VRM - NASDAQ

Good day, and thank you for standing by. Welcome to the Vroom Fourth Quarter and Full-Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Liam Harrington, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Vroom's fourth quarter and fiscal year 2022 earnings call. Joining us on the call today are Tom Shortt, Chief Executive Officer; and Bob Krakowiak, Chief Financial Officer. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate Web site at ir.vroom.com. The fourth quarter and fiscal year 2022 earnings release and earnings presentation are also posted to the Investor Relations Web site. 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 based on management's current assumptions, and are neither promises nor guarantees, and are subject to a number of risks, uncertainties and other important factors that may cause actual results to differ materially. 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, 2022, 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 a presentation of the most directly comparable GAAP measures and a reconciliation of those measures in the fourth quarter and fiscal year 2022 earnings release and earnings presentation. I'd like to now hand the conference over to Tom Shortt, Chief Executive Officer. Tom?

Thank you, Liam, and thank you to all of the investors, analysts, Vroommates, UACC colleague, and third-party partners who are joining us today to discuss Vroom's full-year and fourth quarter 2022 earnings. Starting on slide three, we introduced our long-term roadmap at our May 26, 2022 Investor Day, where we highlighted our midterm goal of a breakeven EBITDA business, and our long-term goal of a 5% to 10% adjusted EBITDA margin business. As we indicated on Investor Day, during 2022, we strategically slowed down the business while we improved our customer experience processes across titling and registration, pricing, marketing, reconditioning, logistics, and insourced our sales function from our primary third-party resource. As we look forward to 2023, we intend to resume growth, sell through aged inventory, improve variable costs per unit, continue to reduce fixed costs, and continue to convert balance sheet items into cash, all while living within our means. Our long-term roadmap remains unchanged, but we have refined our key objectives for 2023. During 2023, our objectives will be to prioritize unit economics and growth, and improve cost per unit and maximize liquidity. Our roadmap relies on four focused strategic initiatives. First, build a well-oiled transaction machine. Our transaction machine includes titling and registration, selling, ecommerce, and marketing. During 2022, we invested in our transaction machine to provide a better customer experience at the higher cost per unit. During 2023, our goal is to continue to improve our customer experience while reducing our cost per unit. Second, build a well-oiled metal machine; how we buy, move, recondition, deliver, and price units. Our goal is to optimize the end-to-end supply chain by synchronizing how we buy, move, recondition, and deliver units to reduce cycle times, reduce supply chain cost, improve inventory churn, and improve customer delivery times. During 2022, we invested in our metal machine with our pricing initiative, delivering record GPPU. We also improved our delivery customer experience at a higher supply chain cost per unit. During 2023, our goal is to continue improving our metal customer experience while we reduce our supply chain costs on a unit basis. Third, build a regional operating model leveraging our national brand. We intend to sell nationally but operate more regionally around our reconditioning centers and transportation hubs. We expect to build density in regions to drive marketing and supply chain economics while improving customer delivery times. We have a significant opportunity to reduce the number of miles our units travel and reduce inbound and outbound transportation costs. During 2022, we rolled out two-day delivery to nine logistic hubs and focused on reducing the average number of miles our units travel. During 2023, we will continue to rollout two-day delivery to additional logistic hubs. Fourth, build our captive finance offering. We intend to expand our captive finance offering for Vroom customers, which we believe will improve conversion rates and improve unit economics, while also improving the customer experience. During 2022, UACC continued to grow our third-party dealer business, and the increased origination of loans for Vroom customers. During 2023, we intend to continue working with our financing partners, including building out four forward flow programs, and continue to build out our capital finance offering. Moving slide four, our fourth quarter and fiscal year 2022 highlights, during the fourth quarter, we recognized an adjusted EBITDA loss of $71 million, within the range of our prior outlook. We improved adjusted EBITDA excluding securitization gain and non-recurring costs by 48% from Q1 to Q4. Our ecommerce gross profit per unit was $1,233. The decline quarter-over-quarter was impacted primarily by three items. First, the percentage of sales from aged units increased 5x from Q3 to Q4. 36% of our units sold during the fourth quarter were aged units we've held greater than 270 days. Second, increased industry-wide depreciation, and third, higher inventory reserves primarily driven by recent electric unit OEM price decreases. During our Q3 earnings call, I mentioned that our GPPU during the fourth quarter would be in the range of $2,500 to $3,500. Without the market-driven inventory reserve, our GPPU would have been $2,548. Our GPPU for un-aged units or units we owned less than 270 days was in the mid 3,000s excluding the inventory reserve. In the third quarter, we mentioned our improvements in registrations. In the fourth quarter, we made significant progress on our titling process. This made inventory available for sale that was listed as coming soon since we did not have the titles. As of the end of the fourth quarter, 87% of units were available for sale or pending sale, versus 52% at the end of the third quarter. Currently, over 95% of our units are available for sale or pending sale. During 2023, we expect to sell through our aged inventory. We expect over half of our sales in the first-half of 2023 to be from aged units, which will put significant pressure on GPPU. Now that we have improved our titling process, we view this is as a transitory challenge that will abate as we work through our aged inventory. We reduced adjusted SG&A by $31 million sequentially as we continued to reduce variable and fixed costs. We also reduced our restricted cash by $21 million primarily driven by the improvement in titling and registration. We are making progress on our long-term roadmap and our four strategic initiatives. We continue to make improvements in transaction processes, including titling and registration. As we mentioned, our goal is to become best-in-class in titling and registration. Our long-term roadmap plan is to slowly insource the sales function over time. In Q2, we started insourcing with a small class to build our internal capabilities. And that initial class met our expectations. In the back-half of August, we experienced a large unexpected staff reduction of a primary third-party sales partner. We reacted quickly to accelerate hiring additional classes of internal sales staff. As of the end of January, we have exited our primary third-party sales partner entirely, and we continue to wrap our internal sales team. While we planned a slower and smoother transition to insource our sales function, we believe this transition will reduce our selling cost per unit earlier than initially planned. As you can see by the sequential reduction in SG&A, we have been focused on reducing variable and fixed costs, and will continue this focus. We unlocked $70 million of cash and inventory and restricted cash. And finally, we repurchased 198 million face value of our convertible notes for $72 million, reducing our leverage. Compared to our guidance on May 9, our ecommerce units came in below our guidance as we slowed the business to improve our customer experience. Our adjusted EBITDA was better than the midpoint, and our year-end liquidity was within guidance after taking into account the convertible note repurchases. Moving on to slide five, during Investor Day, we outlined these unit economic drivers behind our four strategic initiatives that we believe are key to building a profitable business model. This slide is an update on our fourth quarter operational progress on our four strategic initiatives. For the product and unit GPPU, while we had pressure in the quarter from increased inventory reserves and the start of selling through aged inventory, now that we have improved our titling process, we continue to make improvements in our pricing model. Our GPPU for un-aged units or units we owned less than 270 days was in the mid 3,000s excluding the inventory reserve. We continue to see strong product GPPU as we develop and grow our UACC captive financing capabilities. For logistics, the SG&A, we reduced our all-in logistics costs by $6 million sequentially. For inventory, now that we have improved our titling process, we expect to improve our inventory terms. For sales SG&A, we fully transitioned from our primary third-party sales provider as of the end of January this year. For titling and registration, in the third quarter we mentioned our improvements in registration. In the fourth quarter, we made significant progress with titles. This made inventory available for sale that has been listed as coming soon since we did not have the title. As of the end of the fourth quarter, 87% of units were available for sale or pending sale, versus 52% at the end of the third quarter. And currently, over 95% of our units are available for sale or pending sale. We reduced our titling, registration and support costs by $6 million sequentially, and we had a $13 million improvement in our accounts receivable reserve due to process improvements. For marketing, we reduced our marketing costs $5 million sequentially. And for fixed costs, we reduced fixed costs $2 million sequentially, and we continue to focus on additional fixed cost reduction. In January, we completed a reduction in force that is expected to deliver an additional $27 million of annualized saving across variable and fixed cost SG&A. These variable and fixed cost sequential changes represent the $31 million sequential reduction in adjusted SG&A mentioned earlier. Lastly, our advanced analytics team, functional business teams, and tech teams continue to build data assets, analytical assets, and tech assets that we believe, in the long-term, will provide a competitive advantage across titling and registration, pricing, conversion, unit and product margin, and supply chain costs. Turning to slide six, during 2022, we made significant improvements to our operations and our customer experience. During 2023, we expect to make improvements in our variable and fixed cost per unit as we resume growth. We expect improved GPPU for the full-year. The first-half will have pressure as we sell through aged units. We expect the back-half of the year to have GPPU more consistent with the second and third quarter of 2022. We intend to continue to improve titles and registrations while reducing the cost per unit each quarter in 2023. We intend to improve our conversation while we grow units, and reduce our marketing cost per unit in each quarter in 2023. We intend to lower our logistics cost per unit as we resume growth. During 2022, we maintained linehaul and hub assets, increasing our cost per unit in preparation for resuming growth in 2023. In January of this year, we reduced headcount by 20% excluding UACC and CarStory, and expect $27 million in annualized cost reduction. Given the dynamics in the credit markets, our 2023 forecast assumes we will not achieve off-balance sheet treatment, and therefore we will not recognize gain on sale on our securitization. In January of this year, we securitized approximately $326 million of principal balance of finance receivables for proceeds of $238 million. In addition to 5% interest to copy with risk retention rules, we retained the BB rated securities and residual certificates. We will be closely monitoring the market and exploring opportunities to sell both our BB rated securities as well as residual certificates. Until we are able to sell these certificates, we are precluded from recognizing gain on this transaction and both the assets and liabilities will remain on our balance sheet. For 2023, we expect an adjusted EBITDA loss of $200 million to $250 million, if we do not recognize a gain on sale from securitization. Included in this guidance is approximately $40 million of headwinds due to legacy operational issues. If we do recognize gain on sale from securitization, we expect an adjusted EBITDA loss of $150 million to $225 million. Now, I will turn it over to Bob to discuss fourth quarter results in greater detail. Bob?

Thanks, Tom. I'll start with a summary of our financial performance on slide eight. All comparisons are against the prior quarter unless otherwise noted. Total revenue of $209 million decreased 39% as e-commerce units declined 36%. Consistent with our strategy, we intentionally slowed transactions to focus on operational execution. E-commerce GPPU decreased 71% to $1,233. During the fourth quarter, we realized the negative impact of selling through aged vehicles as we freed up inventory previously not listed for sale. Additionally, increased market depreciation and higher inventory reserves on electric vehicles provided further pressure on GPPU within the quarter. These headwinds are partially offset by higher per unit profit from UACC interest income for Vroom loans. Adjusted EBITDA loss excluding securitization gain, and non-recurring costs improved $3 million to $70.5 million. The improvement was driven by reduced SG&A spending, partially offset by lower unit volume and GPPU. On the expense side, we further reduced our fixed and variable operating costs as we continue to pursue our three key objectives. Efforts on our titling and registration process resulted in a $13 million sequential improvement in our AR reserve. Our non-recurring costs include cost to address operational and customer experience issues, including rental car expenses, which we reduced by $10 million during the fourth quarter. Our net income for the quarter of $25 million improved $76 million quarter-over-quarter. The primary driver of this improvement was a $127 million gain on debt extinguishment due to our repurchase of convertible notes, which more than offset the impact of lower units and GPPU. The team did a tremendous job in 2022, pursuing balance sheet cash opportunities, along with a convertible note repurchases completed in the third and fourth quarters, we have reduced our net long-term debt by over $200 million from the second quarter of this year. While we are not done, we believe that the progress made in 2022 has positioned us well going into 2023 and beyond. Let's turn to our fourth quarter financial highlights on slide nine. Starting with adjusted EBITDA performance, excluding securitization gain and non-recurring costs, adjusted EBITDA improved $3 million quarter-over-quarter. As discussed earlier, improvements in adjusted EBITDA were primarily driven by reduced operating costs. E-commerce units decreased 36%, a key driver of our low unit sales volume continues to be a focus on operational improvement, as we intentionally reduce transactions to improve unit economics and the customer experience. Fourth quarter units were also impacted by current macroeconomic conditions, as well as reduced third-party sales resources as we transition to more internal resources as Tom discussed in his prior comments. I would like to provide some additional detail on our e-commerce gross profit per unit performance starting with vehicle gross profit. Vehicle gross profit per unit decreased 159% to a loss of $1,346. As Tom mentioned earlier, we've seen significant improvement in our titling processes. These process improvements increased inventory available for sale on our website from acquisitions earlier in the year and in 2021. These aged units impacted our sales margin by approximately $4 million during the quarter. We will continue to see the impact of these aged units in the first-half of 2023. But we expect this impact to be transitory as we sell through the aged inventory. Additionally, we incurred a $6 million lower of cost market adjustment, $4 million of which was due to an OEM manufacturer reducing electric vehicle pricing. Moving on to product GPPU, product GPPU increased to 33% to $2,579 as UACC source financing continues to perform in line with our expectations. Vehicle and product GPPU ultimately delivered total e-commerce GPPU of $1,233, a 71% sequential decrease. Let's move to slide 10 for a third to fourth quarter comparison of our adjusted EBITDA performance, excluding securitization gain in non-recurring costs, as well as cash and liquidity. Sequential declines in e-commerce unit volumes impacted e-commerce gross profit by approximately $12 million. Additionally, the impact of selling through aged inventory, as well as increased industry-wide used vehicle depreciation negatively impact gross margin by approximately $10 million. As our inventory ages, our plan does not provide the ability to borrow the full value of the vehicle, requiring us to temporarily invest cash in inventory. We anticipated dip in our cash balance during the first quarter due to higher cash in inventory balances. We will recover this cash during the first-half of the year as we sell through the aged inventory. Now in e-com gross profit and operating expenses, excluding non-recurring costs improved approximately $25 million sequentially. We continue to reduce our fixed cost structure as compensation and benefits decreased approximately $2 million sequentially. We also reduced variable expenses in marketing and logistics in response to lower sales volumes. Overall, we improved adjusted EBITDA, excluding securitization gain and non-recurring costs by approximately $3 million. Moving to liquidity, we took a number of actions during the fourth quarter as we continue to maximize liquidity. First, we reduced restricted cash on the balance sheet by $21 million sequentially. This cash became available primarily as a result of lower inventory levels and improved transaction processing in titling and registration. Our process improvements also reduced cash in inventory by $49 million during the quarter. The $32 million of other was primarily driven by timing of accrued expense payments, and year-end accrual adjustments. Next, we repurchased 198 million face value of our convertible notes for $72 million, reducing our leverage. We may continue to opportunistically repurchase notes from time-to-time to reduce our outstanding indebtedness at a discount, subject to market conditions and availability. These actions resulted in $399 million of cash and cash equivalents on the balance sheet at year-end, which is within the range of our prior guidance after adjusting for the convertible note repurchase. Additionally, it is important to understand that earnings from the UACC business have been used to pay down warehouse lines, we could draw against these lines as a source of liquidity. At year-end, there was approximately $109 million of available liquidity at UACC, which when combined with our cash balance, would give us greater than $0.5 billion of total available liquidity. Please turn to our full-year 2023 guidance update on slide 11. For the full-year 2023, we expect adjusted EBITDA loss of $200 million to $250 million, which is a $112 million midpoint improvement year-over-year compared to 2022 adjusted EBITDA. As Tom mentioned previously, this significant improvement is expected to be driven by higher margins and initiatives to reduce our variable and fixed costs. We expect some transitory headwinds, particularly in the first-half of the year in GPPU as we sell through aged inventory. We anticipate the aged inventory headwinds to be roughly a $21 million impact GPPU in 2023. Additionally, we expect volume growth, and our strategic initiatives around variable cost reduction will continue to be realized as the year progresses, resulting in sequential improvement quarter-over-quarter for all of 2023. Given the deterioration in the credit markets, our 2023 guidance assumes we will not achieve off balance sheet treatment, and therefore we will not recognize gain on sale on our securitizations in 2023. As a comparison, gains were approximately $45 million in 2022. Regarding cash and cash equivalents, we expect the 2023 ending balance of $150 million to $200 million and midpoint potential liquidity of approximately $250 million. This is primarily driven by our expected EBITDA loss for 2023. Continued progress on titling and registration, along with other cash initiatives are expected to free-up approximately $30 million in cash currently trapped on the balance sheet as of year-end 2022. In addition to our cash and cash equivalents, we expect to have an incremental $58 million of available liquidity at year-end at UACC as well as the potential for additional $25 million of proceeds from a residual sale if the markets become more hospitable. Next, I would like to draw your attention to the chart in the lower left corner of slide 11, which highlights some of the factors driving our EBITDA guidance. Beginning with our adjusted EBITDA loss midpoint of $225 million, as I mentioned in my earlier comments, during 2023, we expect to continue to incur significant costs related to legacy operational issues. Also, as I mentioned earlier, our guidance assumes no gain on sale treatment for UACC securitizations in 2023. We will hold the residual interest in those transactions and plan to sell them as they perform to optimize economic value for our shareholders. Last year, UACC securitizations generated approximately $45 million in gains on two transactions. Taking into account these adjustments, we estimate that 2023 midpoint EBITDA, adjusted for titling and registration and securitizations would be between a $135 million and a $155 million loss. The midpoint range is based on the assumptions that credit markets and interest rates stabilize. Finally, with respect to the fourth quarter of this year, we expect our Q4 2023 adjusted EBITDA to be markedly improved from our current adjusted EBITDA run rate, we believe our estimated Q4 2023 adjusted EBITDA run rate along with continued unit growth and operational improvements, positions the business well for 2024 and beyond. In closing, I would like to mention a few additional items regarding UACC securitizations. First, I would like to provide an update on the status and performance of our off-balance sheet securitization completed in the third quarter of 2022. Consistent with increasing default rates across the market, UACC is experiencing higher than anticipated collateral losses. This could affect their servicing income if UACC elects to waive monthly servicing fees as they did in January. Under certain scenarios, waiving servicing fees could result in consolidating of the securitization on Vroom's financial statements. If that were to occur, there would be no retroactive adjustment. And it would not be expected to have a material impact on cash liquidity or our risk profile. In January of this year, as Tom mentioned earlier, we also completed a securitization. If market conditions improve, and we decide to sell the residual portion of that securitization, we anticipate an improvement to our year-end liquidity by up to $25 million. Additionally, if we were to complete another securitization later in the year, our ending liquidity would improve as a result. Thank you for your time and attention this morning. With that, I'll turn it back over to Tom for a few closing remarks. Tom?

Turning to slide 12, I'm proud of what our Vroom mates and UACC colleagues accomplished in 2022. We improved our customer experience, improved our processes and reduced our debt and position the company to resume growth. We developed our long-term roadmap focused on four strategic initiatives expected to build a profitable business model. We completed the acquisition of UACC to build out our captive financing offering and we completed two securitizations with gain on sale treatment. We achieved record GPPU of $4,206 in the third quarter. We did this by transforming our pricing algorithm implementing variable shipping fees and improving our acquisition model. We substantially improved our titling and registration processes. We transition from our primary third-party sales provider as of January 2023. We reduced headcount by 50%, excluding UACC, and CarStory. We strengthened our balance sheet by repurchasing $254 million of convertible notes and unlocked $179 million of cash in inventory and restricted cash. We built a platform to grow the business in 2023 and beyond. We improved processes across the organization, including registration, highly support marketing, sales, reconditioning and logistics. So, during 2023, we expect GPPU pressure in the first-half of 2023 as we sell through aged inventory now that our titling process has improved, we expect normalized to Q2-Q3 2022 level in the second-half of 2023. We expect higher losses at UACC due to increasing delinquency and default rates. We continue to focus on converting balance sheet items into cash. We expect unit volumes to ramp through the year as we resume growth and grow our internal sales force. We expect per-unit economics to improve sequentially. We expect to reduce our marketing costs per unit through conversion initiatives. We expect to reduce our selling costs per unit. We expect reducing titling, registration, and support costs per unit. We expect to reduce logistics costs per unit, and we expect to continue to focus on fixed cost reduction. While we still have a lot of work to do to achieve our long-term roadmap, we made significant progress transforming our business in 2022, positioning us for growth and continued transformation in 2023. I look forward to updating you on our progress on our core strategic initiatives each quarter as we pursue our long-term roadmap. Thank you for your time today. And, operator, we're ready for questions.

Thank you. [Operator Instructions] First question we have is from Rajat Gupta of JPMorgan. Your line is open.

Great. Thanks for taking the questions. I just had the first question on the product GPPU, the ecommerce product GPPU. Could you help us break that apart a little bit especially in the context of what's going on in the securitization market? It was a pretty strong number, and my sense, a lot of that came from forward flow sales. If you could help us with what the gain on sale margin was or anything you can help with breaking that apart? And how should we think about that going forward, especially in the context of the tough environment in the securitization markets in the near-term? Thanks.

Yes, Rajat, thank you so much for the question. Yes, in terms of product GPPU, we're not giving specifics on -- with the amount of originations that are going through UACC. But there's a significant portion of originations that are actually moving through UACC in that number. In terms of the benefit that we see in the product GPPU, what you're seeing is you are seeing a benefit because we've got assets in the balance sheet that we haven't sold and would have lower sales volume. So, as you take that amount and you divide by the number of units that we're selling, you're seeing a positive impact. But in terms of product GPPU going forward for the balance of the year, we're in the securitization market. You would expect that to tick up in the early part of the year. And then as volumes start to ramp up you would expect that to normalize throughout the balance of the year, that's what we're expecting.

Got it. So, the $2,600 product GPPU in fourth quarter, I mean that is not from like a forward flow gain on sale, is that just like --?

No, there's no gain on sale, Rajat, in that number.

But what about the related interest costs for those loans, is that recorded within that number itself or is that below the line?

Yes, that's correct.

Sorry, is that below the line or is it within the number, the interest expense related to those loans?

Interest income, it is not the interest expense, that's correct.

So, the interest expense rate of those loans is in your other interest line item below the line?

Yes.

Understood, got it. Just on, like you've given us the liquidity guidance, and your EBITDA guidance. Any sense of at what level of units or what level of SG&A expenses are you expecting the company to hit EBITDA breakeven or any update you can provide on the timing of when you expect that to happen?

Yes, Rajat, this is Tom. Good morning. Our main goal in 2023, so in 2022 we feel like we transformed the operations and we're comfortable with regrowing the business. In 2023, our main focus is going to be to reduce variable and fixed cost per unit. And as we do that through the year and we grow units from where we ended Q4, we think that positions us at the end of the year, as Bob was mentioning earlier, in Q4, to have a business that then we would continue to scale growth. But we continue to focus on reducing our cost per unit so that the amount of volume that you need for breakeven business is probably lower than many would think. So, we'd need to see where we get to in Q4 in terms of unit economics, what our variable and fixed cost per unit are, and obviously, that would drive that. We would also expect to continue to improve those variable and fixed cost unit economics going into 2024 each quarter. So, big picture, Rajat, I think of it as we stabilized the operations of the business in 2022, we've put a lot of great processes in place. We need some volume this year, but it'll still be much less volume on a full-year basis than we did in 2022. We get our unit economics dramatically improved by Q4, if we continue to drive improvement into 2024, and ultimately at some point in 2024 we would expect to directionally having the units of break even businesses.

Got it. So, I mean you were saying, in 2024, you'll come to know what the liability of the economics are. So, given the liquidity cushion, you might have by then, I mean it could be lower than $100 million based on your exit rate. I mean at what point do you determine like if the business model is not viable and you would look to maximize value for all the stakeholders? Thanks.

Yes, Rajat, we're looking at maximizing value for all of our stakeholders on a daily basis. We think that the plan we have right now through 2023 makes sense. We need to execute on that plan, but it's something we can't answer now. But it's something that's at the forefront of our mind on a daily basis.

Got it. Great, thanks for taking the questions, and good luck.

Yes, thanks, Rajat.

Thank you. [Operator Instructions] Next question is coming from Sharon

Hi, good morning. I guess a few questions. The first on the $21 million GPPU hit that you're expecting from the older vehicles in the first-half. Should we think about that as being skewed more towards the first quarter versus second or they're pretty equitably split in the first-half amongst the quarters?

Morning, Sharon. Yes, we're expecting a pretty equitable split across Q1 and Q2. We think we'll be mostly through that by the end of Q2. We'll have a little bit of drag in Q3, in Q4. While we think the most significant impact in terms of GPPU we're expecting would be behind us by the end of Q2.

Okay. And then I guess the second question is more as you get through some of this transitional phase and you do embark upon growth again, and some of that growth can happen just kind of naturally with lower cost structure, I would assume, provided the industry gets some tailwind. But it also seems as if you've cut so much cost that there will be more expenses necessary going into 2024 to sustain some sort of growth structure here. So, can you talk about, as you get through '23 and into '24, where do you think you need to invest in to really kind of move the top line forward in a more meaningful way?

Yes, thanks for that, Sharon. Our current plan is to continue reducing variable and fixed cost per unit each quarter in 2023, and in 2024, and in 2025. What I would say is, in 2022, I wouldn't say we have well-oiled machined yet, but we definitely have really well controlled processes that are functioning very well. And we have detailed plans across all the major levers that would drive multi-year unit cost reduction across marketing, logistics, selling, titling and registration. So that is our plan to continue cost reduction. If you think about where we were, we have lots of trucks, we don't need to buy more trucks for the foreseeable future. And so in terms of capital investment to achieve the growth in the 2024, we're not expecting significant capital investments to do that or an increased cost structure. Obviously, our raw dollars may increase at some point, but our cost per unit, we're expecting to go down sequentially in 2023, 2024, 2025.

Okay, thank you.

Thank you, Sharon.

Thank you, Sharon.

Thank you. [Operator Instructions] This does conclude the Q&A session for today. I would like to turn the call over to Tom Shortt, CEO for closing remarks.

Thank you everyone for attending today's call, and have a fantastic day.