Cazoo Group Ltd (NYSE:CZOO) Q4 2022 Earnings Call Transcript

Cazoo Group Ltd (NYSE:CZOO) Q4 2022 Earnings Call Transcript January 23, 2023

Operator: Greetings, and welcome to the Cazoo Fourth Quarter 2022 Preliminary Financial Results and Revised 2023 Plan. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Robert Berg, Director of Investor Relations and Corporate Finance. Thank you. Mr. Berg, please go ahead.

Robert Berg: Thank you. Good morning, everyone. Thank you for joining today’s call and webcast to discuss our fourth quarter 2022 preliminary financial results and revised 2023 plan. You’ll 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 Chief Executive Officer; Paul Woolf, Chief Financial Officer; and Paul Whitehead, Chief Operating Officer. Before we get started, 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 further discussion of risks related to our business, please see the filings of Cazoo Group Limited with the SEC. Now I’ll hand over the call to Alex.

Alex Chesterman: Thanks, Rob. Good morning all. Thank you for joining us today. As you will hopefully have seen from today’s press release, we’ve set out our high-level preliminary fourth quarter 2022 results, which we believe showed a strong end to last year, and a revised 2023 plan aims at rapidly further improving our unit economics and conserving cash. The purpose of today’s call is primarily to give you the opportunity to ask any questions you may have. We’re very early in our 2022 year-end close process, but have today disclosed that in Q4, despite the significant macroeconomic headwinds, we had another strong quarter of U.K. retail unit sales of around 17,750 units in the quarter, up over 100% year-on-year. And we’ve now sold well over 100,000 cars in entirely online in the U.K. in just 3 years since our launch, which is testament to the strength of our proposition and the continued adoption of online car buying.

Our U.K. revenues in Q4 were approximately £315 million and almost £1.25 billion for the full year, only our third year of operations. We also saw our U.K. retail GPU increased to around £600 in Q4, showing continuous improvement every quarter during 2022. Our positive momentum has continued into 2023, and so far, in January, we’ve seen solid unit sales and record finance and ancillary attachment rates. Our balance sheet remains strong with over £250 million of cash and cash equivalents, plus over £75 million of self-funded vehicles at the end of Q4. During 2022, we demonstrated our ability to buy and sell cars at significant scale. However, in the current economic climate, we believe the right course of action for 2023 is to focus on further improving our unit economics, materially reducing our fixed cost base and preserving cash as we make continued progress towards our goal of reaching profitability without the need to raise further funding over the next 18 to 24 months.

To enable these improvements, we’re resetting our 2023 top line ambitions to 40,000 to 50,000 retail units, allowing us to focus on higher-margin, faster-moving vehicles, and to rationalize our operational footprint to increase cost efficiencies. Following this reset, we expect retail unit sales to return to growth in 2024 and beyond. This plan is in the process of being finalized and implemented, and we’ll provide more detailed information at the time of our full year results in due course. In summary, whilst 2022 was a challenging year in many respects, our continued strong unit sales, notable improvement in unit economics during the year and market-leading proposition gives us strong confidence that we can both deliver on our 2023 plan and realize the attractive long-term opportunity for Cazoo.

I’ll now turn back to the operator so that we can take any of your questions. Thank you.

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Q&A Session

Operator: The first question today is coming from Rajat Gupta of JPMorgan.

Rajat Gupta: Great. Thanks for the update here. Maybe a question firstly on the fourth quarter end and 2023, your cash and equivalents was down roughly £60 million quarter-over-quarter. Could you help us bridge that gap between the different items, including contributions from EU, any divestiture proceeds and the core U.K. business. Just trying to bridge that, and then I have a question on 2023.

Alex Chesterman: Yes. Thanks, Rajat. And I’ll let Paul Woolf pick up on any detail. But generally, Q4 was a combination, the cash burn of U.K. burn at the old rate of fixed costs, which obviously are materially lower as we go into 2023 following this rightsizing and restructuring plan and also a number of one-off costs related to the wind down of our operations in the EU, which we’ll see a little bit more of in Q1. But beyond that, those — there should be no further one-off costs relating to restructuring either of the EU or the U.K.

Rajat Gupta: Got it. Sorry.

Paul Woolf: Yes. And, Alex — so just to pick up on that, I think that I mean that’s right. And broadly, the majority of the cash was related to the U.K. trading business, but then with some positives and negatives in Europe, which more or less offset, but were slightly negative overall.

Rajat Gupta: Got it. Got it. That’s helpful. And then maybe on 2023, it looks like you’re suggesting roughly £150 million in cash burn. Could you give us a sense of the cadence of that? And relatedly, could you talk a little bit more about the cost efficiencies from the pullback in growth? Is it more geared towards GPU improvements or SG&A reduction? Or I’m sure it’s like there’s an element of SG&A, too, but the confidence would be helpful. And should we continue to expect EBITDA breakeven by the fourth quarter? Or has that also been accelerated with this new plan? And that will be all for now, and I’ll get back in queue.

Alex Chesterman: So again, I’ll pick up at a high level and then pass to Paul to sort of expand on it. In terms of — there’s a combination of improvements in 2023, so yes, there is a materially improved GPU expectation as we progress throughout the year and also significant cost savings. We expect SG&A savings of about £100 million in 2023 versus the Q4 2022 run rate as a result of restructuring. And of course, there are one-off costs. When you look at that cash burn number that you talked about, there are one-off costs associated with the restructuring, which will largely be in Q1 of this year and may still a little bit into Q2.

Operator: The next question is coming from Adam Berlin of UBS.

Adam Berlin: I just wanted your thoughts on GPU for next year. Does doing fewer units help you accelerate the GPU more quickly? And is there a number in mind for where you’d like GPU to be by the end of 2023? That’s the first question. And I think the other question is actually have been asked — oh yes, sorry, I want to ask you how big the restructuring charge was as well?

Alex Chesterman: So on GPU, yes, reduced volume does help improve GPU because it allows us to focus — when we’re not optimizing for volume, it allows us to focus on higher-value cars, higher-margin cars, faster-moving cars, faster stock turn, et cetera, so we can be more selective and focused on higher GPU. And we have aspirations to reach what we set out as our medium-term GPU target some time ago of £1,500. We have aspirations to get there by the end of this calendar year.

Adam Berlin : And on the restructuring charge?

Alex Chesterman: The plan is still in progress. So it hasn’t yet been finalized, but, Paul, you might want to talk to that.