Cazoo Group Ltd (CZOO) 2023 Q1 法說會逐字稿

Greetings, and welcome to the Cazoo First Quarter 2023 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Anna Gavrilova, 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 investor.cazoo.co.uk. We appreciate everyone joining us today.

With me on the call is Alex Chesterman, Founder and Executive Chairman; Paul Whitehead, Chief Executive Officer; and Paul Woolf, 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 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 Cazoo 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 3 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 rightsized 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 Cazoo record, a testament to the immense effort made by the team.

In the first quarter, retail GPU at GBP 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 GBP 1,200, which is our target average retail GPU for the full 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 selection, transparency and convenience of using our platform continues to draw consumers.

Retail revenue for the quarter was GBP 222 million. In total, including wholesale, we sold close to 17,500 units in Q1 and generated total revenues of GBP 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 GBP 708.

Reconditioning costs continued to reduce as we consolidated our vehicle preparation centers, 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 Cazoo 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 Cazoo 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 GBP 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 GBP 215 million of cash and cash equivalents and approximately GBP 60 million of self-financed inventory.

Our cash flow in the quarter included about GBP 13 million of restructuring costs and about GBP 25 million 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 rate of over GBP 25 million per quarter, representing over GBP 100 million of annualized savings going into 2024.

As we guided previously, the cash utilization rate is expected to reduce to approximately GBP 30 million per quarter by the end of the year, and we anticipate finishing the year with between GBP 110 million and GBP 130 million of cash and cash equivalents and between GBP 15 million and GBP 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, optimizing our fixed cost base and extending our cash run rate. We have a market-leading platform, brand, team and infrastructure. The U.K. 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.

(Operator Instructions) The first question is coming from Rajat Gupta of JPMorgan.

Great. I had a first question just on the retail GPU. Could you help us understand in a bit more detail the improvement from the fourth quarter levels of GBP 600 to the GBP 1,200 in March? how much of that is driven by reconditioning, sourcing? How much was pricing a factor? And any one-offs that we should keep in mind? If we could get a little more detail on that, it would be helpful. And I have a follow-up.

Rajat, this is Alex. So yes, there was a notable improvement from Q4 to Q1, as you saw. There were no specific one-off things responsible for that. It was continuous improvement in all areas: buying, reconditioning, pricing, attachment rate on ancillary products. So it was spread across the board, that improvement as we focus more on -- you saw that we reduced the volume of units that we sold -- the focus specifically on types of cars that would drive these higher margins and higher attachment rates on finance, which you saw, et cetera. So it's a combination of all of those things resulting from the decisions that we've taken.

Got it. And then just on SG&A. The press release mentioned that the savings are expected to flow through in the second and third quarters of the year. I'm just curious if you're able to provide us any color around how we should think about the cadence of EBITDA through the remaining of the year? Is it still safe to assume there was a sequential quarter-over-quarter improvement in EBITDA, excluding the restructuring costs here in the first quarter?

I'll let Paul Woolf pick up more on that. But the reason we've said that Q2 onwards will start to see the majority of the improvement is that a lot of the actions that we took in early Q1, we didn't see the benefit of, for example, headcount reductions. Those headcounts remained on our books until the end of Q1. So you'll start to see that benefit in Q2 and beyond, but I'll pass to Paul on more detail on that.

Yes. Thank you, Alex. So I mean, we've obviously guided to a full year adjusted EBITDA of between minus GBP 100 million and minus GBP 120 million. And we would expect the -- I mean, the remaining 3 quarters will be relatively steady in terms of that delivery. I mean we're continuing to take costs out of the business. But as Alex just described, Q1 was really a -- whilst the GPU improved, the operating costs were exactly the same as they have been throughout 2022. We really had the activities, which were -- primarily 1,500 people were unfortunately had to leave the business.

And as you're fully aware, we reduced our number of sites materially, 22 customer care centers down to 7, and then similarly in the prep centers, 7 down to 3. We've done that, but all of that happened sort of third week March. So actually, the operating costs were still back off the 2022 level. So April and Q2 will be the beginning of our newer, lower run rate EBITDA, negative EBITDA, sort of, better EBITDA. And we continue to take cost out all the way through the year. So there's now a sort of more steady improvement through the year through to that GBP 100 million to GBP 110 million that we've guided to.

The next question is coming from Catherine O'Neill of Citi.

Yes, I just had a question actually back on the retail GPU. I just wondered if you're at GBP 1,200 already in March, why you haven't sort of increased your guidance for the year? If it looks like you're sort of increasing at such a rapid rate, you expect it to then sort of stall at that level for the balance of the year? How should we think about that?

No, we are being sensible and cautious on guidance. We're delighted to have hit the GBP 1,200 level in March already. But for the full quarter, as you saw, we were at GBP 980, so not at the GBP 1,200. So we need to maintain that and improve that throughout the rest of the year, which we are confident that we can do, but we are maintaining our guidance. And as you saw, volumes in Q1 are traditionally seasonally strong. And so we expect to continue to see improvement on that GBP 980 quarterly number throughout the year. But as I said, we're very happy we hit that number, the GBP 1,200 already in March and expect to continue to grow from there.

And then I just wanted to ask about just the broader market dynamics you're seeing in terms of supply and demand and whether you've seen any sort of notable changes in the quarter and then as we go into April?

I think that Paul Whitehead is best placed to comment on that.

Yes. Thanks, Catherine. Look, the market itself is relatively stable. There are some green shoots coming in terms of new car supply, but it tends to be OEM by OEM from that perspective. Supply in the used car sector still remains relatively constrained because it takes a while for the new car supply to then to have a knock-on impact on the used car supply, and hence why we continue to be focused on growing the percentage of cars that we source directly from consumers where we continue to see good progress, which is more in our control than being in the broader market.

At this time, I'd like to turn the floor back over to management for any closing comments.

Thank you all for joining us today. If you would like to follow up, then please do so directly with any one of us. I appreciate the time today. Thank you.

Thank you. This concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.