delayed. We expect that nearly all transactions that are currently delayed due to this effect will still take place later in the future once buyer and seller gaps are moderating and the overall environment normalizes. The outlook for full year 26 is confirmed within our guidance range we gave in February. For units and cross-profit, we expect to be in the middle of the range and for adjusted EBITDA at the lower end. Being able to confirm guidance despite the strong macro headwinds is a testament to the resilience of our business model. Our unparalleled trading system allowed us to navigate this temporary supply-side disruption and even increase per unit profitability. We are confident that the supply-side dynamics are temporary in nature. We will provide you with the outlook for the full year 27 with our Q4 results in February next year. AutoOne is built to win and Q3 proved it. We delivered record GPU, record adjusted EVTA, and our best ever margin. Since 2012, we are building Europe's leading vertically integrated used car platform and own transaction data of more than 6.5 million cars traded across more than 30 countries. We own every step of the value chain, including AI pricing, logistics, production, financing, and our brands. This is why we control price, speed and customer experience like no one else in Europe and why we can offer better prices to seller and buyers, more selection, faster delivery and competitive financing. This platform took more than a decade to build. Today we have more than 750 branches, 12 production centers, and the largest logistics network for cars in Europe. Combined with our proprietary pool of transactional data, this infrastructure is our competitive moat. It cannot be replicated, and it gets wider with every car we trade. More sellers bring more cars, more cars attract more dealers and buyers, and more demand lets us pay sellers better prices, and every transaction makes our pricing algorithms stronger. The opportunity in front of us is enormous. Europe's used car market is worth around 700 billion Euro a year. We are already Europe's largest player, but we only own a tiny 3% of this gigantic market. We believe that in the long term, Our unique vertically integrated model will let us capture at least 10% market share, a more than threefold increase. We're no longer just building, we are leveraging our platform, and we're just getting started. With that, I'd like to open up for questions.

Before we begin the Q&A portion of today's call, I'd like to go over a few brief technical points. If you haven't already, please feel free to submit your questions using the Q&A tool located at the bottom of your Zoom screen. Philippe will call on participant interns. Once your name is announced, I will unmute your line and hand the floor over to you. Kindly ensure that your microphone is enabled and that you're ready to speak when prompted.

Thank you, Melissa. And with that, we will start with James Tate from Goldman Sachs.