Ladies and gentlemen, thank you for standing by, and welcome to Shift Technologies' second quarter of 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask the question during this session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker for today, Henry Bird, Vice President of Strategy and Finance. Sir, you may begin. Good afternoon, welcome to the Shift Technologies second quarter 2021 earnings call. Joining me on the call today are Co-Chief Executive Officers Toby Russell and George Arison, and Chief Financial Officer Oded Shein. During our remarks, we'll make some forward-looking statements which represent our current judgment on what the future may hold. 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 material. With that said, I will now turn the call over to Toby. Thanks, Henry, and good afternoon everyone? In the second quarter, our business exceeded all expectations. Through hard work of our team, we delivered incredible performance across key metrics. $155 million in revenue, representing year-over-year growth of 377%, 5,871 E-Commerce units sold, adjusted GPU of $2,809, and significant improvement in our operating leverage. With these results, which greatly exceeded the guidance that we gave on our first quarter call and strong momentum into Q3, we are now raising our full year revenue guidance to between $575 million and $595 million. At the midpoint, this represents a 3x increase over last year, or nearly 50% more revenue than we had originally anticipated for 2021. We achieved these strong results while continuing to provide exceptional service to our customers in a very unusual environment brought about by COVID, continuing to drive toward achieving our mid- and long-term strategic goals. These goals will be the core focus of the rest of my prepared remarks today, afterwards, Oded will discuss the financial results and guidance in greater detail. As we've discussed before, we have several key strategic focus areas, investment into which will set Shift up for long-term success. These include deepening market penetration within our existing markets, expanding our geographic footprint, building lasting brand awareness, driving efficiencies in our full stack operations while improving unit economics. Once again, our growth this quarter was primarily driven by the strength of our most mature regions along the West Coast from San Diego up through Portland. These five legacy markets in which we have operated prior to 2020 accounted for nearly all of the 377% year-over-year growth in the quarter. At the same time, we are encouraged by what we're seeing in newer markets such as Seattle and our Texas markets and Las Vegas, where at this time we are buying but not yet selling cars. The newest markets will be valuable contributors to our sustained growth in 2022 and beyond. One of the key drivers of growth across all of our geographies has been our new marketing strategy that we've talked about at length in prior calls. This campaign has proven to be highly effective, supporting immediate and midterm sales efforts while also building durable, non-perishable brand impressions for the long term. In our May call, we set the expectation to reduce CAC by roughly half in Q2. We achieved this with a 46% CAC decrease quarter-over-quarter, with total marketing spend also decreasing sequentially despite accelerating unit sales growth. Given the momentum we are seeing in our business and the effectiveness of our branding effort campaign, we will continue to prioritize and, in some cases, accelerate investment in building our brand. As of late Q2, we are now in a position to utilize powerful third-party data tools to measure the impact of our branding efforts on Shift's aided awareness among customers. We believe that with the right investments over the next six to eight quarters, we can drive faster awareness growth than our peer set has when they embark on branding growth and do so at a lower total spend level despite a more expensive COVID-driven marketing environment. That, in turn, will drive deeper market penetration, support growth in front-end GPU, and help new markets grow with faster ramp in their earliest quarters. Turning to operations, we continue to see strength across business functions. While many in the industry struggled to find supply, Shift was able to grow our sellable inventory nearly 40% throughout the quarter, with 93% of cars sourced in Q2 coming direct from consumers and partners. Our in-house reconditioning facilities did an excellent job keeping pace with the growing supply, and currently can process over 600 cars per week without additional staffing, which is more than sufficient to meet our 2021 inventory needs. Q2 saw some of the most unusual used car market behavior that the industry has seen in decades, and certainly in the seven and a half years since Shift has been in operation. A confluence of factors caused multi-week steep pricing appreciation rather than the depreciation the industry normally sees across all used car cohorts. Market tailwinds benefited the industry and helped us achieve the $2,809 GPU over performance. Oded will provide additional color on the drivers of that and overall unit economics. That said, our nearly 5x revenue growth year-over-year significantly outpaced that of the broader market. Given this momentum, based on the branding and operational investments we are making, we are positioning to continue significant market share growth in existing and new markets for the rest of the year and beyond, regardless of market pricing dynamics. Regardless of how the market moves in the short term, our strategy, technology, and operational excellence is well positioned to respond appropriately to drive growth while delivering on our mission of making car purchase and ownership simple and trustworthy for long term. I would like to thank all of our employees at Shift for their hard work and dedication to make these great results possible. Our people stepped up and delivered exceptional results. We had a great quarter, and we are excited for the growth ahead in 2021. I will now turn the call over to Oded to go over our second quarter financial results as well as provide guidance. Thank you, Toby, and good afternoon. The second quarter was a very strong financial quarter for Shift, providing record metrics across the board and demonstrating meaningful progress towards our long-term goals. I will first review our second quarter results and then share guidance for the third quarter and the fiscal year. Total revenue for the second quarter grew to $154.9 million, an increase of 377% to the prior year period and 46% to the prior quarter. Total units sold were 7,815, an increase of 240% year-over-year, with the e-commerce channel growing to 5,871 units, up 222%. E-commerce average selling price was $22,090, 11% higher than last quarter, in part due to pricing appreciation we saw throughout the quarter. Adjusted gross profits increased to $16.5 million versus $3.7 million in the prior year period and $7.5 million in Q1. I'll focus my remaining commentary on sequential changes. Our adjusted gross profit per unit reached $2,809 in the quarter, up 66% from Q1. As Toby mentioned, in the second quarter, we saw unique market dynamics with significant appreciation in car prices. A large portion of the cars that we sold in Q2 were purchased before price appreciation really took hold and were sold at much elevated profits. We estimate that this unusual appreciation dynamic contributed approximately $600-$700 of incremental GPU in Q2. Looking at Q3, most of the cars we are selling in the first half of the quarter were purchased in Q2 at the very peak of price appreciation in order to ensure adequate supply to meet our growing demand. As a result, we expect GPU margins for the second half of the year to be lower than they would be in a more normal environment. Given these unusual swings in market pricing conditions between Q2 and Q3, looking at average GPU over the combined two quarters helps to balance this short-term volatility. Market appreciation helped Q2 but is expected to hurt Q3. I'll discuss this fully in the guidance section. Other revenue, mostly F&I, was $5.1 million in Q2 compared to $4 million in Q1. We remain encouraged by the fundamental performance of our F&I business. F&I per unit in Q2, after adjusting for changes in accounting reserve, was $938, same as in Q1. After consistently delivering around $900 per unit of F&I revenue in the first half of the year, we continue to see meaningful opportunities in this space. Total marketing expense for the quarter was $10.9 million, down from $15.4 million in Q1. As the new strategy emphasizing brand marketing took hold and yielded impressive results. As Toby mentioned, Q2 customer acquisition cost was $1,897, down 46% from Q1. Total SG&A in the quarter was $48.1 million or 31.1% of revenue, compared to $50.2 million or 47.4% in the previous quarter, demonstrating significant operating leverage. EBITDA loss for the quarter was $26.1 million or 16.9% of revenue, compared to a loss of $34.4 million or 32.5% of revenue in Q1. Turning to the balance sheet and cash flow, we ended Q2 with cash equivalents of $238.2 million. This represents a $61 million increase compared to Q1 cash balance. Our Q2 cash balance includes $115.3 million from the May 2021 issuance of convertible notes, net of origination fees and capped call purchase. Primary uses of cash for both the second quarter and year to date were funding inventory purchases and marketing investments supporting our accelerated growth. Partially offsetting the cash outflows in the quarter were full utilization of our $50 million floor plan facility and a normalization of our accounts receivable balance when compared to Q1. Turning the spotlight on inventory, we ended the quarter with $122.5 million, a $48 million increase to our Q1 inventory. Our strong sales and GPU performance in the second quarter speak to our continued ability to procure desirable cars, the vast majority of which are bought directly from customers. Looking forward to the second half of the year, we expect to achieve the accelerated growth embedded in our guidance with only modest inventory investment. As we have demonstrated this year, we are able to quickly size our inventory to changing demand and market conditions. We're utilizing the inventory increase in Q2 to fuel our current quarter growth and plan to replenish when prices become more favorable in fall. Turning to guidance. For the third quarter, we expect revenue to be in the range of $155 million-$107 million or 159%-184% higher than Q3 of 2020. Adjusted GPU is expected to be in the range of 1,500-1,600 for the third quarter. This will create an average of approximately 2,100 for the Q2 and Q3 periods. Our adjusted EBITDA loss for the quarter is expected to be in the range of $34 million-$36 million. Based on positive results year to date and momentum we are seeing across our business, we are again raising our annual revenue guidance for 2021. We expect total revenue to be in the range of $575 million-$595 million, approximately three times our revenue for 2020. We expect to sell 22,000 to 24,000 E-commerce cars. As we've demonstrated in prior quarters, our growth strategy allows us to grow well in excess of the market. While the volatile market dynamics do not slow down our growth, they do impact GPU. Due to limited price visibility later in the year, and with an abundance of caution, our full year expectation for GPU remains at greater than 1,800, well on track to reach our sustainable GPU target of 2,500. We now expect our EBITDA loss margin to be better than negative 23% or through our previous guidance of better than 24%. I will now turn the call over to George for closing remarks. Thank you, Toby Russell and Oded Shein. Over the years in the past, before we were a public company, I was often asked, what is the governing constraint on Shift's growth? I would regularly say that we were capital constrained, that we could not invest in the areas we needed to drive growth, but that if we had the capital we needed, we'd be in a position to drive exponential growth and bring this company to scale much faster. Now, after removing the capital constraint once we went public last year, it has been very exciting for us to see our team deliver on accelerating growth for three subsequent quarters with 168%, 254%, and 377% year-over-year growth for Q4 2020, Q1 2021, and Q2 2021, respectively, while driving significant operating leverage this year. It is also exciting that almost all of this growth is coming in existing markets, providing a further proof point that our model is positioned to aggressively gain market share in each of its operating markets by providing consumers with the broadest possible inventory and test-drive delivery. Given these strong results in Q1 and Q2 and our newly increased guidance for the full year, we are now expecting to hit $1 billion in run rate revenue a few quarters ahead of our original expectations. We are looking forward to continued efforts to invest in the areas that have supported this industry-leading growth trajectory while driving significantly sustained improvements in our gross profit, as well as in improving our operating leverage on a drive towards scale and profitability. Thank you to our shareholders, customers, and team members, especially those working on the front lines in midst of the pandemic, who are all helping Shift deliver on our mission. We look forward to answering your questions. Operator, please open up the line for Q&A. Thank you. Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Alex Potter with Piper Sandler, y our line is open. Excellent. Thanks very much, guys. Great quarter. I guess, first of all, obviously the focus on marketing is clear. Is it possible that the CAC looks as good as it does right now because there's just this unprecedented demand for used vehicles, so customers are just falling all over themselves trying to find used vehicles, and that could normalize a couple of years down the line or a couple of quarters down the line once the market settles down? Hi, Alex. Glad to talk to you, and thanks for the question. As we had said in our previous call, our plan was to reduce our CAC by about 50%, or roughly half, and we got to about 46% reduction. It's very much in line with what we had expected. We think that the way to think about CAC in our approach is twofold. One is, you could just target it for acquiring customers today. Then secondly, targeting towards building aided brand awareness among consumers for the long term. A lot of what we're doing today in our marketing strategy is not focused on immediate results. It's focused at results over the long term. We've seen with our peers that as they build brand awareness, they are, I believe, attach higher price to market increases, which then results in better front-end gross profit. A lot of our investments have to do with this kind of long-term strategy and long-term plan. I think if we were just targeting customer acquisition for today and not for the long term, we probably could drive to a much lower CAC if we wanted to, but we don't think that would be the right approach given that we are trying to invest for growth over the long term. I think the reality that CAC reduction is part of the kind of operational and strategic focus that we've had to drive for results in our marketing campaign, in our efforts, and really not connected to the market conditions overall. As we talked in our prepared remarks, we think market conditions definitely impacted gross profit, but what we are seeing with our unit and revenue growth is primarily and vast majority driven by our own results and very much in line with what we wanted to accomplish as a business. Okay, great. That's very clear. I guess then, clearly you've got a business model that seems to be working. Is there urgency then on your part to try to expand out, maybe expedite this business model to other regions? Are you going to stick with your historical plan, in terms of a deliberate market-by-market, region-by-region rollout? I'll let Toby take that. Toby, you might be on mute. Hey, thanks for that question, Alex. We had previously, as you referenced, said that we wanted to grow about two markets per year. As I mentioned in our prepared remarks, the vast majority of our year-over-year growth came from in-footprint. We continue to see just tremendous potential from our existing in-footprint base for delivering large volume for Shift. We are growing our market expansion faster than that too, that I had mentioned or we had talked about in the past. I think we're going to continue gauging that and continue moving ahead of that target for 2021. We're excited about that, and we're seeing really great reception of both the brand marketing campaign and the footprint expansion, both immediately within the footprints and in surrounding areas when we see cars being shipped to nearby areas, sort of a penumbra footprint, alongside our existing markets. Okay, great. Maybe one last one, then I'll turn it over. You mentioned kind of the in-footprint, the existing footprint that you've got on the West Coast there. You also mentioned that you have the ability of 600 vehicles a week, I think, is what you said, to meet your 2021 targets. Is there a point on the somewhat near horizon where you foresee bumping up against capacity constraints, in your existing markets where you would need to deploy additional CapEx or start adding square footage, adding parking spaces, anything like that could potentially constrain your growth? Thanks. Thanks. I think it's a good question, and I know that with our peers, that's more of an issue. I think what we said in our remarks on this point specifically related to what we can process today with the labor that we have. Our real estate can process a lot more than 600 vehicles but obviously, you need to hire and train labor force for more. In the past, this has been an issue for us. It's not an issue for us right now. As we said, we are in a very good place with reconditioning capabilities that we need for this year. Obviously, given that our model does not assume building massive reconditioning facilities, we are able to turn on additional facilities as we launch each market. The second variable there is labor force. That's how we've approached thinking about what our reconditioning needs are. I think we want to be able to grow production organically, and we're able to do that with the model we have today, being really close to the customer. Great. Okay, thanks a lot, guys. Great quarter. Thank you. Our next question comes from the line of Sharon Zackfia with William Blair, y our line is open. Hi, good afternoon. Congratulations on the quarter. I guess I wanted to unpack what you were talking about when you mentioned growing your brand awareness faster at lower spend than some of your peers did previously. Could you help us understand tactically what that really means and how you do that? separately, if I look at your units sold relative to your average monthly unique visitors, it looks like your conversion went up in the quarter. Can you talk about what's going on there? Are you getting better leads? Is it something that ties into the brand strategy? I'm just curious on that metric. Sure. I'll start with the first question. We can't really share too many details right now on that. What we can say is that over the last quarter or so, we have gotten access to a lot more data that allows us to measure what impact our brand campaign is having. This is partly a result of the fact that as you spend more money in aggregate, you get access to information that previously might not have been available to you through agencies and other partners. That is allowing us to track the effectiveness of our branding efforts really well, and to also set midterm goals for our team in terms of what we want to accomplish as far as our branded awareness. We believe that with the right investments over the next six to eight quarters, we can achieve really strong results and drive faster growth in our awareness versus what other folks have been able to do with what would hopefully be net of it, less total spend. Hopefully in the coming months and quarters, we can talk more about that. At this point, directionally, I thought it'd be useful for folks to know how we're thinking about that. I know in the past we've gotten questions about, hey, what are the goals of it separate? We wanted to indicate where we are leaning. Can't really go into more detail than that right now, but hopefully in the future we will be able to. I'll turn over to Toby for the second part of the question, which has to do with conversion. Thanks, Sharon. It's a great question on conversion. Multiple factors help drive up our conversion. Better targeting and marketing, of course. Additionally, as Oded mentioned, we grew our inventory, which means having more inventory and more cars for people. It's easier to do the thing that we do, which is match people with cars when you've got a larger pool of inventory to match folks with. Finally, we've been making great strides in our technology experience. We're continuing to actively invest in our web and mobile technology experiences, investing in improving removing friction for customers and improving features that make it easier to find cars and easier to connect with those cars. We're seeing multiple levels of activity combined to really improve that conversion, and that remains an ongoing focus for us. That's really helpful. one last question. On the F&I GPU, was there any benefit there from the pricing environment? I believe Toby will take that one. In terms of our F&I, at a high level, we have found that is just a great business area and business line. It's incredible value add. As you allude, most people don't walk around with $20,000 in their pocket. One of the top questions we get from buyers or in the early days of Shift from buyers was, hey, I love the car. I love the experience. Do you have financing for that? We said, yes, we can do that. The combination of being able to offer financing and warranty is critical. We're continuing to build technology and build out that entire product offering, both from a intangible, the financial offering, and the technology offering to keep improving what we offer to customers. There are variations with things like ASP and vehicle segment. We've talked in the past about the variations in F&I between what we describe as core cars or our certified cars versus value cars, et cetera. I wouldn't say that in this particular period we saw wild variation based on ASP. Okay, thank you. Thank you. Our next question comes from the line of Zach Fadem with Wells Fargo, y our line is open. Hey, good afternoon? On your 1,000 unit increase in the full year unit outlook, to what extent would you describe this as flowing through the outperformance in Q2 as opposed to raising your unit assumption in the second half? As we think about total top line, could you talk a little bit about your expectations for price and where you expect the retail ASPs to land at the end of the year? Excuse me, at the end of the year versus the 22,000 level today? Thanks for the question. As you know, we just raised total revenue guidance by $85 million for the year. We also raised our unit volume guidance by 1,000 cars. It's a combination of each one of the quarters and our trajectory being faster than we originally anticipated. Specifically towards the end of the year, we don't have very good ASP visibility right now. If you really do the math, if ASP remains at the 22,000-plus range, there may be some upside for total revenue by the end of the year. Got you. I guess an another question on car sourced from customers up to 93% in the quarter, and then your wholesale units up over 300%. Can you just talk about what you attribute to the external environment here, and how should we think about modeling out these line items over the coming quarters? Oded Shein, do you want to take that? Okay. I'll take that. The way we think about this, we've not really been buying cars at auction other than very opportunistically, given the pricing environment at auction, right? I think the vast majority of the inventory that we are getting is coming from consumers. It has historically, and we're very much going to lean into that as far as driving our inventory needs. I think folks should assume that that's what we'll continue to do. Obviously, we actually would prefer to be able to get more cars at auction if we can, but in this environment where prices are just way too high, we really haven't felt like it made sense to do that. Again, I think Zach, you and I have talked about this in the past in other conversations, but historically speaking, we did not really lean into auction because our F&I numbers were not as good as they needed to be for us to be able to do more auction. Given where the F&I numbers are now, we actually would be able to do a much larger amount of cars from auction if auction prices were in a better place. Longer term, I would expect that as auction prices come down, we would lean into that a little bit more. That's how we think about our inventory purchasing. I'll let Toby talk about inventory disposition in terms of wholesale. Yeah, on the wholesale side, this is not a massive focus for us at this point. There are other players out there that have built out a big wholesale business. In a lot of ways, our wholesale disposition really is an offshoot of what is the core of what we're focused on, which is acquiring consumer cars to sell to consumers. We're really putting our primary focus on that, and the wholesale business, while it is valuable and it supports that consumer mission, we have not yet built out or captured the real opportunity of that thing as a large standalone unit hosting our own auctions at large scale, et cetera. we do think there's future opportunity in that. In terms of your question narrowly, Zach, about how to model that, there may have been a little bit of a difference in terms of what was going on wholesale this past quarter in terms of the shortage of cars at wholesale. Increasingly, we're seeing that normalize, and for the later part of the year and into next year, indications are that the market is returning to a normal supply state, and we wouldn't expect anything extraordinary or unusual, either in terms of wholesale pricing or supply, particularly as new car supply comes back online following chip shortages through the earlier year. From a modeling point of view, can't be super specific on the tactics, but I think we're about to return to more of a normalized environment in the latter part of this year and into early next. Got it. That makes sense. Lastly, just to follow up on the F&I question, is it fair to say the 900-ish level is the right way to think about this item in the near term, or are there reasons to believe that there could be some upside here in the back half of the year? As you know, our midterm goal for F&I is to be somewhere in the 1,200 to 1,400 range, right? If we're in the 900 now, we are making good progress, but we still have ways to go. The way we're thinking about it is that we continue to improve hiring and training of our staff. They do a better job and become more productive, but they still have, again, ways to go. We're thinking about the product and so on. It's always been our strategy to talk about growth in that area from this level to a higher level. How fast can we ramp up to that higher level? Time will tell. We're doing every effort to do that. It may take several quarters to get through that promised range. Got it. Thanks for the time. Thank you. Thank you. Thank you. Our next question comes from the line of Marvin Fong with BTIG. Your line is open. Hi, good evening. Thank you for taking my questions, and congratulations on the quarter. I thought I would just start with a question on GPU. Thank you for putting a number on what you thought. The pricing environment contributed to the expansion, but that still leaves about something like $500 ± of GPU improvement quarter-over-quarter. Just curious if you could help us unpack that, how much was reconditioning, how much maybe is structural price gains or pricing power, anything else you can expand on that. Then the second question, just again on sourcing. Are you able to isolate what's going on in terms of the elevated pricing between just the overall pricing environment and any impact that you might be seeing from more companies getting into consumer sourcing? Thank you. Thanks for the question. I'll start with the GPU compared to Q1. There are a couple of things going on. Q1, as we said last time, we had a little bit of hangover from Q4, especially on the reconditioning side, right? The cost there was a little bit elevated, and we had some improvement in this quarter as well. Plus, of course, what we talked about market conditioning, the combination of those two factors contributed to the big rise. Obviously, as we said in the comments, the market dynamics was the bigger part of that, and it's going to be equalized in Q3. That's why we suggest to look at the average of the two quarters, Q2 and Q3, to get a more normalized balance number. Marvin, on the second part of your question around sourcing, I think it is a very valuable and important one. What we saw was a true anomaly in the market, and that was rapid appreciation, like something on the order of 25% appreciation between January and April of used vehicles. With that and that shortage environment, you saw a lot of folks saying, wow, if you're an auction buyer, if you source primarily through auction, you are having to pay very high prices to be able to source at auction. Fortunately for Shift, we were able to not rely on the auction channel to do our sourcing. As we mentioned this past quarter, 93% of our sourcing came from consumer. There's a real advantage there. We've spent years building out that capability. While we see others moving in that direction, we tend to say that that's validation of a great strategy, and we have no concern about that competitive environment. Instead, we see real competitive advantage on our part, making that a key area. In the past, Shift has been able to diversify and source elsewhere. That core consumer sourcing is always going to be a great and best way to get cars. Those are the cars that we say people want. You're looking for that one owner, no accidents, strong options package, relatively lower price because it's a slightly older car, and that's always been the bread and butter and the core of what Shift's done really, really well. That proved out very nicely this past quarter, and we think that will continue to be true. Additionally, because we've been so focused on consumer sourcing, we have a wider spectrum of what we sell. The Shift value offering, for example, is a key differentiator. It is a unique capability to be able to source, recondition, and then merchandise that vehicle set. That is an outgrowth of our years of experience and focus on the consumer vehicles. You just would never find those vehicles really at an auction to buy them. We think that that is another key advantage and puts us in a strong position. We're excited about that, and we've seen the advantage of that strategy play out here in this past quarter. Terrific. Thanks, Toby and Oded. If I could ask a follow-up question. Just forward-looking on your new markets, I think you only recently begun selling operations in a couple of those expansion cities. anything you're seeing with the buying operations or anything that you could comment on how these new markets compare to the core West Coast markets that you've been operating in a while? Just any insight there would be great. Thank you. Yeah. Another great question. As I mentioned, we're just seeing most of our growth and tremendous growth in the core footprint. That San Diego up to Seattle, kind of Canada and Mexico, West Coast region is just, it's humming. We're really excited about that, Seattle being one of the newer markets as well. Texas has landed very nicely. While we don't see any need to rely on it for our 2021 numbers, and we see it really as a foundation of our growth in 2022 and 2023. The rapid move to selling cars out of Dallas and our being able to have both the Dallas-Fort Worth and Austin-San Antonio markets up and running and selling cars is just real indication that we're bullish on the market, and it's going really well. Furthermore, we're super excited about the idea of Texas being a great anchor for the Central and Eastern United States. We built out our entire footprint on the West Coast with interlocking, mutually supporting regions. You can shop in L.A. or San Francisco, anywhere up and down the West Coast and now from Texas. We see that as a great beachhead to just build out through the Central and into the Eastern United States. We're feeling really bullish on that, and there's been great reception of the Shift offering there in Texas. That's great to hear. Congratulations again. Thank you. Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Seth Basham with Wedbush Securities, y our line is open. Thanks a lot, and good afternoon. My question is how you're thinking about managing growth versus profitability here. It seems like demand remains really strong. Your inventory sourcing capabilities are really strong. While GPU might be coming in a bit, it does seem like you're taking your foot off the gas a little bit as it relates to growth. First of all, is that accurate? If so, why wouldn't you try to drive more units if you have the ability in a strong demand environment? I'm not sure I understand your question because the growth pattern that we have exhibited growing five times more than last year and just raising our guidance by $85 million, I think indicates a pretty fast growth. We have to think about the way we grow the company in our existing markets and the infrastructure that we have to support all of that. We are continuing to increase our capacity in things like reconditioning. Capacity has been growing just since the few months I've been here by more than 25%. Our sales force is growing, serving our customers better. We are doing everything we can to grow the top line in a very fast way. Our guidance, again, indicates that we're going to grow revenue this year by 3X compared to last year. I don't think we're not trying hard enough to grow. Okay. I was just noticing that your guidance implies, in terms of quarter-over-quarter unit growth, a slowdown, relative to what you just did in the past quarter. seems like you have the ability to scale, but you're slowing down that scaling a little bit. Yeah. Seth, I think it's important If you consider the market dynamics we are here right now, we have a great inventory position. We want to maintain that. We also have to be cognizant that the market is expensive, right, for purchasing cars. In order to grow our GPU and maintain profitability, we have to think about how fast we grow the inventory at the same time. There are many considerations there. Seth, I think it's also important to remember that Q4 historically has very strong seasonality in this market. I learned a tough lesson back in 2014 and 2015. In general, we tend to be quite conservative in our assumptions about Q4. Oded spoke about that in the prepared remarks. Across the board, we are pretty conservative in our assumptions about Q4. Part of our assumption here is that ASP will come back to normal levels in Q4, and potentially even will have a steeper seasonality curve than normal because of how Q2 and Q3 have gone, right? As a result of that, we've been conservative about Q4, and obviously if ASP does not come down, that'll be upside to what we've already said as far as 3x growth for the full year. Got it. Thank you. Yes. Thank you. Our next question comes from the line of Ben Scherlund with Cantor Fitzgerald, y our line is open. Hey, guys? Thanks for taking the question. your customer source vehicles, just going back to this, came in at 93%, which is pretty significantly above some of your competitors. Does this suggest that you might have some pricing power on the vehicle acquisition side down the road? maybe if you could talk about how the pricing or the sourcing of vehicles varies from newer markets versus older markets. I have a follow-up on CAC, if I could. That's a great question. I'm gonna answer it both in terms of sourcing as well as selling. We do believe, and core to our strategy is that building out the Shift brand as a destination for selling or buying your car does create long-term pricing advantage, allowing us to trade at reasonable marketplaces on both sides of that thing. In the short term, we do think we do have an advantage, as mentioned this past quarter, of being able to move our pricing quickly along with the consumer market so as to not necessarily be dependent or subject to the auction inflation that we saw. We were able to move to a 93% mark with that consumer sourcing. Again, the long-term sourcing pricing does relate back to great customer experience and our brand journey, and we're coupling both of those. We believe we have the best customer experience in the industry on both sides for buying or selling your car, and we want to brand that. Shift's number one challenge is that we're great and people don't know about it. we do think that that brings with it both through the funnel conversion advantage as well as pricing power, if that makes sense. Okay, great. On the CAC side, maybe if you could just talk a little bit about how CAC varies between some of your more established markets like San Francisco versus some of the newer markets. Also. Sorry, go ahead. No, go ahead. Finish the question. I was gonna say, in 2Q, it looks like your marketing expense per unique visitor was up about 76%, which compares to a lot of pricing in the performance marketing space in Q2 up triple digits. What are you guys seeing in 3Q? Are you seeing any easing in the impression costs on the performance marketing side? Those are awesome questions, and I wish I could speak in more detail, but we haven't released any data on how our older versus newer markets do as far as marketing. What I can say is the following. We have found, and we have spoken about this in the past, but I think it's important to reemphasize. We have found that given our presence in the various locations we're already in, especially San Francisco and Los Angeles, that marketing nationally for brand is really beneficial. We don't spend all our brand dollars nationally, but a significant amount we do. Obviously there, the costs are more similar across the board, and we're seeing there's a positive impact from that. Second point that I think is really important to consider that we have very strategically pushed our spend more to brand and away from digital spend. We found over the years of building this company that building a strong brand is really critical. You couldn't do that through just digital. I and others that came into this business thinking that you could literally build a whole company with just digital spend, and it turns out that that's not possible to do it. Brand is really crucial. From that standpoint, we don't just think about customer acquisition costs from just the digital side. We think more holistically, including the brand side of things. Okay, great. Thanks, guys. Thank you. Our next question comes from the line of Mike Ward with Benchmark, y our line is open. Thanks. Good afternoon everyone? I did just wonder if you could provide a bit more clarity on the walk in the gross per unit coming from Q2 to Q3. We're about halfway through Q3, and so have you seen a significant drop-off already in the gross per unit? Is it just the acquisition cost went up and some of those units matured in from late Q4 into Q1 and now into Q2? Is that what we're seeing? What we have seen. Let's go back a sec. The majority of the units that we sold in Q2 were acquired in Q1, before prices really went up. Right? Okay. Right. For Q2, it was such a windfall of selling high after buying low. Okay. What we see in Q2 to Q3 is a much flatter line and maybe even starting to show some signs of declining prices. We bought at the peak of the market, and now we're selling it still at good price, but clearly not as high a spread as we've seen in Q2. Two things. A, that's why we guided lower, and also that's why we think that it makes sense to look at the two quarters together and do an average, because that's more like our seasonal normal average would indicate. Okay. It's not this big collapse. Basically what we're seeing as we've gone through July and August, we're seeing the transaction prices still remaining on the E-commerce side, remaining elevated north of $20,000, $21,000, $22,000, but the cost of those has come up. You're not seeing a collapse in the market, so to speak, but you're just going with the expectation that basically the maturing process of the purchasing and the selling price differential. Is that a right way to look at it? Yeah, absolutely. You can see market dynamics and prices as well as us, and you can see that there hasn't been any collapse. Right. No, I know. There may be a little depreciation in the wholesale market, less depreciation in the retail market- Right it's not the same windfall as buying it at those prices. We bought stuff in January, February- Right Sold it in Q3. Okay. part of that is just you being conservative as you're looking at the numbers going out because it seems to be changing pretty quickly. That's exactly right. Also just to consider that September is also usually a unique month in the space, because that's usually the time when you start to see seasonality. You have this very strong August, and then a much weaker September from the seasonality perspective. Right. What we try to do, historically speaking, is sell as much inventory as possible in August, go into September with less inventory, and then acquire inventory in September when prices have come down a little bit. You can't sell all your cars because that wouldn't make any sense. You go into September with some inventory that's going to have some GPU pressure. We know that that's normally the case, and so we're managing for that in what we're guiding to for the quarter. I do want to say one other thing, which is not something you can track through publicly available numbers, but I think it's something that is definitely happening in the space, which is that while the list prices for dealers are still remaining very strong, we are noticing anecdotal evidence from consumers that the discounts dealers are offering are beginning to be stronger than they were 30 days or 60 days or 90 days ago. That's an indication to us that you will see some kind of reduction in prices coming into future months. That's another reason why we're being conservative in our assumptions for the second half of the year as far as gross profit. Makes sense. Within SG&A, I think in the first quarter, you had the big marketing spend where you were kind of doubling up. Did it come back down in Q2? Do you have a 2Q marketing expense portion of SG&A? Yeah. Marketing went down from more than $15 million in Q1 to less than $11 million in Q2. $11 million. Clearly, a total dollar decline. Getting back to a more normalized rate. Yeah. Great. If you look at the whole SG&A, you've seen a really nice leverage effect of the increase in revenue, and obviously not as much increase in cost. Perfect. Thank you. Thank you very much. Thank you. Thank you. Our next question comes from the line of Mike Grondahl with Northland Securities, y our line is open. Hi, guys. This is Owen on for Mike. I just have one quick one. In terms of marketing, are there any major updates here or areas you can call out that are resonating with both buyers and sellers? Well, I think it's kind of hard to say more than what we've said in the questions so far, which is that we've reduced our CAC by 46%, which is very much in line with what we had said would be the case. We're seeing really positive momentum in the marketing that we're doing from the consumers, obviously, on both sides. We're really excited about the data that we now have access to and kind of what that's allowing us to see, in terms of what the reaction is. We can't really go into more detail than that, but we think that the marketing campaign is having a really positive impact. I do want to underline one more time that this is not a kind of one or two quarters outcome. This is a multi-quarter investment that you've been making for a long time, because that's how you build brand. We think that doing that will have very positive medium-term and long-term benefits to the business, from customer acquisition perspective and from gross profit perspective. Got it. Thanks for taking my question. Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer, y our line is open. Hi, good afternoon? Hi, Brian. Congratulations on a great quarter. Thank you. A couple of questions, more likely to be follow-ups. First off, just with respect to the market growth we talked a lot about, at what point do the new markets become more of a needle mover from a volume perspective for Shift? I mean, I hear what you're saying now, you continue to have such strength in your existing markets, particularly those in the Western or the West Coast United States. As you push into these new markets more East, if you will, at what point do they really become a matter more in the total volume growth of the company? It's a great question, Brian. Thank you for that. What we're seeing is we see the newest markets, the Texas markets, the Seattle markets, likely to make a bigger difference next year, so in the 2022 timeframe. The reason is we have pursued a strategy that is go deeper in our existing markets over time, which means they're pretty substantial market presence in each of those existing markets. For a new market to catch up to that and make a significant difference, it takes a little while. It doesn't happen in three months. It's more like it takes it about a year or so to start hitting its stride in terms of total volume. That's a different strategy than if we said, hey, we're going to launch 50 markets, and then each new one adds a little bit We've articulated not that strategy, because we wanted to go deeper, get a lot more marketing and brand presence leverage locally, as well as create an ecosystem in our regional strategy, our sort of super regional strategy. That's why we see those markets both incubating for a little longer and becoming part of an interlocking system. We've talked a lot about the interlocking regions that kind of support each other from a brand presence and total inventory point of view. That's very helpful. I appreciate it. Very helpful. The second question, just with respect to marketing and the focus now on brand building. You talked a lot about the shift that happened over the last few quarters, and I think in some prior question you discussed now the lowered marketing dollars Q1 to Q2. As we watch the marketing continue to unfold here, what should we expect? Is it more of the same or will there be over the balance of, say, 2021, will you see new efforts come in that help this branding campaign? I think for right now, the best we can say is that we're going to continue doing what we're doing. I think Toby spoken in the prepared remarks that we believe that over a kind of six to eight-quarter investment, if we do the right investment, we can have some really positive impact on our brand and how much aided awareness we have. that obviously has really tangible implications for our GPU and customer acquisition costs over the long term. I don't think we can say more than that at this point, but we think that at minimum, continuing what we're doing will be very much the case for the next few quarters. Obviously, as our volume grows, the total dollar amount might increase, but we think that the CAC where it is now is in a good place. Got it. Thank you very much, and congrats again. Thank you. I'm not sure any further questions in the queue. I would now like to turn the call back over to George for closing remarks. Great. Well, thank you, everybody, for joining us, and really appreciate your questions. We look forward to speaking to you one-on-one in the coming days. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, y ou may now disconnect.