AUTO1 Group SE (AG1) Earnings Call Transcript

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" Goldman Sachs Group, Inc., Research Division

" Barclays Bank PLC, Research Division

" Deutsche Bank AG, Research Division

" Joh. Berenberg, Gossler & Co. KG, Research Division

Hello. Good afternoon, and good morning and good evening to international participants. Welcome to the AUTO1 Group Third Quarter 2025 Earnings Presentation. I'm Philip Reicherstorfer, Group Treasurer. I'm joined today by Christian Bertermann, our Co-Founder and CEO; as well as Markus Boser, our CFO. I'm also very pleased to welcome Christian Valentine, who will be succeeding Markus and stepping into the role of CFO effective January 1, 2026.  We will start with the presentation followed as always, by questions and answers. [Operator Instructions] Before I hand over to Christian, 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.

Thank you, Philip. Hi, everyone. Welcome to this AUTO1 Group Q3 earnings call. Our business performance in the third quarter has been very strong. We sold 219,000 vehicles. This is a new quarterly record and an increase of 24% year-on-year. Total gross profit surged by 38% year-on-year to EUR 258 million. This is EUR 71 million more than in Q3 of last year. We grew adjusted EBITDA from EUR 34 million in Q3 of '24 to EUR 52 million this year, representing a 51% increase. Our adjusted EBITDA margin increased to 2.4%. That is 30 basis points of increase compared to last year and the highest Q3 margin we ever achieved.  These great results reflect the effectiveness of our strategy, our discipline, and targeted investments in key areas, strong execution, and above all, the dedication of our teams. We are pursuing a value-first strategy across all segments. We are strongly focusing on the drivers that create value for all of our customers. While we have been executing this strategy since our foundation, we constantly take steps forward in understanding our customers' needs, expectations, and priorities even better, resulting in superior demand levels across segments. Value in our business can mean higher selling prices, lower buy prices, lower processing costs, greater selection, greater convenience, highly motivated staff, increased trust, fast and reliable delivery, and competitive financing.  Let's start our deep dive with the merchant performance update for the third quarter. In Q3, we sold 192,000 vehicles to our partner dealers. This is a new all-time quarterly record and represents a 22% year-on-year unit increase. We also generated a record merchant gross profit of EUR 185 million for Q3, increasing by 29% year-on-year. Merchant GPU was EUR 966, a 6% increase compared to Q3 of last year. We sold 550,000 merchant units in the first 9 months of '25. That is 22% more compared to the same period last year.  Gross profit increased by EUR 125 million to EUR 535 million compared to the first 9 months of '24, a 31% increase. 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. For the first time ever, we surpassed 30,000 active merchant buyers, reaching 31,100 in the third quarter, a 22% increase compared to Q3 of last year. Our average basket size per merchant remained stable year-on-year, with each merchant purchasing an average of 6.2 vehicles per quarter. We are very happy with these strong results while we continue to expand our buyer base further.  AUTO1 merchant financing delivered another strong quarter as well. We continued the successful rollout of our financing solution for partner dealers, expanding into Poland in Q3 and most recently, launching Sweden just a few weeks ago. Our merchant financing portfolio grew by 60% year-on-year, increasing from EUR 178 million last year to EUR 284 million for the third quarter. We financed EUR 359 million of merchant sales, a growth of 63% year-on-year, and the number of vehicles financed grew to 33,000 units, a 65% increase compared to Q3 of last year. We continue to be very excited about AUTO1 financing and plan to bring it to even more markets and partners in the future. Our sourcing network expansion continues to go very well.  Two, we opened 42 new branches in the third quarter and closed the quarter with 690 drop-off locations across Europe. Growing our drop-off network increases convenience for our selling customers and increases selection for our partner dealers. Now we will take a look at retail, which had a very strong quarter as well. In the third quarter, our retail business grew strongly in unit sales, in GPU, and in total gross profit. Autohero delivered a record 27,000 units compared to 19,100 in Q3 of last year, an accelerated increase of 42% year-on-year and a reflection of our ambition to build a bigger business faster. We generated the highest ever retail gross profit of EUR 73 million, growing significantly by 68% year-on-year. Retail GPU was EUR 2,664 in Q3, representing an increase of 18% compared to Q3 of last year and setting a new record. Q3 retail GPU was positively impacted by a EUR 2 million one-off benefit.  In the first 9 months, gross profit increased by EUR 76 million to EUR 190 million, and GPU increased by EUR 490 compared to the same period of last year. If you take a look at production, we continue to expand our production center footprint across Europe in the third quarter. We announced 3 new production centers located in Italy, in Austria, and the Netherlands, bringing our total to 12 centers across 10 different markets. With these facilities, our total production capacity has increased by 38%, rising from 179,000 to 248,000 cars per year at full utilization. Collectively, the 3 new facilities span a total of 184,500 square meters and have a combined annual production capacity of 71,500 cars at full utilization.  Our new facility in the Netherlands is already operational, and we expect the locations in Austria and Italy to open before the end of this year. Today, approximately 95% of all Autohero cars are refurbished in our own used car production centers. By operating our own facilities, we maintain full control over every step of the process, which remains a key driver for car quality and optimizing unit economics while we support the continued growth of Autohero.  We are constantly building out our fulfillment network for Autohero across Europe to speed up delivery and increase comfort for our retail customers. We aim to provide our customers with the fastest delivery of their new car at great rates or in many cases, already for free. We aim to build our network in a way that supports this effort as best as possible, supporting pickup or home delivery depending on our customers' preferences. We were able to reduce the average delivery time from just under 12 days in Q3 of last year to 9.5 days this year. That means we delivered 20% faster year-on-year.  Finally, let's take a look at our long-term goals. Our unique vertically integrated business model is providing the foundation for our future growth and margin expansion. We aim to capture a market share of 10% of the European used car transactions in the long run and combine this volume with 5% to 9% of adjusted EBITDA margin, depending on the relative size of the merchant and the retail business. With total units growing 24% year-on-year and EBITDA margin improving by more than 14% quarter-on-quarter to 2.4%, our Q3 results mark an important further step towards both long-term targets. They are also demonstrating first and early returns of the increased investments we made since Q2 of this year. Most of those investments, however, particularly the increased investment into the Autohero brand building, are strategic multi-quarter investments that strengthen our market position and drive long-term value and margin expansion in the future. We expect the full impact of these efforts to become increasingly evident in the quarters and years ahead as our vertically integrated business continues to scale.  I'll now hand over to Markus for a detailed financial update.

Thanks, Christian. Q3 represented yet another record for us in terms of units, and with 219,000 units sold, beat our previous quarterly record by over 7% as well as achieving 24% year-on-year growth on a group-wide basis. It also represents the first time that we broke the EUR 2 billion barrier for revenue achieved in a quarter. We're definitely back in growth mode. We achieved this growth with record group GPUs at EUR 1,176, reflecting the mix effect from the higher GPUs in our retail business, as its higher growth at over 42% in units means it becomes a larger portion of our business. We also incurred EUR 206 million in OpEx to support this growth, resulting in adjusted EBITDA of EUR 51.9 million and a net income of EUR 19.2 million.  If we go through our OpEx quarter-over-quarter, we have been investing to accelerate our growth and increase the moat around our business so that we can grow to a bigger business faster to reap the scale effects once we get there. Gross profit has grown by 38%, the majority of which has been a result of higher units. Over time, higher units also help drive higher GPUs as the more data we receive, the better we can price cars that we see on both the merchant and retail parts of the business. We increased marketing by $7.6 million, of which the overwhelming majority was in Autohero marketing as we invest to create a strong pan-European brand, while the cost of WKDA marketing per purchased car has been steadily declining.  Likewise, we see positive scale effects across both logistics, with only EUR 1.6 million increase, as well as payroll, with $2.2 million in additional costs despite significant quarter-over-quarter and year-over-year growth.  Moving to the balance sheet. We maintain a strong balance sheet, increasing cash with no corporate debt. Total cash increased quarter-over-quarter to $628 million as a result of increased profitability and the public securitization of our consumer loans, which we conducted in September. We continue to build inventory to support our growth, with $879 million at the end of Q3. By way of reminder, 80% of the inventory and its growth is financed through our inventory ABS.  Lastly, we continue to invest in our captive finance assets with quarterly growth of circa $76 million, consisting of $20 million growth in the merchant loan portfolio and $55 million growth in our consumer loan portfolio. The growth in both portfolios are a reflection of the ongoing growth in sales of both our merchant and retail units. In September, we issued our second public securitization, Finance 02 of our consumer portfolio. This was a unique transaction that combined consumer loans from both Germany and Austria, the first-ever public auto ABS combining assets from different countries. This transaction enables us to both increase the loan-to-value on the portfolio as well as achieve a reduction in our net interest margin with a blended spread of 87 basis points. This transaction further represents significant validation of the quality of our consumer loan -- consumer finance portfolio.  Lastly, we come to guidance. We are increasing our expectation for merchant units from 680,000 to 720,000 to 715,000 to 745,000 units for 2025, representing 19% year-on-year growth at the midpoint, and our expectations of Autohero units from 92,000 to 97,000 units to 96,000 to 100,000 units for the full year, representing 32% year-on-year growth at the midpoint. Together, this results in 811,000 to 845,000 units for the group. We expect that we can maintain this increased growth in retail at a GPU of around 2,500 as Q3 retail GP had a small one-off effect. With respect to merchant GPU, while we continue to be confident in the long-term upside, our 2025 guidance assumes it will be around 950 for Q4. Together, this leads to increase our gross profit range to $940 million to $975 million, up from $890 million to $940 million, our previous guidance. We believe that we will continue our current level of OpEx spend, resulting in an adjusted EBITDA guidance of $180 million to $195 million for the full year, up from $160 million to $190 million guided previously.  As I've mentioned previously, Q4 is generally the quarter with the highest volatility as dealers tend to slow down their purchases as we approach the end of the year, the extent of which is hard to predict. While we normally make no comment on the forward year until we are in that year, I'd like to make a few comments to frame our thinking for 2026 in light of the extraordinary growth that we've achieved and our previous commentary. Last year at this time, we believe that merchant would grow in the high single digits. And clearly, we've been able to outachieve this. We believe that we can continue to grow merchant in the low to mid-teens over the next year while achieving marginal improvements in GPU year-over-year.  In Autohero, we aim to achieve 25% to 30% growth next year on our updated 2025 guidance, reflecting the strong growth and progress that we're achieving this year as well as ongoing marginal improvements in GPU. With respect to OpEx, our baseline assumption is that our OpEx per unit will be similar to the circa EUR 940 per unit we achieved in Q2 and Q3, but this may edge higher if we achieve much higher Autohero growth than mentioned. We see an incredible underexploited opportunity in front of us and believe these increased investments, primarily in Autohero marketing, will enable us to achieve our long-term 5% to 9% EBITDA margin expectations as we scale to Autohero faster, enabling us to reach the scale benefits in logistics, tech invest, branding, procurement, and operations.  In the meantime, we will compensate this additional investment through higher profitable merchant unit growth so that overall, we believe that we can maintain the current consensus adjusted EBITDA expectations for 2026.  Before we move into the Q&A session, I'd like to take a moment to share a few personal reflections. As you know, this will be my final earnings call as CFO of AUTO1 Group, as I will be stepping down at the end of the year after 10 truly memorable years. It's been an extraordinary journey from our early days as a start-up to becoming a publicly listed company and building a business that is not only financially robust but also incredibly positioned for sustainable, profitable growth in a huge market. I'm deeply grateful for the trust and support I've received from Christian, Hakan, our Supervisory Board, our customers, partners, the entire AUTO1 Group team, and all of you on this call. Thank you for your collaboration and partnership throughout my tenure. Starting January 1, Christian Valentin will be stepping in as CFO. Since early October, we've been working together closely to ensure a seamless transition.  Christian brings a wealth of financing experience to the team, and I'm genuinely excited to watch both Christians lead AUTO1 Group into its next chapter. Christian Valentin joins us on the call today, and I would now like to hand it over to him for a brief introduction.

Thank you very much, Markus. Hi, everyone. It's a pleasure to join you on this call. I'm truly excited to be part of AUTO1 Group's Management Board and to take up the role of CFO at the beginning of next year. Working alongside Markus and Christian in the past few weeks have only reinforced my enthusiasm for this opportunity. I'm very much impressed by the disciplined forward-thinking way the business is managed, and I'm most importantly, very thrilled by the significant opportunities that lie ahead. With over 20 years of experience in banking and finance, I look forward to contributing to AUTO1's journey and driving growth and profitability together with Christian and the entire team.  With that, we are very happy to open now the floor for your questions.

[Operator Instructions] Our next question will come from James Tate.

It's James State from Goldman. I've got 2 questions, please. I guess, firstly, you touched upon the strategic shift towards growth over the past couple of quarters, and you've already started to deliver an acceleration in units growth. And the color on next year is very helpful. So you commented on total group OpEx per unit sold being at the same level as Q3. But I guess within the mix, how should we think about Auto segment profitability specifically? Do you expect Autohero EBITDA loss per car to stay stable at current levels or perhaps slightly worsen into next year as you increase reinvestment? And then secondly, on inventory, I noticed that grew EUR 60 million quarter-on-quarter. Could you give some color on which segment drove this growth? Was it more skewed to Autohero merchant? And then last year, you flagged that you're particularly aggressive in purchasing and building inventory in Q4. So should we expect a similar strategy this year?

Marcus, do you want to go ahead on the segment profit--

So as we've talked about in the past, Autohero on an adjusted EBITDA or segment basis is still a loss-making segment. Having said that, we believe that overall, those losses are relatively small in light of the growth opportunity in front of us. We also see improving unit economics, except in marketing, where we continue to invest precisely because we want to grow that business. And really, as we talked about, accelerate the growth of that business as we've been able to do so far. I think going forward, I would say, overall, I think a lot of those improvements in overall unit economics, I think we would expect to continue, which is, I think, why we're happy to have the existing OpEx cost per unit delivered to remain the same even as we grow and have basically kind of given accelerated growth.  So I think I don't see that dramatically changing. Obviously, the more scale we get, I think the improvements we're going to continue to see and certainly want to see them because we really want to kind of get to the point where we have the scale where we start really seeing dramatic improvements across brand data, ability to use AI, a lot of the logistics items that we've talked about that we can really get the benefit of scale. So we want to invest now so we can see an expansion and an improvement in those unit economics in the coming years. But I think 2026 is going to be one where we're going to see sort of steady OpEx per unit as we've seen for the past 2 quarters.  I think your second question on inventory. I would say the growth that we've seen kind of into Q2 into Q3 has been more on the retail side than on the merchant side. I think we generally only -- we kind of -- in the half-year report and full year report is I think where you got a full breakdown of it. I think in Q3, we tend not to. But we've really seen as we continue to invest in retail and retail obviously has longer days outstanding, we're growing that relative to merchant much more. I think there was a third question on Q4. Maybe Christian, you want to talk about our Q4 strategy.

Yes. In general, I would say we will follow James, like a similar strategy. I think inventory in merchant is in great shape, especially if we look at the trajectory from Q2 to Q3. And then in retail, we're building up selection for further growth because that needs to go hand-in-hand with this elevated brand build-out and elevated kind of session -- visitor session growth that we see in Autohero. And now over to Joe Barnet-Lamb from UBS. I think he had a couple of questions. One was how we should think about merchant GPU into Q4 and then into 2026. And then he wanted to know in merchant, he said the upper end of the merchant guidance implies 21% year-over-year growth in merchant cars in 2025? And can we share any color about 2026? Can we deliver double-digit growth in 2026? And then also a question on Autohero GPU, given that we are already at almost EUR 2,700, do we still think that the long-term guidance of EUR 3,000 GPU in Autohero holds?

Yes. Maybe I'll take those. I mean I think my prepared remarks answered all those questions. I would hope so. But -- so I would simply repeat. I think for Q4, we are expecting around about the EUR 950 as we talked about for merchant GPU. I talked about Q4 is always a very volatile quarter because of the kind of dealer behavior as we go into the end of the year. And likewise, we would expect some improvements of that into next year. So I think some -- but more marginal kind of improvements as we go into next year.  Likewise, can we deliver double-digit growth in merchant? I think, again, I talked about low to mid-teens growth in the merchant business for next year, and believe, yes, we can do that while having some improvement in merchant GPU. Lastly, I think on to our -- if I understood the last question, our long-term guidance of 3,000 very much still holds. Again, as we talked about, I think, into 2026, I believe that we can continue to see marginal improvements in Autohero GPU. But I think all the drivers that we have talked about in the past around really speeding up sales, faster turns, again, more finance, reduced costs, I think all still stand. And I think we feel very comfortable with the EUR 3,000 GPU that we can achieve that.

And with that, Andrew Ross from Barclays.