Filed by Shift Technologies, Inc.
(Commission File No. 001-38839)
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 of the Securities Exchange
Act of 1934
Subject Company: Carlotz, Inc.
(Commission File No. 001-38818)
Shift 3Q 2022 Earnings Conference Call Prepared
Remarks
November 8, 2022
Cheryl Liu, Manager Corporate Strategy
Good afternoon and welcome to the Shift Technologies third quarter
2022 earnings call. Joining me on the call today is CEO, Jeff
Clementz, and CFO Oded Shein.
During our remarks, we will make some forward-looking statements,
which represent our current judgment on what the future may hold.
And while we believe these judgments are reasonable, these
forward-looking statements are not guarantees of future performance
and involve certain assumptions, risks and
uncertainties.
Actual outcomes and results may differ materially from what is
expressed or implied in any forward-looking statement. Please refer
to our filings with the SEC for a full discussion of the factors
that may affect any forward-looking statements. We undertake no
obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise
after this conference call.
During the course of the call, we will be referring to non-GAAP
measures, as defined and reconciled in our earnings
materials.
With that said, I will now turn the call over to Jeff.
Jeff Clementz, Chief Executive Officer
Thank you Cheryl, and good afternoon everyone.
I’d like to start out by thanking all Shift employees for their
hard work and execution during the third quarter. It was no easy
task to rapidly pivot to our new operating plan, but the team did a
great job meeting the challenge. I’m incredibly inspired by the way
our team pulled together and immediately set out to the task at
hand - giving our customers a simple, fair way to buy used
cars.
As we talked about on our last call, the third quarter was a
transition period for the company as we pursued our new strategy.
This new operating plan prioritizes accelerated profitability and
lower cash burn, though at lower unit volumes.
As a reminder, the actions we took during the third quarter include
the following:
●Streamlining
sales through our online checkout channel and eliminating test
drives
●Optimizing
our inventory mix and assortment to favor value vehicles, which
have more favorable front-end GPUs and overall
profitability
●Refocusing
our physical footprint to our core west coast markets, thereby
rationalizing from 10 hubs to 3
●Reducing
front-line roles and corporate positions by ~60% across remote and
hub locations, and reducing corporate overhead costs.
After tireless work during the quarter, our new operating plan is
now in place and we have the foundation to execute.
The third quarter transition does impact the financial results
we’re reporting today, but we expect the benefits to be evident in
our fourth quarter results and beyond. Oded will discuss the third
quarter results and guidance shortly.
Turning to our strategic priorities.
First, we prioritized achieving positive unit economics from GPU
expansion and leverage in selling and marketing, while tightly
controlling G&A expenses. As stated earlier, we have shifted
our inventory mix to skew towards value vehicles. Now, over half of
our vehicles are considered value, which we define as vehicles
older than 8 years or over 80,000 miles. As we’ve talked about,
sellthrough on those vehicles are consistently higher and have
greater front-end and total margins. In this environment with
rising interest rates and consumer affordability headwinds, we
believe that consumers will naturally be drawn to more
value-oriented vehicles when making a car purchase in the coming
months.
Second, increase penetration in our west coast markets to grow
ecommerce units sold. As you know, we eliminated test drives in the
third quarter and moved our focus to the online checkout channel.
Not only does this move improve profitability, but as expected
we’ve seen strong consumer response as more and more people are
opting for a true e-commerce offering. We successfully rationalized
our hubs down to 3 to focus on our core west coast markets,
although we’re still selling and fulfilling cars to anywhere in the
U.S.
The team continues to focus on product innovation as we advance our
mission of making car purchase and ownership simple. We rolled out
several exciting product updates throughout the third quarter,
including a new buyer checkout and dashboard experience that allows
the customer to see what needs to happen next to complete their
purchase and undergo those actions themselves, such as uploading
required documents. We also made a number of other improvements to
the online shopping and checkout experience, including a
substantial modernization of our vehicle detail page, new
personalized shopping experiences, and a more interactive price,
payment, and shipping calculator.
Our third priority was to scale our marketplace business. In Q2, we
launched a beta version of the Shift Marketplace powered by Fair
with a number of inventory listings from our dealer partners in the
Greater Los Angeles area. We learned a tremendous amount from this
beta test, and plan to relaunch in the first half of 2023 as we
optimize and improve the platform. The team continues to build out
the shopping experience and will add additional F&I partners
and customer shopping options.
Additionally, over the past year we’ve heard from many Dealers that
they’ve been impressed with Shift’s “Sell Your Car” flow which
enables Shift to source >95% of our inventory directly from
consumers. We do this by providing instant quotes and by enabling
the customer to conveniently sell their car to Shift at their home
or by bringing it to our Hub. Given this Dealer interest, we’ve
created and are launching the AutoAcquire platform that allows
dealers to embed Shift’s Sell Your Car flow into their website. We
are pleased to announce a significant partnership with Off Lease
Only, a terrific dealership group based in Florida. We will
initially focus on optimizing our platform for Off Lease Only’s
Sell Your Car flow, which will launch in Q4, and then open up the
platform for additional Dealer partnerships. We believe the
combined value proposition of the AutoAcquire platform and the
Shift Dealer Marketplace will provide significant value to Dealer
partners across the US.
And finally, we are looking forward to integrating the Shift and
CarLotz businesses upon the close of the merger, to create a
profitable, leading omni-channel used auto retailer. The executive
team and the board of directors remain excited by the pending
merger and believe that it will create value for both Shift and
CarLotz shareholders.
As Shift, we are building a powerful ecosystem. Car sellers and
buyers love our ever evolving eCommerce capabilities. In the coming
months, we will continue to expand our ecosystem by becoming a
leading eCommerce platform that enables our Dealer partners to
build a deeper, more engaging relationship with their customers,
and in doing so, will increase the access to high quality
inventory, to buyer leads, and sales. We will then further build
out our platform by adding the Carlotz stores and capabilities to
create a leading Omni-channel retail customer
experience.
I will now hand it over to Oded to review our
financials.
Oded Shein, Chief Financial Officer
Thank you Jeff, and good afternoon.
I’ll start with our third quarter results. Our team continued to
perform very well in pivoting to the new strategy while executing
the restructuring and inventory liquidation required by the
change.
Our third quarter adjusted results met or exceeded our
expectations, despite facing macro headwinds in a slowing economy,
including rising interest rates and elevated gas
prices.
We were also able to successfully manage a higher mix into
higher-demand value vehicles.
Total revenue for the third quarter was $161.9 million, a decrease
of 10% vs. the prior year period. Total units sold was 6,709,
compared to 8,111 last year, a decrease of 17% mostly due to the
closure of several hubs in August 2022 as part of the transition to
the new operating plan.
The mix between Retail and Wholesale was unusual due to increased
use of the wholesale channel to liquidate inventory as we adjust to
a smaller geographic footprint. Wholesale was 28% of units sold in
Q3 vs. 20% last year.
Adjusted Gross Profit per retail unit was $1,925 in the quarter vs.
$2,056 last year.
Our F&I income (or Other gross profit per retail unit) was
$1,243, 26.6% higher than last year.
As we transition to a higher penetration of value vehicles with
lower ASP’s, we expect our F&I performance to moderate.
However, the increased front end margin on value cars is expected
to offset the reduced F&I, resulting in higher total retail
GPU.
Adjusted SG&A expenses were $39.4 million, which compares
favorably to adjusted SG&A expenses of $46.6 million last year.
The decrease was primarily due to lower operating costs and
marketing expenses as a result of the restructuring.
Lower SG&A this quarter also contributed to improving our
adjusted EBITDA loss. Adjusted EBITDA loss for the quarter was
$(30.0) million as compared to $(33.3) million in the prior year
period.
We ended Q3 with total cash of $56 million, which includes cash and
cash equivalents of $44 million, and restricted cash of
approximately $12 million.
Cash balance declined against the second quarter primarily due to
the cost of restructuring, liquidating inventory and operating
loss.
Our debt outstanding under the Floorplan facility decreased by $52
million from $94 million in Q2 to $42 million at the end of Q3. The
decrease was a function of our lower inventory as a result of the
liquidation of inventory in closing hubs.
Now, turning to guidance.
For 2022, we now expect revenue in the range of $665 to $675
million. This implies Q4 revenue to be in a range of $60 to $70
million.
The totals for the fourth quarter and the year are lower than
previously provided as we adjust to the new strategy with lower
ecommerce units and also lower ASP due to the focus on lower-priced
value segment.
We expect 2022 Adjusted GPU to be in the range of $1,700 to $1,800,
higher than our prior guidance of $1,600-$1,700. The implied fourth
quarter adjusted GPU guidance is $1,800 to $1,900. The GPU benefit
is a result of pivoting towards the value segment with higher
front-end and total margin.
We still expect 2022 Adjusted EBITDA loss to be in the range of
$(133)-$(138) million. This implies fourth quarter Adjusted EBITDA
loss of $(20) to $(25) million.
With that, I would now like to turn it over to the operator for
Q&A. Operator?
Important Additional Information
In connection with the proposed transaction, the Company filed a
registration statement on Form S-4 with the Securities and Exchange
Commission (the “SEC”), which includes a joint proxy statement of
the Company and CarLotz, that also constitutes a prospectus of the
Company (the “joint proxy statement/prospectus”). Security holders
of the Company and CarLotz are urged to carefully read the entire
registration statement and joint proxy statement/prospectus because
they contain important information. Security holders of the Company
and CarLotz are also urged to carefully read other relevant
documents filed with the SEC when they become available, including
any amendments or supplements to the registration statement and
joint proxy statement/prospectus, because they will contain
important information. A definitive joint proxy
statement/prospectus will be sent to the Company’s stockholders and
to CarLotz’s stockholders. Security holders will be able to obtain
the registration statement and the joint proxy statement/prospectus
from the SEC’s website or from the Company or CarLotz as described
in the paragraph below.
The documents filed by the Company with the SEC may be obtained
free of charge at the SEC’s website at www.sec.gov. These documents
may also be obtained free of charge from the Company by requesting
them by mail at 290 Division Street, Suite 400, San Francisco,
California 94103. The documents filed by CarLotz with the SEC may
be obtained free of charge at the SEC’s website at www.sec.gov.
These documents may also be obtained free of charge from CarLotz by
requesting them by mail at 3301 W. Moore St., Richmond, Virginia
23230.
Participants in the Solicitation
The Company, CarLotz and certain of their directors, executive
officers and employees may be deemed participants in the
solicitation of proxies in connection with the proposed
transaction. Information regarding the persons who may, under the
rules of the SEC, be deemed participants in the solicitation of
proxies in connection with the proposed transaction, including a
description of their direct or indirect interests, by security
holdings or otherwise, is set forth in the Registration Statement.
Information about the directors and executive officers of CarLotz
is set forth in the definitive proxy statement for CarLotz’s 2022
annual meeting of stockholders, filed with the SEC on April 29,
2022 and in CarLotz’s Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on March 15, 2022, as
supplemented by CarLotz’s subsequent filings with the SEC.
Information about the directors and executive officers of the
Company and their ownership of the Company’s shares is set forth in
the definitive proxy statement for the Company’s 2022 annual
meeting of stockholders, filed with the SEC on June 26, 2022. Free
copies of these documents may be obtained as described in the
paragraph above.
No Offer or Solicitation
This communication shall not constitute an offer to sell or the
solicitation of an offer to sell or the solicitation of an offer to
buy any securities, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended, and otherwise in accordance with applicable
law.
Forward-Looking Statements
This communication includes “forward-looking statements” within the
meaning of the “safe harbor” provisions of the United States
Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of words such as
“forecast,” “intend,” “seek,” “target,” “anticipate,” “believe,”
“expect,” “estimate,” “plan,” “outlook,” and “project” and other
similar expressions that predict or indicate future events or
trends or that are not statements of historical matters. Such
forward-looking statements, including those regarding the timing
and
consummation of the transactions described herein, involve risks
and uncertainties. Shift’s and CarLotz’s experience and results may
differ materially from the experience and results anticipated in
such statements. A number of factors could cause actual results or
outcomes to differ materially from those indicated by such
forward-looking statements. These factors include, but are not
limited to: (1) the risk that the conditions to the closing of the
transaction are not satisfied, including the risk that required
approvals from the stockholders of Shift or CarLotz for the
transaction are not obtained; (2) litigation relating to the
transaction; (3) uncertainties as to the timing of the consummation
of the transaction and the ability of each party to consummate the
transaction; (4) risks that the proposed transaction disrupts the
current plans and operations of Shift or CarLotz; (5) the ability
of Shift and CarLotz to retain and hire key personnel; (6)
competitive responses to the proposed transaction; (7) unexpected
costs, charges or expenses resulting from the transaction; (8)
potential adverse reactions or changes to business relationships
resulting from the announcement or completion of the transaction;
(9) the combined companies’ ability to achieve the synergies
expected from the transaction, as well as delays, challenges and
expenses associated with integrating the combined companies’
existing businesses; and (10) legislative, regulatory and economic
developments. Other factors that might cause such a difference
include those discussed in Shift’s and CarLotz’s filings with the
SEC, which include their Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, and in the
joint proxy statement/prospectus on Form S-4 to be filed in
connection with the proposed transaction. For more information, see
the section entitled “Risk Factors” and the forward-looking
statements disclosure contained in Shift’s and CarLotz’s Annual
Reports on Form 10-K and in other filings. The forward-looking
statements included in this communication are made only as of the
date hereof and, except as required by federal securities laws and
rules and regulations of the SEC, Shift and CarLotz undertake no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
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