Good afternoon, ladies and gentlemen. Welcome to the Vroom Second Quarter 2020 Earnings Conference Call. Today's call is being recorded and will be available for replay on the company's website under the Investor tab at www.vroom.com. The discussion today may include forward looking statements about future events, including the expected impacts related to COVID-19. Also, the company may make some forward-looking statements about their operations, earning potential, liquidity and outlook on the call today. These and other forward-looking statements speak only as of the date of this call and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks and uncertainties outlined in today's press release. We direct you to the company's most recent SEC filings, including its quarterly report on Form 10-Q for additional discussion and factors that could cause actual results to differ materially from those in the forward-looking statements. The company may also discuss certain non-GAAP financial measures during today's call. You may find a presentation of the most directly comparable GAAP measures and the reconciliation of those measures in today's press release. I'll now turn the call over to Paul Hennessy, Vroom CEO.

Thank you, Sydney. And thanks everyone for joining Vroom's first earnings call as a public company. I'd like to thank all of our employees, investors, and Board of Directors for all of their hard work and support in building a great customer-centric public company. Looking back on the second quarter, I'm very pleased that we substantially exceeded the financial targets in our plan. Of course, it's always a goal to do better than our plans, but the second quarter gave us so much more than that. The COVID-19 pandemic has, of course, than the Black Swan event for our country in general and definitely for our company. Our single retail store TDA experienced massive annual sales declines in revenue, and continue as we speak. The wholesale markets underwent an alarming bout of instability and illiquidity. And we had to institute emergency furloughs and salary reductions. To say that it's been a challenging environment for us would be an extraordinary understatement. And yet it has also been an extraordinarily valuable quarter for us, as it allowed us to learn so much about the capabilities of our business model, our operations, our employees, nearly all of them validating. Hard learnings have reinforced our belief that we are well on our way to building a business that can be a dominant digital car retailer in the coming years. When I say the word validating, I want spend a couple of minutes to tell you what I mean by that. We founded Vroom based on the firmly held belief that the used car market was poised to finally enter the digital age. On our road show many investors asked us what we meant by that, given the existence of so many car selling sites, some of which have been around since Amazon was selling…

Thanks, Paul. Good afternoon, everyone. Let me unpack the second quarter a little bit. Ecommerce units sold in the second quarter increased 74% year-over-year, albeit with constrained inventory levels. Listed vehicles decreased from over 5,000 in March to less than 1,500 in April. I'm happy to say that through our employees' hard work, our listed inventory is currently over 8,000 units and they are driving strong year-over-year and monthly sequential growth here in the third quarter. In May, we implemented technology to allow us to list coming soon inventory. This has enabled us to increase the amount of listed inventory and therefore, increased demand to our website. Of the listed inventory today, approximately 50% is coming soon and another 11% is sell pending. Of course, our immediate goal is to drive that 50% coming soon number down substantially between now and the end of the year. But as Paul mentioned, that continues to be a good challenge for us, given the rising demand for our vehicles. The result of this demand and supply imbalance has certainly benefited our gross profit per unit and our inventory turns. Since we starting acquisitions in April, we've also been focused on expanding our reconditioning capabilities. We have 17 Vroom reconditioning facilities around the country, including our proprietary Vroom reconditioning facility in Houston, up from 14 at the end of Q1. These 17 facilities provide us with capability to recondition approximately 1,800 vehicles per week. We're currently operating at less than a 100% of capacity. And that's really driven mainly by newly opened facilities that are still ramping up. We're confident that we can currently have the capacity to meet our Q3 targets, and we believe our utilization will continue to increase and we work with our reconditioning partners to continue expanding our reconditioning network.…

[Operator Instructions] Our first question comes from Daniel Powell with Goldman Sachs. Your line is open.

Great. Thank you for taking the questions. One and then a follow-up. On the first one, just wanted to see how your capacity around production was standing versus your own facility in Houston, where I don't understand you called out, you're still a little bit more impacted by the pandemic versus your efforts to scale up your third-party reconditioning?

I'll take that. Thanks Daniel for the question. Our Houston factory is up and running at full capacity. So, despite the -- some of the challenges with customers walking into the retail facility, the factory is running and running well. And then we -- I would say, again, at capacity and we're looking to continue to leverage our third-party reconditioning partners to scale capacity quickly. And again, our great partnerships are working and we're doing that, and you see that reflected in our guidance.

Great. And then on the marketing side, realize things are uncertain right now. So, how are you thinking about your marketing plans for the back half of the year, given some of the production or inventory constraints you might be facing on the website, that you're bringing people to? Thanks.

Yeah. We're good managers of our plan, and we've got the throttle on marketing. And so, as we expand capacity, buy more units and list more vehicles, we're well-positioned to turn up the marketing spend as appropriate to match supply and demand. So, we're very surgical in the way we think about marketing. And so, we'll continue to be that way.

Thanks for the detail. Thank you.

Thank you. And our next question comes from the line of Nat Schindler with Bank of America. Your line is open.

Yes. Hi, guys. Thank you for the question. Mostly I want to talk a little bit about the ARPU decrease you saw. It's understandable on what you're saying on Q2, but the Q3 guidance calls for $23,500 in your ecommerce and that's well below the over $29,000 you were in Q1 and the 30ish thousand you were running prior. Can you talk a little bit about how you have come down in price as you've expanded and a little bit on the strategy there? Also, can you talk about what impact does the $600 shipping fee have at lower price points? And when does that start to be an impact on demand?

Great. Great. I'll start and then, Dave, you can chime in. I guess, the way I think about the average selling price and I opened up in my opening remarks with this is that we're data-driven and we're demand-driven and the not surprisingly in a world with where the world has kind of shifted in, in terms of the amount of unemployment and maybe even uncertainty, the demand for higher priced cars has come down. And so Vroom was agile in its execution. And then have been since the crisis matching our supply to meet that demand. So, we've just -- we've affectively moved with the market and we'll continue to read those key leads as appropriate and optimize, so that our customers find what they're looking for on the Vroom experience. So, we'll do that. And so the strategy then to answer your question is to match demand. I've found that we seldom lose our way when we match our supply with a consumer demand. And so, we'll continue to do that. We've been also able to do that as we launch in more, reconditioning facilities. As Dave has mentioned, we've been able to get inventory in more and more distributed locations, that takes inbound and outbound miles out of our network. And that allows us to achieve a gross profit per unit level consistent with our plan. And so, even though, we've moved downward in average selling price, we've been able to deliver the gross profit per unit, again, in conjunction with our plan. As far as the $599 charge, we have not yet seen that as a conversion negative. But I think that we've talked about over time, as we get further and further with inventory in remote locations, we think that a geo-based shipping fee makes sense. So, short -- shorter haul distances will pay less and longer haul distances would pay more, consistent with many of the players in the industry. And so, we'll evaluate that as our inventory scale, but right now we've not seen the $599 as a conversion negative.

Great. Thank you. And just to follow-up. You did last year -- you were doing about 1,700 ecommerce GPU, which is basically in line with the same as your guidance for this coming quarter, but you were doing it with $8,000 higher cost car. And then you said there are some efficiencies you gained that allowed you to make those math, but how would GPU scale with price of car normally? So, if all else being equal, this quarter you were selling cars at 31,000 like you were last year, what would GPU be?

Yeah. It's hard to create the world that we don't live in, right? And what's unique about life after COVID with a fundamental change in the wholesale markets. But what I can tell you is that we brought a lot of data science to bear, and we've brought a lot of analytical work and rigor to not only match the cars that are in demand, but decide what the appropriate prices that we should pay for them. And what's the appropriate price that we should merchandise. And obviously, we'll continue to do that. That is what we do. And so, if life were, I guess, in this alternate universe, as you've served up, we would be bringing to bear those tools, and I believe that we would have attractive gross profit per unit levels as well.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Zach Fadem with Wells Fargo. Your line is open.

Hey, guys. Given the constraints around acquiring inventory in the quarter, how would you frame the gap between your sales growth and actual demand? And as your inventory constraints ease in the upcoming months, at what point do you expect unit growth to fully catch up with the current level of demand?

Yeah. That's a great question. The way that we're thinking about it, and you can see this on our website, we were almost returned to the inventory levels that we were in pre-COVID. But again, as I said in my opening remarks, that those cars that are available and ready to go is where we're lagging because we're turning inventory so quickly. Our customers are just not letting us get ahead at a pace that we're way out in front. But we've got capacity as Dave articulated lined up not only in Q3 to match our guidance, but now -- and then, I'd call a catch up period that allows us to continue on our scaled ramp in conjunction with our long range plan. So, we believe that we're almost out of this capacity constraint issue in this quarter.

Okay. And then, to go through the numbers a little bit, at the high end of your ecomm unit guide at 8,800, that implies about 60% growth. And I'm curious, first of all, if that's your current run rate? And then second, could you talk about why that would decelerate from the 74% growth that you saw on Q2?

Yeah. I'll answer that and then have -- Dave, you can jump in. But I think that -- there's two things at work here. One, I mentioned we had a record setting April then offset by -- May that was in half of April's numbers and then kind of ascending in June and July. So that's one issue. The second is comps as we started to scale last year. And so, we tried to give you good guidance on what we're seeing in our business right now. And that's why we ended up at the range that we did. Dave, anything to add there?

No. I think that's right, Paul. It's really an issue of a different comp year-over-year. So -- no, I think that's right on.

Got it. Appreciate the time guys.

Thank you.

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Your line is open.

Hi. Good afternoon. Thanks for taking the question. As you've shifted the inventory to a lower price point, can you talk about any potential changes you've seen in terms of your customer base, whether from a credit dynamic where they ally on the spectrum or a geographic within the quarter?

Sure. Dave, do you want to take the one?

Yeah. Sure. Sharon, I guess, I would say we've seen a very moderate shift in the customer base, but certainly not significant. In terms of geography, I think, really no changes. We typically sell more cars where there's more dense population and more car dealers. That's why they're there. And I don't think we've seen any significant shifts in geography either. We do have, Seven Technology [ph] that scores -- leads to as they come into our platform. And so that helps us manage the credit spectrum and manage the quality of the deals coming in that we address first. So, I think that's helped us, manage that aspect of the business.

Okay. Thank you. And I might have missed this, but did you -- or can you provide an update on where you are on the White Glove touchless delivery?

Yeah. Paul, you want to take that one?

Yeah. I'm happy to. We are continuing to experiment on both our own version of that and leveraging a third-party supplier. But it's still early days in our evaluation. So, I guess what I'd say is stay tuned on that, but we continue to rollout, I would say, greater levels of last mile. And as I mentioned again in my opening remarks, we're going to continue to invest in the driveway experience. And so, I think more to come there, Sharon.

Thank you.

Thank you.

Thank you. And our next question comes from the line of Colin Sebastian with Baird. Your line is open.

Great. Thanks. Congrats guys on the IPO again, and nice to talk to you. I guess, my first question is a follow-up on the lower ESPs. Obviously, the GPU is still a very good. But I'm wondering if there are any implications in terms of what level of reconditioning those lower priced cars require, if they're older models, for example? And if those costs are higher, does that require any change to your partnership agreements? And then related to the bottlenecks that you have at the VRC level, I know it sounds like that those are easy now. But do those new agreements to gain the extra capacity, have any impact on per units reconditioning or shipping costs that we should be aware of? Thank you.

Yeah. Let me …

Okay. Go ahead, Paul. Sorry.

No. Go ahead, Dave

Yeah. Colin, I think, we talked quite a bit in the preparation for the IPO about reconditioning standards. And we have different standards for different cars -- or different vehicles, sorry. So, a $50,000 BMW is going to have a different reconditioning standard than a $20,000 Camry. So that's really how we manage that. And that's one of the keys to be able to allow us to maintain that gross profit per unit at the lower average selling price. We also have on our website defect disclosure. So, with those -- with all of our vehicles, we have the ability to show a customer a minor defect in a bumper, for example, rather than taking the bumper off, sending it to the paint shop, reinstalling the bumper. So, I think the combination of those two things gives us a lot of control over managing reconditioning costs. On the VRC question, yeah, new agreements. I think we've mentioned before we work with Manheim, ADESA in terms of reconditioning. There's nothing in the -- each new location that we opened is part of a master agreement. So, there's nothing unique about opening additional ones. And I would say you -- you had mentioned bottleneck, I think we're not currently experienced any -- experiencing any significant capacity constraints in any of those -- like I said, in my remarks the ones that we turned on recently, they take a little while to ramp. So that affects the overall utilization. But that's one of the benefits really of being distributed -- widely distributed around the country as well. We don't have the geographic risk. We don't have material concentration in any one area, and that'll just get better and better as we continue to expand the network. So, hopefully that answers the question.

Yeah. That's helpful. I guess, does the situation -- does that impact the timing where you might decide to build out another owned facility?

Yeah. Look, I think the view there is still the same. We have plenty of experience with our own facility. And in fact, we try and give as much of the learnings that we have from that to our partners to help our own process in their shops. And we're certainly open to building another facility if the need arises. If we find a particular geographic location that we need the extra, or that we need our own facility, that's fine. If we find that there's -- for whatever reason we need to build another one, we're okay with that. But but certainly nothing in the short term plan. I think we've got tons of runway.

Okay. Thanks, Dave. Thanks, Paul.

Thank you.

Thank you. Our next question comes from the line of Ron Josey with JMP Securities. Your line is open.

Great. Thanks for taking the question. I wanted to maybe ask a little more about inventory and then ecommerce GPPU. And just on inventory, as you move towards more on the man cars, Paul and Dave, I just wanted to ask about the sourcing of those vehicles and the alternative sourcing specifically. In the past, you've talked about consumer acquisition, I think, accounting for 35%, 40% of units. I'm wonder if you can give an update there. And then any other sources of acquisition maybe from partners or for other areas? And then on GPPU for ecommerce, Dave, you noted higher overall attaching rates across the products offered and then sequential -- significant improvement and sequential improvement in June. Just talk about maybe what's driving that in June. Is that the financing? I know you said all products, but anything that sort of stands out. Thank you.

You want to take that one, Dave?

Yeah. Sure. I think -- I'll do the last one first. On the ecommerce gross profit per unit, yeah, we've seen higher attachment rates across the board on all the products. There isn't anything in particular that stands out in June. I think, the June -- significantly better results in June are the result of -- all of the inventory that we purchased in May, reconditioned in May. And then now we're selling in June, and obviously there's a lot of overlap there. I'm just using that as an example. But no, there's nothing that stands out. I think, we continue to have a lot of faith in our preferred lender relationships, with Chase and Santander and an ally, those preferred lender relationships really help us drive attachment. I think, we're really focused on the ecommerce experience and different initiatives and testing around driving it's attachment. So, a real focus on all of that constantly is what's helping us get there. In terms of sourcing, I think, early days on alternative sourcing, so not a whole lot to talk about. We still are acquiring the majority of our vehicles from auctions and consumers. Yeah. You have the stats right on 35% to 40%, with the slowdown during the COVID period, I think that -- it took a little while longer to crank up our consumer acquisitions again, so that we had about 28% in the quarter. And then -- and that's about 34% year-to-date. But the recent results were -- we're right back to between 35% and 40%. So, I expect that percentage will creep up again over time.

Great. Thank you.

And Ron, what I would just add to that, is that -- and you may have -- we've seen -- we've just turned on some TV advertising for the first time in Vroom's history offering -- telling customers that we've got an offering to actually buy customer's cars. So, again, it literally just launched this week. So, stay tuned on that. But we had a high percentage of mix from consumers and it was the world's best kept secret. So, we're not keeping that a secret anymore. And we think turning on the marketing will continue the strategy of securing cars, the right cars to drive the right unit economics for our business, that match demand.

That's super helpful. Thank you.

Yeah.

Thank you. And our next question comes from Seth Basham with Wedbush. Your line is open.

Thanks a lot and good afternoon, and congrats on the IPO and strengthening results here. My first question is around the GPU guidance for the ecommerce unit, looking for $1,600 to $1,700, $1,800 for the third quarter compared to $1,800 in the first quarter pre-COVID and about $1,600 in the third quarter of 2019 and $1,700 or so I think you mentioned in June. It seems like you're making a ton of improvements here. You talked about around attachment rates on a product as well as a strength in terms of buying cars and customers that should be more profitable than buy from auction. Why shouldn't we be looking for higher GPUs in the third quarter?

It's Dave. I can start there. I think, one of the -- the biggest piece of it is the average selling price. So with a lower average selling price, we typically would earn a smaller fee that we collect on helping to arrange the financing. I think, the rest of the products we sell -- so some of them may be affected by the ASP, but not as much as the finance. So I think we're -- like I said before, we're really focused on leveraging and increasing the attachment. And so that's what gives us confidence that we can continue to march towards the longer term goals, even with the average selling price, which as you know, was always in the longer term plan. But we've found ourselves there a lot more quickly, and the current environment is helping with that. So, I don’t know, Paul, you have anything else there?

No. I think that's it, Dave. I was just going to make that point, the ASP does drive lower lending amounts and therefore puts pressure on the product side of the attached, which is why we're not guiding significantly above that while we ramp.

Got it. Okay. Fair enough. My follow-up questions around your reconditioning capacity. If I heard you right, I think you mentioned now you could recondition 1,800 cars per week, which would equate to about 23,000 cars per quarter. Now, you're guiding 3Q unit sales across ecomm and DTA to around 10,000. So, it seems like there's a lot of under utilized capacity there. Is that correct? And do you think you'll be able to take advantage of that capacity over the coming quarters?

Yeah. I think that's the plan. We've got -- catching up to do, obviously as others experienced during the pandemic, we had a quick ramp down and then a quick ramp up. And so, someone that had mentioned acquisition availability earlier, we don't have any impediment to buying vehicles where they're easy to acquire and obviously, we've been acquiring them with good margin lately. So, I think it's really a matter of playing catch up with the capacity, but you're right. We feel like we're in a good spot now. Some of the -- again, the 1,800 was -- the total capacity is the 17 locations that we have. And obviously that was up from 14 at the end of the first quarter. And so, we've got a couple that are still ramping and quite honestly, a couple that were new in the first quarter that are still ramping. But yeah, we feel like we've got plenty of capacity certainly to meet the Q3 plan. And we're going to work down that 50% coming soon as quickly as we can.

Thank you. And our next question comes from the line of Rajat Gupta with JPMorgan. Your line is open.

Great. Thanks for taking my questions here. I just wanted to follow-up on the ecommerce GPU question. Could you help break up the 1,600 to 1,700 across vehicle and product for us?

Hey, Rajat. Yeah. We haven't given that break up. That we -- we'll -- we manage that as you can imagine because there's so many variables that go into the vehicle piece and then obviously we've got a lot of variables affecting the product piece as well. So, we kind of actively manage that. So, we're actually not providing guidance on the break up.

Got it. No worries. And just -- but I was a little surprised by the guidance. Clearly, it's improved through the second quarter and June was strong. But from year-over-year perspective, it's still down a little bit. But my understanding was that in the second half of last year, GPU, especially on the vehicle side were severely impacted by -- just inefficiencies related to the ramp up of the unit. So, I would have thought that there was an easier comp competitive on that front, but it still looks like GPU is tracking down a little bit here, despite a pretty strong used pricing environment. So you just -- if you could just help bridge that gap a little bit, would be helpful.

Yeah. No. I think everything you said is right. I think the big difference is the average selling price of the vehicles. So, what was $30,000 in the second half last year, will be, like we said, closer to $22,000 to $23,000 this year. And so, I think actually -- the great news is we're making great progress on our march towards -- and much bigger market at a lower average selling price. And we're doing that very profitably with the GPUs that we're predicting now on a much lower selling price.

So, just to clarify -- got it. So, just to clarify, sir, is the lower ASP also impacting the vehicle gross profit per unit? Or I would have thought that was more of an impact on just the product side, but it looks like it's also having a decent impact even on the vehicle side. Is that a fair assumption?

Yeah. For sure. I think, it impacts both the vehicle and the product.

Got it. Thanks. Thanks for the clarification there. And just my follow-up was on -- just potential for given you're seeing this traction on your platform. How should we think about the potential for third-party inventory lifting going forward? Do you have any commercial agreements in place that you can talk about? What would the economics of those might look like? How would the reporting for that look like? Any car on that front would be helpful. And that'll be all. Thanks.

Yeah. I'll just take that one. And I would just say that, it's very early days. And it's not a material part of our business at this time. But what I will tell you is that there is growing interest from a variety of participants to share their inventory on the Vroom platform and leverage our -- kind of the end-to-end ecommerce platform as well as our logistics network. So, I think, it's a stay tuned rather than something that you guys should probably model in this quarter, but there's building interest in that, and more to report soon.

Got it. Great. Thanks so much.

Sure.

Thank you. And I'm not showing any further questions at this time. I'd now like to turn the call back to your speakers for any further remarks.

Great. Just thanks everyone for attending our call and special thanks to all of the Vroom employees that got us here, and we'll continue to drive our business forward. So, thanks everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a great day.