AUTO1 Group SE (AG1) Earnings Call Transcript

Good morning, Hello, and good afternoon, good morning and good evening to international participants. Welcome to the AUTO1 Group Second Quarter 2026 Results Presentation. I'm Philip Reicherstorfer, Group Treasurer. I'm joined today by Christian Bertermann, our Co-Founder and CEO; as well as Christian Wallentin, our CFO. As always, we will start with the presentation followed by a question-and-answer session. [Operator Instructions] Before I hand over, I must make you aware of the safe harbor provisions at the beginning of the presentation here. These will apply to any forward-looking statements made by management today. And now over to you, Christian.

Hi, everyone. Thank you, Philip. Welcome to the AUTO1 Group Second Quarter Earnings Call. Our second quarter results were very strong. We delivered increasing operating leverage across the business at scale. We sold 240,000 units at the group level. This is up 20% year-on-year. Total gross profit reached EUR 281 million, an increase of 21% compared to Q2 of last year. And we grew adjusted EBITDA from EUR 42 million in Q2 '25 to EUR 59 million this year, representing an outstanding 38% increase. Our adjusted EBITDA margin climbed to 2.4%. This is 30 basis points higher than last year and the highest Q2 margin we ever achieved. These great results continue to demonstrate the strength of our value-first strategy and the structural advantages of our vertically integrated business model that we laid out in detail at our Capital Markets event back in June. This is our first quarterly trading update since our CME. So alongside our Q2 results, we have also disclosed the adjusted EBITDA on segment level for the last 4 quarters in this presentation to give everyone a complete set of quarterly profitability data. Let's start with a deep dive into Merchant performance and segment financials. We sold 207,000 cars to our partner dealers in Q2. This is a new Q2 record and represents a 17% year-on-year unit increase. Merchant gross profit grew to EUR 198 million for Q2, increasing by 17% compared to the previous year. Merchant GPU was EUR 959 for the quarter, stable versus EUR 961 million in Q2 of last year. Merchant adjusted EBITDA surged to EUR 67 million in the second quarter, a new quarterly record. This is EUR 14 million or 28% more compared to Q2 of last year. Adjusted EBITDA margin increased by 30 basis points to 3.7% in Q2 for merchant. The strong growth in our Merchant segment is driven by constantly rising demand for our B2B offering. This momentum is reflected in yet another record-breaking quarter for the number of merchants buying on AUTO1.com. Our network of active buying partners across Europe reached 36,300 dealers in the second quarter, a 22% increase compared to Q2 of last year. As we continue to expand our buyer base, the average basket is slightly down year-on-year, driven by the strong growth of new dealers. Unit demand per dealer is generally increasing when the dealer cohort ages in time as we also laid out in our Capital Markets event. Our merchant financing portfolio continues to perform well, growing by 20% year-on-year from EUR 264 million last year to EUR 317 million in the second quarter. We provide eligible partners with an instant credit line integrated directly into our platform. This allows them to finance vehicles with just one click and enables our partners to grow their business significantly with our Floor plan financing solution. We financed EUR 370 million of Merchant sales, a growth of 13% year-on-year. The number of vehicles financed increased to 33,000 units, a 14% increase compared to Q2 of last year. Overall, we are very happy with the performance of our Merchant segment in the second quarter. We outperformed our long-term unit growth corridor of 10% to 15% by growing 17.1% year-over-year. We slightly increased Merchant GPU quarter-over-quarter, which is a very good result considering the following factors. Q2 seasonality generally puts a small drag on to margins created by an accumulation of holidays during Q2. Macro continued to have a limited but controlled impact on Merchant in Q2. Our results could have been even better in a more stable environment. We invested into a number of initiatives over the course of H1 with a shared goal of speeding up our trading. These initiatives have been resulting in a short-term GPU drag. We have completed the majority of those investments in H1 and hence are expecting a sequential GPU increase for Merchant in H2, combined with higher capital efficiency already visible today and significantly reduced inventory levels. We expect to grow inventory from its new base today in line with future unit growth rates. This means that the strong Q2 performance on profitability was primarily driven by disciplined cost management. We lowered our SG&A per unit to EUR 633, a 4.4% decrease compared to Q2 of last year, reflecting economies of scale in our purchasing organization and overhead. Marketing cost per unit were roughly stable quarter-over-quarter. Overall, we are progressing well towards the Merchant milestone targets with Q2 SG&A just EUR 8 million ahead of the SG&A milestone target. Our goal is to keep that level for Q3 and combine it with a sequential increase on GPU as we expect short-term GPU headwinds to moderate down. Now let's switch to Retail segment results and financials. Autohero is our consumer growth engine, and we are still barely scratching the surface of its massive long-term opportunity. The structural advantages of our vertically integrated model, including sourcing, pricing, our physical infrastructure and financing continue to compound as retail scales. This is clearly visible in our strong Q2 results. We sold 33,400 vehicles to customers. This is 40% growth compared to Q2 '25 and a testament to the increasing traction of our Autohero brand. Retail gross profit reached EUR 82 million, a 34% increase year-on-year. Retail GPU was EUR 2,503 for the second quarter, a strong result in light of the outstanding unit growth in Q2. Adjusted EBITDA margin of the Retail segment improved significantly compared to Q2 of last year by 1 percentage point from negative 2.5% to negative 1.5% this year, demonstrating operating leverage by managing our cost base more and more efficiently. We remain fully focused on establishing Autohero as the leading used car brand in the European market. The Autohero brand is at the core of our vertically integrated model, setting the standard for a superior way to buy, sell and finance a car. This brings customers peace of mind while serving as a durable engine for demand as brand equity continues to strengthen. At the end of Q2, aided brand awareness reached 36% across all our markets. That is a new high and an 8 percentage point increase year-over-year. While increasing brand recognition remains a strong driver of demand, the speed and convenience with which we deliver our vehicles to customers is equally important. Our average delivery time currently stands at just over 10 days and ensuring a seamless end-to-end delivery experience remains a top priority as it underpins our best-in-class customer journey. Zooming out a bit, we are very happy with the retail set of results for the last quarter. We kept growing slightly north of the high end of our long-term growth corridor. We realized that growth while keeping Retail GPU almost flat year-on-year and quarter-on-quarter. We are happy with Retail GPU given that there have been a number of short-term headwinds to it. As laid out in the CME, every 10% of additional growth means a roughly EUR 100 short-term headwind to unit economics, partially affecting GPU. Similar to Merchant, Q2 seasonality generally puts a small drag on to margins created by an accumulation of holidays during Q2. Macro continued to have a limited but controlled impact on Retail GPU in Q2. Our results could have been even better in a more stable environment. We invested into a number of initiatives over the course of H1 with a common goal of speeding up our retail trading and unlocking a bigger step-up in Retail GPUs going forward. These investments into those initiatives have been resulting in a short-term GPU drag. We have completed the majority of those investments in H1 and hence, are expecting a sequential GPU increase for Retail in H2, combined with higher capital efficiency, again, already visible today and significantly reduced inventory levels. We expect to grow inventory from its new base today in line with future unit growth rates. With Retail GPU being flat year-on-year, the EUR 170 improvement on adjusted EBITDA per unit is primarily driven by the EUR 207 improvement of SG&A, demonstrating operating leverage in retail for Q2. We continue to invest strongly into the Autohero brand with marketing cost per unit of EUR 884 as we are laser-focused on building the leading European used car brand. At the same time, our adjusted EBITDA loss per unit improved significantly from EUR 436 last year to EUR 266 in Q2. Now let me sum up with a short walk-through of our vertical integration strategy, the basis for reaching our milestone and long-term segment targets. For more than a decade, we have invested the leading vertically integrated pan-European used car platform with one objective, maximizing value for everyone in this market. Our investments are focused on key areas, including our AI pricing technology, our unique logistics network, our dense drop-off and pickup network, highly efficient production centers and comprehensive financing facilities. Together, these capabilities form the backbone of our vertically integrated business model. They shape how we think and how we make decisions at every level of the business. We apply our value first strategy across all our segments, relentlessly focusing on the levers that create value for our customers. While we have executed this approach since day 1, we're continuously sharpening our understanding of what our customers want and expect. In our business, value can take many forms, higher selling prices, lower buying prices, reduced processing costs, greater selection and convenience, highly motivated staff, increased trust, faster and more reliable delivery or competitive financing. It is this thinking applied at scale that underpins the ambitious long-term targets we have set. We're highly motivated to continue our journey of capturing the massive opportunity in the European used car market as we progress towards 10% market share. Let me now hand over to Christian Wallentin, who will give you a detailed financial update.

Thank you, Christian, and hi, everyone. Q2 was another quarter of strong growth with further operating leverage in the business. The key message overall is that we saw volume, pricing and cost discipline compounded into a strong 38% adjusted EBITDA growth year-over-year. We sold roughly 240,000 units, up 20% year-on-year. Revenue grew even faster than volume to EUR 2.4 billion for the quarter, up 23%. Gross profit was EUR 281 million, up 21% at a group GPU of EUR 1,174. Operating expenses were EUR 222 million, that is 18% growth against 21% gross profit growth. This demonstrates our disciplined cost management and the operating leverage of the business. Adjusted EBITDA was EUR 58.6 million, up 38% year-on-year at a margin of 2.4%. That is 30 basis points better than Q2 last year and the strongest second quarter margin we have ever delivered. Overall, we pay very close attention to the capital deployed in our business, and we have changed the presentation here so that you can separate total assets from the parts we fund ourselves. Starting with how we think about these facilities. We view our ABS structures across inventory, consumer finance and Merchant finance as evergreen working capital financing. We grow them with the asset base and reduce them only when the assets reduce. This quarter, the inventory closed at EUR 803 million. Given the improvement in trading speed that Christian described, we reduced total inventory by EUR 252 million or 24%, and we reduced the linked inventory ABS draws by EUR 225 million as a consequence. This means that we funded only EUR 111 million of EUR 803 million of inventory ourselves, leading to a cash release in the quarter. Consumer Finance, total assets grew to EUR 700 million, of which EUR 576 million was externally funded. Both the ABS funded portion and our own portion increased. Our own funding was EUR 124 million. I want to flag one point of timing here. With the closing of FinanceHero 3 imminent at quarter end, there was no reason to optimize ABS consumer funding in the final days of June. For Merchant Finance, the portfolio reduced slightly to EUR 317 million, of which EUR 259 million was ABS funded. The reduction is mainly faster repayment by our Merchant partners, which we read as a positive signal on the health of the dealer market. We optimized funding nonetheless, taking our own funded portion down to EUR 58 million. Taken all together, we carried EUR 1.8 billion of assets across the 3 pools and funded 84% of that externally and without recourse. This demonstrates our approach to utilizing our ABS structures as a key driver in keeping our business capital-light and efficient as we continue to scale. We had no corporate debt during Q2. This page is our self-funded growth model working in practice. Capital-light funded from the cash we generate, becoming more profitable as we scale. To be precise on what that means, the assets are largely funded externally, as I've just described. But the business funds itself is the growth from the cash we generate with no external funding raised. On the left-hand side, you can see that we generated EUR 24 million of cash in the quarter, taking total cash to EUR 676 million. On the right-hand side, we have outlined the AUTO1 cash flow we use to assess business performance and cash flows. This is aligned with the view we've set out at the Capital Markets event that we publish every quarter on our web page. It shows the earnings generation of the business and our net investments into our 3 asset pools: Inventory, Consumer finance and Merchant finance. Under IFRS, the gross asset change sits in operating cash flow and separately, the ABS funding and financing cash flow. These facilities are working capital in character, the assets and the funding move together. So we manage them that way, and we present them that way on this page. The bridge itself is straightforward. Adjusted EBITDA contributed EUR 59 million. Cash items below the adjusted EBITDA line, for example, capital expenditure, tax and general working capital changes were an outflow of EUR 29 million. The changes across our 3 funded asset pools used EUR 6 million net with the inventory reduction releasing cash and the consumer loan book absorbing it. That takes us to the EUR 24 million of cash generated in the quarter. As I indicated earlier, the consumer finance outflow was a timing effect. It has unwound with the closing of FinanceHero 3 after the quarter close. In early July, we priced our third public ABS transaction, FinanceHero 3. The transaction backed by German and Austrian consumer car loans originated by Autohero was met with very strong demand. What makes this transaction particularly significant is the evolution of our structure. For the first time, we introduced a 6-tranche capital structure, and we adopted vertical risk retention, which means holding 5% across every tranche and then refinancing the retention through a repo facility. The effect is that we now retain 1% effective cash contribution. At the Capital Markets event, we said vertical risk retention should take that to an average of 1% to 2% in our public ABS structures over time. FinanceHero 3 lands at the bottom of that range at the first issuance under this new structure. Now to full year guidance. The first half of the year has developed as we planned, strong unit growth and cost discipline. On that basis, we're confirming our full year guidance across all metrics. We're targeting the top end of our ranges. We expect Merchant units in the range of 815,000 to 865,000. We expect for Autohero units, we expect 125,000 to 135,000 units. We, therefore, expect 940,000 to 1 million total units. We expect gross profit of EUR 1.1 billion to EUR 1.2 billion -- based on continued strong SG&A management, we expect adjusted EBITDA of EUR 250 million to EUR 275 million. In Merchant, we expect sequential improvement in GPU driven by faster trading speed, combined with unit growth at the top end of our 10% to 15% growth corridor for the second half of 2026. In Autohero, our focus for the remaining part of the year will be on continued growth and increased GPU levels, moving faster towards a milestone profitability target. During the second half, we're likely to see year-on-year growth for Retail in the 20% to 30% range of our long-term growth corridor. We have exercised strong cost discipline in the first half of 2026 and expect to continue to operate at current levels of SG&A per unit for the rest of the year. Putting these strong performance parameters together, we expect to complete the year towards the top end of the guidance ranges. To wrap up the presentation, Q2 was another quarter of strong growth, cost discipline and profitability. We also materially increased our trading speed. As outlined, we expect it to come through on GPU increases in the second half of the year. Our vertically integrated business model continues to deliver a highly differentiated customer offering, driving operating leverage while steadily progressing towards our long-term targets. With that, I'd like to open up now for questions.

Before we begin the Q&A portion of today's call, I'd like to go over a few technical points. [Operator Instructions].

Philip,I think you are on mute.

Sorry, Thank you. Sorry about that. Thank you for that. I was going to actually start with 2 questions from [ Joseph Barnet-Lamb ] at UBS, which she e-mailed to me, and then we'll go into the general Q&A session. So the first question is, clearly, there's a trade-off between GPU and growth. But at the same time, the new inventory management system seems to be structurally set to aid GPU. At a given level of growth, how many euros on GPU is the new inventory management system worth versus the old?

Yes. Thank you for the first question. I mean, as you outlined in this written question,[ Joe ], I mean, it is a constant trade-off between the 20% to 40% growth corridor that we laid out and the GPU track that were onwards. We cannot quantify the exact GPU lift or -- I mean, we will not comment on it. I think we could, but we will not comment on it. But yes, it works in that sense, negatively correlated, right? So there's this headwind that we laid out on the CME, like growing faster just makes us invest up, makes us invest into more inventory into production capacity, et cetera, that is roughly quantified at overall unit economics of EUR 100 for every 10% growth. But yes, then we are expecting a faster track on the GPU going forward when having now reconfigured with the new trading system. So -- and then an important point is we are sticking also when we are looking at the year-end guidance and the Autohero unit growth expectation that we have for the year. We're landing pretty much at the high end of the growth corridor that we just outlined. We outlined 20% to 40%. And then we're going to hit somewhere close between 130,000 and 135,000 units, and we're going to be at the high end of that growth corridor for the full year, while we are now concentrating on GPU improvements to be -- to create a good track towards the GPU milestone target that we outlined. And the H2 reduction in growth where we're expecting 20% to 30% from the 40% does not mean that we are in any way stepping back from the growth corridor that we just outlined on the CME. So the 20% to 40%, they stand for the years to come. We will be targeting the high end of that, but we will balance it versus the profitability improvement track because we want to create Autohero as a much more profitable business going forward. And overall, we can say that with respect to Retail, everything is going according to plan.

Thank you, Christian. That actually also answered the second question, which was whether we could get back towards the upper half of that growth corridor in 2027.

Yes, totally. I mean, totally. In order to speed up the trading, we invested into a number of these initiatives, one being the new trading algorithm that we're rolling out. We're rolling that out, obviously, not from 0 to 100% day on day, right? Like we're phasing it in. We're seeing -- we're managing, we're tracking it carefully that it does exactly what it does. And that's why there's a certain transition time. The first effect that you will see is lower inventory. This is what we're seeing right now. The second effect that we will see is faster turn speeds that are then ultimately realizing higher GPUs. And this is something that, yes, we are expecting to see for Q3. And so far, I can only say that the start of Q3 has been good.

Good. Great. So with that then, I think we have a few questions from Marcus Diebel at JPMorgan.

If you can just go back to the inventory, Christian, I understand, obviously, there are a lot of improvements, but is that really the story of a 24% decline in the inventory? If you can just elaborate a little bit more and maybe help us to understand whether we are now at a sort of like stabilizing level going into Q3. It would be helpful maybe related to this, you obviously put out Slide 18, which is very helpful. The AUTO1 funded inventory went from EUR 138 million to EUR 111 -- is that then just slightly the working capital effect on inventory, just to understand that better. And then next to inventory, a second question. Obviously, you spend more on marketing, which clearly is fine. What some data should suggest that paid search is getting much more in focus over organic search, A, is that right? Would you say that you focus a lot more on this and the share of paid search goes up in the mix? And if so, why is that the case given that you obviously spend more and more on brand advertising, TV adverts and so on?

Yes. No, I think very good question. Thank you, Marcus. So yes, on the inventory, I think we covered a lot of the -- like the Autohero dynamic with respect to GPU from the inventory we have now. I see, I think very much see the low point of the inventory. And from here on, we're expecting it to grow in line with the unit growth levels. So yes, in that sense, I think the best assumption is to assume like a linear growth from here where we build it up. So the system that we have now carefully rolled out over the course of H1, changes the mix and the profitability and the incoming profitability of the cars and different clusters that we are buying. In that sense, it's very much effective on selection, and it requires fast return speeds. And yes, we are seeing that effect, yes, very good effect in my point of view on the absolute inventory, but you can now then assume going forward that we will grow this in line with units/revenue. Does this answer your question? Or do you have any?

Yes. Yes.

So Low point inventory.

That's how we think about it. And then Christian on Slide 18.

Yes. No, we do think about this as working capital of the business. So the inventory is -- when it shrinks, then it releases cash. Normally, clearly, going forward, we will expect to invest the margin on this, so the net funded based on this. And clearly, we have a large facility to support that growth when we've reset the trading speeds.

Yes. Just to understand, obviously, lower inventory obviously means cash inflow, but it would be just on the EUR 138 million minus EUR 111 million -- so just a smaller effect, just to understand it.

Yes. There's some allowances in there as well. So it's not all cash. So there's slight deviation between cash and the balance sheet items as well.

You're right. So the delta is like we funded EUR 138 million in Q1, and now this number stands at EUR 111 million. So the delta is what we have received as cash, correct?

Yes. I mean just subject to, as Christian said, there's obviously always some allowance movements which are already in the P&L, which are reflected in the adjusted EBITDA portion of the cash flow and then not in the net funding position, but that's kind of...