Good day, and thank you for standing by. Welcome to Vroom's Second Quarter 2021 Earnings Call. At this time, all participants’ line are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the call over to your speaker today, Mr. Allen Miller, Head of Investor Relations.

Thank you, Vallena, and welcome Vroom’s second quarter 2021 earnings conference call. Joining us on the call today are Paul Hennessy, Chief Executive Officer; and Dave Jones, Chief Financial Officer. Please note that this call will be simultaneously webcast on the Investor Relations section of the company’s corporate website at ir.vroom.com. The second quarter earnings release is also posted to the IR 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 subject to a number of risks, uncertainties and other important factors that may cause actual results to differ materially from those in such statements. 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, 2020, as updated by our quarterly report on Form 10-Q for the 3 months ended June 30, 2021, 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 upon future developments or otherwise. The company may also discuss certain non-GAAP financial measures during today's call. You can find the presentation of the most directly comparable GAAP measures and a reconciliation of those measures in today's press release. And with that, I'll turn it over to Paul. Paul?

Thanks, Allen, and thanks, everyone, for joining Vroom's second quarter 2021 earnings call. I'd like to start by thanking all of our employees, investors and Board members for all of their hard work and support in building a great customer-centric public company. Vroom had an outstanding second quarter. We executed well and delivered on our strategic goals and against our guidance. Our ecommerce units once again exceeded our expectations and were up 172% year-over-year. Our ecommerce gross profit per unit was up 153% year-over-year and up 32% quarter-over-quarter to $2,718. Also in the second quarter, Vroom completed a $625 million convertible note offering, further strengthening our balance sheet and bringing our cash balance to almost $1.5 billion at the end of the second quarter [Technical Difficulty] enables us to accelerate investments in our 4 key pillars of demand, supply and reconditioning, logistics, and sales and sales support operations, while also continuing to invest in advancing the end-to-end Vroom platform. Demand for the Vroom model remains strong. We continue to invest heavily in our brand and are seeing encouraging results in demand generation, conversion, purchases and sales in the immediate term as evidenced by our performance in our second quarter and third quarter guidance as well as improvements in brand awareness for longer term, evidencing sustainable demand generation. We are well on our way towards building Vroom into a national brand and a household name. [Technical difficulty] execution on the supply side of our business. We've gone from 11,280 units listed at the end of Q1 to 13,676 units listed at the end of Q2. We grew those units in a very constrained market, improved our inventory turns and grew our unit economics. All of that was enhanced by Vroom's integration of CarStory. Our now combined data-driven team is buying the…

Thanks, Paul. Good afternoon, everyone. Ecommerce units grew 18% sequentially in Q2 to just over 18,000 units and grew over 170% year-over-year. We drove strong unit growth by matching robust consumer demand with increasing levels of available inventory at a faster clip. As Paul mentioned, at the end of the quarter, we had nearly 13,700 listed vehicles on our website, up 21% from first quarter levels. Around 40% of that inventory was available for sale, up from about 35% in Q1 as we work to meet demand. We are confident we've planned capacity to meet our medium-term unit sales goals, and we're working hard with our third-party reconditioning partners to increase the velocity of our throughput and to get our listed inventory to a level that can provide upside to our unit sales targets. Our reconditioning capacity continues to scale. As Paul mentioned, we opened 5 new third-party VRCs in the second quarter, bringing us to a total of 29 locations across the country. That puts us ahead of our schedule on our 2021 goal of up to 30 VRCs that we've discussed previously. We delivered faster inventory turns this quarter with ecommerce days to sale of 68 versus 83 in the first quarter and within our target range. Our inventory efficiency accelerated every month of the quarter as we lean further into consumer-sourced vehicles, which typically turn faster. We also benefited from our ongoing national brand and performance marketing initiatives with higher viewership on our website and increasing brand awareness. Looking into the third quarter, we expect sales of 20,000 to 20,500 ecommerce units, implying 130% year-over-year growth at the midpoint. This implies 11% sequential growth at the midpoint as we capitalize on our operational strengths, while balancing our profitability targets and what we expect to be a normalizing…

[Operator Instructions]. Your first question is from Naved Khan of Truist Securities.

Just a couple of questions. So maybe just on the GPU metrics for the second quarter. How much of a tailwind was the strong pricing environment, which is your own expectations that contributed to the upside? And as we think about Q3, I think you talked about how prices might have peaked. How should we think about the entirety of the quarter? Should we expect pricing to come back down to maybe Q4 levels, Q1 levels? How should we think about that in factoring GPUs? And then I have a follow-up.

Great. Thanks for the question. How much of gross profit per unit was environment? I think the way we think about it is that is, we gave guidance at the midpoint for Q3 of $2,400 a unit versus the $2,700 in actual in Q2. So it was a $300 difference. Now part of that is moderating pricing environment, and part of that is normal seasonal based on where we are in the year. So it's difficult to quantify the two. But I think what's important to note is we're really pleased with the structural improvements we've made to gross profit per unit this quarter. Higher consumer sourcing and better pricing methodologies, with the benefit of having CarStory, are really the key drivers there. And that's how we think about the structural components. In terms of average selling price and market pricing going forward, again, difficult to predict how and when it's going to change. I think we certainly see in the industry graphs that we've kind of peaked on both wholesale and retail pricing, and we see that starting to come down now. We don't think it's going to fall off a cliff. We think it will be more gradual and manageable. And obviously, our intent there is to manage our inventory, keep turning it quickly, and we should be fine to manage through a decreasing pricing environment.

Yes. But on your -- just on your answer to my question. So just wanted to double click on that answer. If I had to think about Q3 GPU across the board, with pricing maybe not coming not up substantially, then would it be -- it looks like it's fairly conservative, especially if I look at wholesale, 50 to 100 versus where Q2 was -- is -- are there other considerations that are at work here? How should I think about it?

Yes. No. Look, I think I won't comment on whether they're conservative or not. I think we use our data and our best knowledge to predict where the market is going to go in the quarter and how we're going to react to that. Obviously, at this point in time, we know the inventory we have on hand to sell. We have a good estimate of what we think the average selling price will be. But similar to everybody else in the industry, I think it's difficult to predict. But we've got the best data in the industry, and we use that to the best of our ability to figure it out.

Yes. Makes sense. The other question I had was just around CAC. It looked like the CAC, customer acquisition cost, in the last quarter was probably one of the best ever you had, most efficient. How sustainable is that? How much of that is the strong demand versus your own advertising getting more efficient?

Yes. I'll take that one. I think what you're seeing is continued improvement in all aspects of the marketing side of the house. That the marketing is starting to get more efficient as you heard in my opening comments or heard in my opening comments, we're building a brand and chasing brand awareness, and that's starting to build as well. And then we're converting better. And when you price into inventory quickly, that helps drive conversion as you increase units available for our customers, that's the contributory to conversion. And so what I think you're seeing is structural improvements in our business and then the output of that is improving CAC. What I'm not going to say is that this is the highest that you'll ever see it as we continue to invest in our business. But I think you're seeing structural changes come out of good performance.

Your next question is from Zach Fadem of Wells Fargo.

Can you talk about the metrics that you track internally to measure the customer experience? And when you think about all the new initiatives that you've put into place, like adding customer service reps, acquiring CarStory and then taking last mile delivery in-house, curious if you could talk about how these experience metrics are trending? And to what extent you're seeing any underlying improvement?

Yes. We, like most of our competitors in this space, measure from top of the funnel to the bottom of -- to the car in the driveway, with all sorts of internal metrics that contemplate both satisfaction and speed. And not surprisingly, speed is a big driver of satisfaction and NPS is trending up. And so that's very encouraging for us. It's trending up overall, and it's trending up in our specific categories of both delivering vehicles to consumers and buying cars from consumers. So the trends are good. And look, I think all of you have seen what happened when we had bottlenecks in our business, what that does to speed, what that does to satisfaction and what that ultimately even does to our gross profit per unit, and we didn't have any of those negative issues really going on in Q2. So this is a perpetual point of investment for us because we're growing so fast. And as we bring in more and more demand into the franchise and buy more and more cars that continues to put stress on the system. But as we said, we're investing heavily to get -- to make sure that our customer experience, again, from top of the funnel to the bottom of the funnel is outstanding, and we're making really good progress there.

Got it. And Paul, you've changed your tune a little bit around owned reconditioning centers. Curious if you could talk about what's driving the pivot here? And is this a read on your preference for in-house reconditioning versus asset light? And then is there anything you can share in terms of the investment and time line? Any extra color there?

Yes. And then let me first start by pushing back and saying, I don't think we're changing our tune we've had a hybrid approach to reconditioning. We've got our own factory that we've had for many, many years, that we built the business on top of and then we expanded into third party. And we've always said that we would be opportunistic about -- in the right locations at the right time for -- to build a very big business that we would be thoughtful about adding reconditioning [facility]. So the tune is the same. What we're now planning on is, when do you need [technical difficulty] to do that, and what [technical difficulty] need to do that. And as I mentioned in my comments, we feel great [technical difficulty] here. We feel very good about our capacity for 2022. So now we're going to be thoughtful about the integration to our hybrid network of additional recon capacity. Because in the end, at real scale, our growth is going to need lots of capacity, and we see that in some of our competitors. So we'll leverage the speed and scale and quality of our existing third parties and then we'll be smart about adding our own. And since they're all integrated we believe that's going to drive both experience up and capacity up.

Your next question is from Ron Josey of JMP Securities.

It's Andrew Boone on for Ron. Paul, as pricing normalizes kind of in the back half of '21 and likely into 2022, ASP has kind of bounced around over the last 2 years. Where do you think customer demand is going to point you guys? Is it going to be more towards the $20,000 level or more towards the $30,000 level in a more normalized environment? And I have a follow-up.

Yes, I'll answer that one quickly. All ASPs across the industry have gone up. We think that, that over time comes back down. But we've been -- we've articulated since our public offering that over time at scale, we think that ASP goes down into the low $20,000 range. That -- we're sticking with that story. We think that's where the largest intersection of demand and supply will be. And we're -- we'll be headed that way at scale. And we started our business with single reconditioning facilities and that warranted that we have higher ASPs, and now as we're approaching 30 locations across the country, that allows us to operate at lower average selling price. So we think that it goes up and will come down. But over time, heads to where some of our larger scale competitors are, which is in the low $20,000.

That's great. And then you talked about the last mile network’s benefit to vetting cars that you guys are purchasing from consumers. Can you talk a little bit more about that? And just the overall -- does that improve also the buying proposition for consumers that you guys build out that last mile network as well? Like what are the other benefits?

Yes. I think the big one is driveway inspections allow us to accurately price the car when we actually see them. The beauty of our model is customers fill out a few pieces of data. We buy the cars fundamentally sight on scene and then inspect them at a point later in time. And the longer that time takes to bring that into one of our facilities, the more potential risk on our business. Now that we're rolling out last mile, we can inspect in short order. And like our competitors adjust pricing on the vehicle based on its merits. And look, sometimes, occasionally, we'll see a vehicle come in that doesn't meet our retail business -- as Dave mentioned in his comments, and if it doesn't meet our retail standards or it doesn't meet our safety standards, we're not going to put it, we're not going to list on our retail website, customer safety first. And so that's how we think about it. The benefits for last mile are many, both on the delivery side and the pickup side.

Paul, is there any way to quantify that in terms of kind of cars that you guys would reprice that may flow through to GPU for wholesale?

Let’s see. Yes, we haven't done that work on how to quantify that. Anything that we've thought through in terms of buying in the high-price market currently and then moving that inventory in Q3 is reflected in our guidance, and that's as far as we've gone on the wholesale side.

Yes, Andrew, I would say to -- sorry, if your question was more around quantifying how many of those consumer vehicles that we get that ultimately wind up in the wholesale channel? I think without going into like the granular detail on it, one, it's reflected in the guidance; and two, in the overall wholesale gross profit per unit. And that's really combined with what we think will be and what we think we're seeing is a decelerating wholesale pricing environment. So that's what we've planned for. But again, all included in the guidance range that we gave for wholesale.

Your next question is from Chris Bottiglieri of Chris Bottiglieri of Exane Paribas.

So the first one is on the financing business. Can you elaborate more there? Do you have the personnel and data internally to kind of build that from the ground up? Or would you likely look to do kind of like a partnership somehow or just acquire something outright? Just kind of want to get a sense for the gamut of where you can go with the financing business.

Yes, great question. I chose the word opportunistic [technical difficulty] not surprisingly one of the things we think about it is [sales] versus buy. And -- but here should be the takeaway. We're at the size and scale where -- and level of execution where we are prepared to start engaging in proprietary lending and will be really [technical difficulty] about that. And as that starts to present itself, we'll be out -- in more detail, we'll be sharing those details. But right now, we're just comfortable saying we think it's time to offer our customers the best [technical difficulty] engage in that.

Got you. Okay. And then -- that's helpful. And then I wanted to ask more about the -- I guess about wholesale. I think you referenced kind of like your view of the marketplace is that you might have hit on some different pieces, but you referenced that you're expecting for using Manheim's guidance, you expect used car prices to start rolling over. But then it actually looks like your ecommerce ASPs are increasing relative to Q2. So maybe just give us some sense for like -- kind of like how do you kind of triangulate those two. Is it where you're on the balance sheet today as prices rose towards the end of the quarter and you're going to sell those in July? Or just some sense for why ASPs are rising sequentially versus the overall used car pricing environment decline sequentially?

Yes. Chris, it's Dave. What I would say is, we have a lot of that inventory in-house already. If you think about our 68 days to sale, we've got a lot of that inventory in process already. And so we kind of know what that average selling price is going to be. So I think as we're buying in August and September, it's really for Q4 sales. And that's where the nuances of managing the inventory come in. We want to continue to push on turning it quickly. We always want to be selling in the same market that we bought in. Generally, the cycles in this business are fairly long. But recently, we've seen them accelerate a bit. But again, we don't expect wholesale pricing or retail pricing to fall off the cliff. We think it's kind of a gradual change.

Your next question is from Sharon Zackfia of William Blair.

I think my first question will be the easiest one you've had, I'll call. Paul, your line was cutting in and out. I didn't get the percent that you sourced from consumers in the quarter?

65%, I think up from 54%.

65%, thank you. And then secondarily, I guess, it would be helpful to kind of unpack some of that sequential increase in the SG&A, which I know you alluded to. And I'm wondering as well within that increase, are there preliminary investments related to the idea of kind of starting to move into proprietary financial solutions for your customers?

Hey, Sharon, yes, I can take that. So -- and you're talking about sequential Q1 to Q2?

I'm actually -- sorry, I should have been more clear. I'm talking about the implied guidance for Q3 versus Q2. So I think the SG&A per week is up more than 50% if I am not mistaken?

Got you. Yes, when we are thinking about going forward, again, we talked a lot in the script about investing. So I think if we think about it in OpEx per unit, right? So we've been, as you know, investing quite a bit in people and the sales and sales support functions. And so a lot of our comp and benefits at this stage of life are pretty variable. So I think as we think about the Q2 -- Q3 estimates, we would expect a similar comp and benefits per unit number to Q2, maybe up a little bit as we -- but we've hired a substantial number of people in those areas. And we'll obviously keep ourselves at that level and service attrition. In terms of marketing, I think, we talked about CAC. CAC was good in Q2. We will continue to step up our marketing efforts in Q3. So we'll have some increases there. Occupancy costs are relatively fixed, as we've talked about before, we've taken on some additional space, one for growth, but two for COVID as we have to distance people. And so we've got some additional space that we probably otherwise wouldn't have. But some of our occupancy costs are variable as well as we leverage third parties to store a lot of our vehicles around the country or better said, prepare them for shipment to customers around the country. Logistics per ecommerce unit, we're about $1,100 per unit in Q2. We'd expect that to continue into Q3. The way to think about that is the majority of the logistics cost per unit today are still third-party as we are building the logistics organization, you see those people show up in comp and benefits, right? All of the management, the drivers, the trainers, the compliance people, that all shows up in comp and benefits. What will show up in logistics is maintenance, fuel, things like that. So -- but a majority of that is still third-party today on the logistics line. So I would expect that to not change too much. And then in our other line, that is fairly variable as well. And there, we've got things like software licenses that are headcount, that are based on headcount. So as we continue to increase headcount, there's variable costs in there. And this is just like a lot of other variable costs associated with increases in ecommerce units. So we said we would expect about $6,800 of OpEx per retail unit in Q3, and we expect to see a similar result in Q4. And then we obviously look towards the future to get leverage on that, past that point in time. So hopefully, that's helpful.

Yes, that is really helpful. I don't know if you answered it, though. Are you already spending against the idea of launching your own proprietary financial solutions?

No, I would say anything around that is inconsequential at this point.

Your next question is from Seth Basham of Wedbush.

I was hoping you could clarify for us exactly how much of your sequential gross profit per unit improvement on vehicle ecommerce from 1Q, 2Q was from each sourcing from customers and your improved pricing methodology?

Hi, Seth. Yes, again, I think it's really -- it's difficult to figure that out, right? Because you think about the way we measure sales margin, it's a pretty simple equation. What do we sell the car for or the vehicle or what we pay for it? But inherent in that there is tailwinds from the good pricing environment. There consumer sourced vehicles and there is our pricing methodologies and the data that we use and the data expertise that we have. What I can tell you is we have historically said that consumer sourced vehicles will generally deliver $500 to $1,000 more sales margin than other sources. That was true in the quarter. And so we still see that benefit from consumer-sourced vehicles. And that's why we continue to raise at it because it's significant dollars. And so yes, that's how to think about it. But it's -- I think we'd be guessing if we were trying to figure out how much is the environment and how much is from other changes.

Got it. And then my follow-up is on your implied guidance for the fourth quarter as it relates to ecommerce GPU, and specifically, any color on the selling margin dollars. Seems like it's probably about flattish from the third quarter to the fourth quarter, despite the fact that seasonally, we usually see weaker trends in the fourth quarter versus the third. Can you help us understand how you're thinking about the fourth versus the third quarter in terms of selling margin dollars?

Yes. I think we obviously don't go into that level of detail. But as you think about it, there typically wouldn't be any seasonality to product gross profit per unit. So I think any variability in total gross profit per unit due to the time of year, would obviously be in vehicle. Now our goals are obviously to offset that as best we can through consumer purchases and through utilizing data to buy vehicles better and sell vehicles better. But yes, that's how I think about it.

Okay. And if I could ask one last one. What is your time line to EBITDA breakeven on an adjusted basis? You put out a time line at the time of the IPO, seems like you're ramping investments more than you planned at that point in time. Would you carry a time of when you expect to potentially break even?

Yes. Again, with apologies, we're giving one quarter guidance and we just haven't given anything on the long-term plan. But I think we're -- when we think back to original plans, we're certainly well on our way from a top line perspective. I think we've seen tremendous growth in the past couple of quarters and real maturity in managing the gross profit per unit. So we're excited about where we are today. We've got a good amount of liquidity and growth capital that we're now deploying to, one, provide a great consumer experience; and two, really throttle the business for future growth and make sure we can service that growth.

No questions at this time. Please continue.

Great. Well, thanks, everyone, for joining the call, and thanks to all our Vroom mates for delivering a great second quarter. And yes, we'll see you in a quarter. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.