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Operator: Thank you for standing by and welcome to Vroom’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the call over to Jon Sandison, Vice President, Investor Relations. Please go ahead.

Jon Sandison: Thank you, operator. Good morning, everyone, and welcome to Vroom’s first quarter 2023 earnings call. Joining us on the call today are Tom Shortt, Chief Executive Officer; and Bob Krakowiak, Chief Financial Officer. Please note this call will be simultaneously webcast on the Investor Relations section of the company’s corporate website at ir.vroom.com. The first quarter 2023 earnings release and earnings presentation are also posted to the investor relations website. Before we begin, please note that the discussion today includes forward-looking statements within the meaning of the Federal Securities laws, including but not limited to statements about Vroom’s operations and future financial performance. These and other forward-looking statements are based on management’s current assumptions and are neither promises nor guarantees and are subject to a number of risks, uncertainties and other important factors that may cause actual results to differ materially.

We direct you to the company’s most recent SEC filings, including the Risk Factors section of Vroom’s most recent Form 10-K for the year ended December 31, 2022, as updated by our quarterly report on Form 10-Q for the three months ended March 31, 2023. For additional discussion of factors that could cause actual results to differ materially from those in the forward-looking statements. Please note further that today’s discussion, including the forward-looking statements speak only as of the date of this call and Vroom assumes no obligation to update such statements based on future developments or otherwise. The company may also discuss certain non-GAAP financial measures during today’s call. You can find a presentation of the most directly comparable GAAP measures and a reconciliation of those measures in the first quarter 2023 earnings release and earnings presentation.

I’d like to now hand the conference over to Tom Shortt, chief Executive Officer, Tom?

Tom Shortt: Thank you, Jon, and thank you to all the investors, analysts, Vroommates, UACC colleagues and third-party partners who are joining us today. Starting on Slide 3, we introduced our long-term roadmap at our May 26, 2022 Investor Day, where we highlighted our mid-term goal of a breakeven EBITDA business and our long-term goal of 5% to 10% adjusted EBITDA margin business. I am pleased with the progress we have made as we work towards these goals. As we indicated on Investor Day, we strategically slowed down the business in 2022, while we focus on improving our customer experience, improving our processes across titling and registration, pricing, marketing, reconditioning and logistics, and we insourced our sales function from our primary third-party resource.

As we execute our strategy in 2023, we intend to resume growth, sell through aged inventory, improve variable cost per unit, continue to reduce fixed costs, and continue to convert balance sheet items into cash, all while living within our means. Our long-term roadmap remains unchanged. During 2023, we will continue to focus on our three key objectives and four strategic initiatives. On Slide 4, our first quarter highlights. Before I discuss first quarter performance, please note a change we have made in the presentation of adjusted EBITDA and other non-GAAP measures. In previous quarters, we added back movements related to fair value adjustments of finance receivables. We continue to hold the residual certificates from our 2023-1 securitization.

In order to better reflect the current state of our finance receivables and the economic impact of those receivables to the company, we are including fair value adjustments of finance receivables in all adjusted EBITDA metrics. Bob will speak more to this during his section. During the first quarter, we’ve recognized an adjusted EBITDA loss of $65 million within the range of our expectations. We improved adjusted EBITDA excluding non-recurring costs by approximately $10 million or 14% sequentially. During the quarter, UACC sold approximately $239 million of rated asset backed securities for proceeds of $238 million, and retained the non-investment grade securities and residual certificates. In April, as a result of an improved securitization market and the portfolio performance of our 2023-1 securitization, we sold the non-investment grade securities at 99% of par value generating approximately $23 million of additional liquidity.

Given the current market condition, we continue to hold the residual certificate. I’d like to comment on our strategy with regard to UACC securitization. On the right terms, we intend to sell the residual certificates, recognize a gain on sale, and have the transaction off balance sheet. If the market conditions are not favorable, we expect to hold the residual certificates, keep the transaction on balance sheet, and realize the return on these residual certificates over time. During the quarter, we booked $5 million of upfront expenses related to UACC securitization given that we held the residual certificates and the securitization remains on balance sheet. Have we sold the residual certificates; these upfront expenses would’ve been reflected in the gain on sale from the securitization.

Excluding these upfront expenses relating to the securitization, our adjusted EBITDA excluding non-recurring costs for the quarter would have improved by $5 million. E-commerce gross profit per unit or GPPU increased from $1,233 to $2,552 sequentially, benefiting from GPPU on unaged unit and electric vehicle inventory reserves taken in Q4. During the first quarter, 77% of our unit sold were held greater than 180 days compared to 75% in the fourth quarter of last year, and 49% in the third quarter of last year. During our Q4 earnings call, I mentioned that we expect to sell through the vast majority of our aged inventory in the first half of 2023. As we sell through aged inventory, we have tightened our definition of aged units to greater than 180 days from greater than 270 days.

We expect a significant portion of our sales in the second quarter to be from aged units, which will put significant pressure on GPPU in the second quarter. We expect the back half of the year to show improved GPPU, as we sell a higher mix of unaged units. We are making progress on our long-term roadmap and our four strategic initiatives. We’re in the process of ramping up acquisitions and marketing spend to resume growth while simultaneously continuing to drive operational efficiencies and cost reduction throughout the organization. We continue to make improvements in transaction processing, including titling and registration. As we’ve mentioned, our goal is to become best-in-class in titling and registration. We have and will continue to be very focused on reducing variable and fixed costs.

As a result of the operational improvements, we’ve made across all aspects of the organization, we’re able to operate with significantly fewer resources. In January and April, we completed reductions in force that we expect will result in approximately $42 million of annualized cost savings. Finally, we repurchase $15 million base value of our convertible notes for $6 million, reducing our leverage at a substantial discount. Moving to Slide 5. During Investor Day, we outlined the unit economic drivers behind our four strategic initiatives that we believe are key to building a profitable business model, and we’ve been providing quarterly updates on our progress on those areas. This slide is an update on our first quarter progress by financial lever, first product and vehicle GPPU.

GPPU was $2,552, a $1,319 sequential improvement primarily driven by the inventory reserve in Q4, 77% of units sold in the first quarter were aged, and we expect a similar mix of units sold in the second quarter. As I mentioned, we expect a significant reduction in the mix of aged units in the second half of the year relieving pressure on GPPU. Our GPPU for unaged units or units we’ve owned less than 180 days was comparable to our Q3 2022 GPPU, which was $4,206. Unaged units continue to generate GPPU in line with our expectation. We also continue to invest in improvements in our pricing engine, which we expect to unlock increase GPPU. We continue to see strong product GPPU as we develop and grow our UACC captive financing operations. Our logistics cost consistent with our long-term roadmap and 2023 objective to reduce costs per unit, we reduced our normalized all-in logistics costs per unit by 7% sequentially.

For comparison purposes, we have excluded certain accruals related to third party logistics that were released in the fourth quarter. Our inventory. Our improved titling and registration processes resulted in a 21% improvement in inventory turns sequentially. As mentioned previously, we are ramping unit vehicle acquisitions to facilitate unit growth in sequential quarters, and we expect to continue to improve our inventory terms. Our sales costs. We fully transitioned from our third-party sales provider as of the end of January of this year, consistent with our long-term roadmap and 2023 objective to reduce costs per unit, we reduced our selling costs per unit 11% sequentially. Our titling, registration, and support costs. In the fourth quarter we mentioned significant progress in our titling and registration processes.

At the end of Q1, over 94% of our units were available for sale or pending sale compared to 87% in the fourth quarter, and 52% in the third quarter of last year. Consistent with our long-term roadmap and 2023 objective to reduce costs per unit, we reduced our titling, registration and support costs per unit 20% sequentially. Additionally, $12 million of restricted cash that was previously trapped on the balance sheet was released within the quarter as a result of our continued improvement. For marketing costs, we increased our marketing spend $1.6 million sequentially to facilitate unit growth going forward. For fixed costs in January and April of this year, we completed reductions in force that are expected to deliver an additional $22 million of annualized fixed cost savings, consistent with our long-term roadmap and 2023 objective to reduce cost per unit, we reduced our fixed cost per unit 11% sequentially.

Lastly, our advanced analytics team, functional business teams and tech team continue to build data assets, analytical assets, and tech assets that we believe in the long term will provide a competitive advantage across title and registration, pricing, conversion, unit and product margin and supply chain costs. Moving to Slide 6, I want to take a moment to recognize the significant improvements that our Vroommates and UACC colleagues have delivered over the past year. Excluding securitization gain and non-recurring costs we continue to reduce our losses despite absorbing significant GPPU pressure caused by our legacy titling and registration issues in 2022. We expect to see continued improvement as we sell through the aged inventory that is pressuring GPPU and continue to focus on cost per unit reductions.

We have reduced our annualized adjusted SG&A from $684 million in Q1 of 2022 to $264 million in Q1 of 2023, a reduction of over $400 million annualized in only 12 months. While we continue to make progress on our long-term roadmap, we are at the turn where we are beginning to resume growth while we continue down the road of improving our operations and reducing fixed and variable costs. While our route is uphill for GPPU in Q1 and Q2 as we sell through aged inventory, we expect GPPU to normalize in the back half of the year when the majority of our sales are expected to be from unaged vehicles, which are currently delivering GPPU consistent with our long-term roadmap. Now, I’ll turn it over to Bob to discuss the first quarter result in greater detail.

Bob.

Bob Krakowiak: Thanks, Tom. I’ll start with a summary of our financial performance on Slide 8. All comparisons are against the prior quarter unless otherwise noted. As Tom mentioned at the start of the call, we have recast our adjusted EBITDA metrics to include fair value adjustments on finance receivables by holding the residual certificates of the securitization completed in January. We are accounting for those finance receivables under fair value accounting as opposed to health for sale accounting. Due to this, we felt it was no longer appropriate to exclude fair value adjustments from adjusted EBITDA as a significant share of our portfolio would be subject to such adjustments, when they previously only primarily applied to the pre-acquisition portfolio.

We have included a reconciliation of the change in the appendix of this presentation. Total revenue of $197 million decreased 6% as e-commerce units declined 5%. Consistent with our strategy, we intentionally slowed transactions to focus on operational execution. E-commerce GPPU increased 107% to $2,552. As we expected and discussed during the Q4 2022 earnings call, we realized the negative impact of selling through aged vehicles as we freed up inventory previously not listed for sale. This impact was offset by a benefit of inventory reserves taken in the fourth quarter that were released as we sold through aged inventory. Adjusted EBITDA loss, excluding non-recurring costs improved $10 million to $64 million. The improvement was driven by reduced operating costs, higher growth profit in both e-commerce and wholesale channels, partially offset by lower unit volume and $5 million of securitization related expenses at UACC for our January, 2023 securitization.

On the expense side, we further reduced our fixed and variable operating costs as we continue to pursue our three key objectives and four focused strategic initiatives. Turning to UACC, first, I would like to provide an update on the status and performance of our off-balance sheet securitization completed in the third quarter of 2022. As mentioned during our fourth quarter 2022 earnings call, consistent with increasing default rates across the market, UACC is experiencing higher than anticipated losses on the portfolio. In order to support the transaction, we elected to waive our servicing fees each month in the first quarter. Due to this decision for accounting purposes, we now consolidate the securitization on broom’s financial statements.

There was no retroactive adjustment and this change in accounting treatment did not have a material impact on cash, liquidity or our risk profile. In January of this year, we completed another securitization and used the proceeds of selling the rated notes to pay down our warehouse facilities and provide liquidity to continue portfolio growth at UACC. Due to market conditions, we elected to initially hold the BB notes and residual certificates. During April, we sold the non-investment grade securities and improved liquidity by $23 million. We continue to hold the residual certificates. As a result, this securitization remains on our balance sheet as we hold the residual credit risk, we recognize the income and expense from the finance receivables and related debt on the P&L.

If market conditions improve and we decide to sell the residual portion of the securitization, we anticipated improvement to our year end liquidity by up to $25 million, we will continue to closely monitor the securitization markets and make the best economic decision in the interest of our stakeholders. We remain focused on maximizing our liquidity and strengthening our balance sheet. In the first quarter, we repurchase 15 million face value of our convertible notes for $6 million further reducing our leverage. Additionally, we release over $12 million in restricted cash on the balance sheet as a result of improved titling and registration processes. Let’s move to Slide 9, which provides a bridge from fourth quarter 2022 to first quarter 2023 adjusted EBITDA, excluding non-recurring costs, as well as cash and liquidity.

E-commerce gross profit improved sequentially by approximately $5 million. The impact of selling through aged inventory as well as significantly reducing our inventory on hand allowed us to release inventory reserves by approximately $6 million, offsetting that was a negative impact of reduced sales margins on the aged inventory we sold within the quarter, an estimated $9 million headwind. As mentioned previously, we expect these impacts to abate as we sell through these aged vehicles and improved inventory terms. Wholesale growth profit improved approximately $4 million sequentially, primarily driven by improvements in the overall wholesale market and reduced losses related to tighten issues from prior periods. In addition to our improvements in e-commerce and wholesale growth profit, we continue to reduce our variable and fixed cost structure as we drive efficiencies throughout the organization.

In total, for the quarter, we improved adjusted EBITDA, excluding non-recurring costs by approximately $10 million. I would like to note that our first quarter results do not include the full quarter of the benefit of our reduction in force announced in late January, or the recently announced reduction in late April. Moving to liquidity, as outlined in the fourth quarter 2022 earnings call, as our retail inventory ages over six months, our floor plan facility does not provide the ability to borrow against the full value of those vehicles, requiring us to temporarily invest cash in inventory. We anticipated a dip in our cash balance during the first quarter due to higher cash and inventory balances. We expect to recover this cash during the first half of the year as we sell through the age of inventory.

Offsetting this headwind, we released $15 million of cash trapped on the balance sheet, primarily related to initiatives to resolve legacy titling and registration issues. Next, we repurchase $15 million face value of our convertible notes for $6 million, reducing our leverage. We may continue to opportunistically repurchase notes from time to time to reduce our outstanding indebtedness as a discount subject to market conditions and availability. These factors resulted in $317 million of cash and cash equivalence on the balance sheet at quarter end, which was within the range of our expectations. Additionally, it is important to understand that earnings from the UACC business have been used to pay down warehouse lines. We could draw against these lines as a source of liquidity.

At the end of the first quarter, there was approximately $60 million of available liquidity at UACC, which one combined with our cash balance would give us greater than $375 million of total available liquidity. I would like to mention two additional transactions we recently completed in April to create incremental liquidity at UACC. First, despite challenging market conditions, we sold the non-investment grade securities from the January securitization for $23 million. Additionally, we completed a repo financing on the vertical risk retention portion of our securitizations, resulting in approximately $24 million of incremental liquidity. Both of these transactions, which total $47 million in proceeds are not included in the $377 million of available liquidity on March 31st.

We remain focused on capturing balance sheet opportunities to improve our available liquidity. Next, let’s turn to our full year cash and cash equivalent outlook on Slide 10. As discussed during our fourth quarter 2022 call, we expect a 2023 ending cash and cash equivalent balance of $150 million to $200 million. This is primarily driven by our expected EBITDA loss for 2023 plus modest interest expense. Continued progress on titling and registration along with other cash initiatives are expected to free up approximately $30 million in cash currently trapped on the balance sheet. We remain on track with our expectations for year-end cash and cash equivalence. With respect to overall liquidity, we generated an additional $24 million from the repo financing with a potential for an incremental $25 million from selling the residual certificates.

Additionally, if we were to complete another securitization later in the year, our ending liquidity would improve as a result. Thank you for your time and attention this morning. With that, I’ll turn it back to Tom for a few closing remarks. Tom?

Tom Shortt: Thanks, Bob. Turning to Slide 11. Yesterday marks one year since we pivoted the business and announced leadership changes as well as our three key objectives and four focused strategic initiatives. Additionally, last May 26th, we introduced our long-term roadmap. Our long-term roadmap and four strategic initiatives remain unchanged, and I anticipate that they will remain unchanged, as we pursue building profitable business. I’m incredibly proud of what our team has accomplished over the last 12 months. We have transformed virtually every aspect of the business to improve our customer experience, improve our processes, drive operational efficiencies, reduce variable and fixed costs, decrease our cash burn rate and reduce our debt.

While we still have a lot of work to do, I do believe we are well-positioned to resume growth and continue our business transformation in 2023, as we execute our long-term road map and peruse our mid and long-term goals. I look forward to updating you on our progress on our four strategic initiatives each quarter, as we pursue our long-term road map. Thank you for your time today and operator, we are ready for questions.

Operator: [Operator Instructions]. Our first question comes from the line of Rajat Gupta of JPMorgan Chase.

Operator: [Operator Instructions] Our next question comes from the line of Sharon Zackfia of William Blair.

Operator: Our next question is a follow up question from Rajat Gupta of JPMorgan.

Operator: I would now like to turn the conference back to Tom Shortt for closing remarks. Sir?

Tom Shortt: Thank you, everyone. I appreciate your time today. Have a fantastic rest of your day, and we’ll talk to you next quarter.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.