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Shift Technologies Inc. (SFT) Q4 2020 Earnings Call Transcript

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SFT earnings call for the period ending December 31, 2020.

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Shift Technologies Inc. (SFT 1.00%)
Q4 2020 Earnings Call
Mar 08, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Shift fourth-quarter and 2020 earnings conference call. [Operator instructions] I would now like to hand the conference to your speaker today, Henry Bird, vice president of strategy and finance. Please go ahead, sir.

Henry Bird -- Vice President of Strategy and Finance

Good afternoon and welcome to the Shift Technologies fourth-quarter and full-year 2020 earnings Call. Joining me on the call today are co-CEOs, George Arison and Toby Russell; and CFO, Cindy Hanford. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold. And 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 statements. 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 this call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials.

With that said, I will now turn the call over to George.

George Arison -- Co-Chief Executive Officer

Good afternoon, everyone. Thank you for joining us today. 2020 was an unusual year for everyone, corporations, employees and consumers. The pandemic disrupted our lives and was particularly challenging for those working on the frontline like Shift operational team members.

At the same time, the pandemic accelerated the economist digital transformation. Shift's online solution for buying and selling used cars was well positioned to continue serving customers when many others could not. While this period has been hard for everyone, the last 12 months has made me confident that this digital adoption in the used car market is here to stay, and we believe that Shift is uniquely positioned to thrive in the years to come. In the fourth quarter, we delivered meaningful growth, not only on our top line, but also internally as a company.

In 2020, we prioritized top line while investing to improve the business in alignment with our strategic growth objectives. We grew because we pinpointed where we can do better. 2021 will also be a high-growth year, and we are acutely focused on execution. Ultimately, we believe we laid a foundation for strong results, both in the near and long term, which is reflected in our guidance for Q1 and full-year 2021.

I want to thank everyone who contributed to making 2020 the milestone year that it was for the company. The way our business has adopted and grown makes me more excited than ever about the opportunities lie ahead as we embark on another record-breaking year for Shift. With that, I'll hand the call over to Toby to provide a detailed update on our Q4 performance and 2020 performance.

Toby Russell -- Co-Chief Executive Officer

Thank you, George and hello, everyone. Through the many challenges of 2020, we at Shift found opportunities to grow our business and create shareholder value. In October, we completed our merger with Insurance Acquisition Corp. In connection with which, we started trading as a public company.

At that time, we outlined our three core drivers of growth which are to increase penetration in our existing markets, expand our business to new markets and grow our ancillary product offerings to provide the additional support our customers expect while enhancing our revenue and margins. In Q4, we made progress on each of these growth drivers. While strategic and tactical actions we took have set the business up toward significant growth and success in 2021 and beyond. In many respects, the fourth quarter was a record-setting period for the company.

We set new records for both units sold and revenue, selling 4,666 total used cars and earning $73.4 million in revenue, representing 147% and 168% year-over-year growth, respectively. It was also the first time in our history where we've grown the business sequentially from the third quarter to the fourth quarter, overcoming the negative seasonal effects we typically experience at this time of year. That said, the quarter had challenges. Some we anticipated, others we did not, primarily impacted our unit gross profit.

As indicated on our third-quarter earnings call, we expected our fourth-quarter results to be impacted by our significant use of third-party reconditioning during Q3 and slightly less in Q4 as we work to increase and maintain our sellable inventory levels following COVID lockdown and Q2 furloughs. Throughout the second half of 2020, while we were very successful in acquiring and growing total inventory, our sellable inventory remained well below target levels since mid-summer. All in, our adjusted GPU came to $514 for the quarter, below our expected range. Reconditioning costs and the short-term trade-off we were willing to make in our Q4 pricing strategy to attract customers and grow the Shift brand despite lower than desired sellable inventory were the primary drivers, along with a few other dynamics that Cindy will discuss in a few minutes.

There were three core drivers of GPU that were focus areas for operational improvement in Q4 that I'd like to discuss. The first operational focus of Q4 was to improve reconditioning. This has paid off very quickly. Our reconditioning throughput has increased dramatically and the benefits of that will be reflected in our Q1 GPU guidance that I will speak about shortly.

We have steadily and dramatically reduced our use of third-party reconditioning in favor of our in-house capabilities. By January 2021, we returned to pre-COVID utilization levels where only 15% of our vehicles were processed using external reconditioning as compared to a peak of 45% in August and September. The remaining 15% of external reconditioning consists of inventory in new markets for which we use sublet reconditioning as well as certain specialty mechanical repairs on an interim basis as we build our reconditioning function in those markets. We've been able to accomplish this because our hiring of reconditioning technicians has accelerated, and we achieved the headcount targets required to be fully in-house in our core markets in January, months ahead of schedule.

In addition, we brought on new reconditioning leadership that drove significant operational efficiencies, including changes in our processing flows, scheduling and production time management, which has dramatically improved our performance. As a result, we've seen dramatic week-over-week improvements in our in-house reconditioning capacity and steady cost reductions. While in October 2020, we were processing 250 cars a week in-house. By the middle of Q1, 2021, we are processing over 500 cars per week, and we expect to continue to grow our capabilities.

These reconditioning changes will continue to benefit Shift throughout the year and for the long-term as we continue to execute on our aggressive growth trajectory. We believe there are significant efficiencies to be had in reconditioning in the future and are excited to see those coming into place. We should note that as we launch our own reconditioning capabilities in new markets, they are frequently not fully efficient while the market grows, which can impact early profitability metrics. As a reminder, our model assumes a temporary GPU headwind from new market launches while we scale, build, optimize our reconditioning operations in those regions.

Our experiences with reconditioning in 2020 further demonstrates that having in-house reconditioning capabilities is a key differentiator to success for automotive e-commerce and doing so through our Hub approach has strategic advantages. The second operational focus of Q4 was growing our sellable inventory. By early December, when we had greater confidence in our reconditioning operations ability to process more cars in-house, we started to invest significantly in accelerating our vehicle acquisitions. The goal of this was to exit the low sellable inventory position we had been in since initial COVID restrictions were lifted in the summer of 2020.

We have increased sellable inventory 148% from the beginning of December to the beginning of March. The number of units we acquired in December was double the monthly average for the first nine months of the year. While driving such rapid acquisition of cars in December required a higher marketing expenditure, targeted at consumer car sellers, we believe this investment will pay off significantly in 2021. In Q3 2020, our days to sell inclusive of time spent and reconditioning was very low at 37 days.

And while it was slightly longer in Q4 at 43 days, it was still faster than our ideal. We remain very focused on striking the optimal balance of speed of sale and maximizing GPU. Now that our sellable inventory position is more in line with what we need and sets us up for strong growth in 2021, we expect days to sell to be in the 48 to 58-day range throughout the year. With a higher sellable inventory base, we can list cars at their optimal prices, which has improved and will continue to improve our front-end margins.

The third operational focus area in Q4 was growth in other revenue, which remains a key long-term strategic priority to meaningfully increase our profitability. In the fourth quarter, we grew other revenue more than 300% as we continue to increase our attach rates of ancillary products to our sales. We continue to invest in these offerings, including F&I solutions, to improve monetization per unit over time, increasing attach rate and driving gross margin expansion. We are very confident in our ability to continue to drive improvements in this space.

The $791 per unit of F&I, we are reporting in Q4 is a meaningful improvement and represents 65% year-over-year growth, but there is still tremendous upside to be had here. And we remain very excited about the opportunity we're seeing. Through all the ups and downs of the fourth quarter, we exited the year in a position of strength. And in real time, we are witnessing the investments we made in 2020, bear fruit and our 2021 performance so far.

We are intent on communicating to the market what we feel are achievable objectives. I will provide a high-level view on our expectations for revenue and adjusted GPU on Q1, while Cindy will discuss details for both Q1 as well as the full-year guidance in a few minutes. For the first-quarter 2021, we expect total revenue of $90 million to $95 million, which represents three times the revenue we did in Q1 2020 at 24% growth from Q4 2020. On the adjusted GPU side, we expect to be in the range of $1,200 to $1,350, a more than 2x improvement over Q4 2020.

As I mentioned, Cindy will later provide more detail on guidance for the quarter, including expected adjusted EBITDA for the quarter and how this fits within the context of our full-year expectations. In addition to the improvements to GPU drivers, we also made important progress in other key areas, with a very significant impact on our business in 2021 and for years to come. As we've said since last summer, building brand awareness is key for both growing our presence in existing markets and laying a strong foundation for new market expansion. It is also highly cost-efficient and delivers a lasting ROI compared to the alternative of digital marketing.

In Q4, we initiated this major transition in our marketing strategy. We began by setting up several test cells and deployed our creative brand assets through various channels in several California markets, including a multi-touch brand awareness strategy in Sacramento as a test sale. The results of our tests enabled us to make critical strategic decisions about how to get the most leverage from our marketing investments. For example, in our Sacramento test, we found that our CAC in Q4 was about 50% lower compared to the blended average across all markets and the market unit growth rate over the quarter outpaced Shifts' total.

As a result of our successful testing, we've begun deploying our new strategy, highly concentrated on investing in brand awareness, including a national TV campaign that we are seeing resonates with customers and will build our brand for the long term. While we expect our investments today to pay off in the long term, we've already seen very positive early indications for where we are heading. Website visits and leads have seen a meaningful uptick since we launched our new strategy. We are creating non-perishable brand impressions that are going to carry forward and benefit us throughout 2021 and beyond.

We do expect total CAC to remain high in Q1 as this is a transitional period for us, but we see a clear path to shedding a significant portion of the expensive digital media as brand awareness grows, bringing down CAC over the course of the year. Shift's platform is also well positioned to support a national brand awareness campaign, while the majority of our sales include an at-home test drive, which we believe continues to be a major differentiator of our e-commerce product offering. Our direct-to-consumer sales channel, whereby consumers fully transact online without a test drive, has grown substantially over the course of 2020. Despite our hubs today being concentrated on the West Coast, we have delivered cars into 41 states plus district of Columbia.

This has been a core advantage of our omnichannel fulfillment model. While we remain focused on growth in our core markets, and we think that our core markets will be the primary beneficiary of our new marketing strategy. We also believe our product is well positioned to provide additional leverage as we build a national brand in areas to which we will expand as we add new core markets. Turning to our market expansion efforts.

Q4 marked the beginning of the largest geographic expansion plan in Shift's history. In late October, we launched the buyer market in Seattle, which solidified our presence on the U.S. West Coast, spanning board of the border from Canada to Mexico. Additionally, in Q4, we launched four seller markets where we acquire, select cars only, in Texas, Dallas, Forth Worth, San Antonio and Austin.

Given the timing of this expansion, these markets won't be a meaningful growth driver in the first half of the year. But we expect sales levels to gradually ramp up over the latter part of 2021. As mentioned earlier, when entering new markets, it's important to note that part of our launch playbook does utilize third-party reconditioners in the beginning as we build out our in-house capabilities. 2021 will be a pivotal year for building Shift's brand and our investment will be reflected in our marketing spend over the course of the year.

Our efforts to increase our brand awareness and geographic footprint will impact EBITDA in the near term. But over the long term, we believe this investment in increasing Shift's exposure will lead to success in growing our existing markets, successfully launching new ones and yielding more favorable unit economics. A final note on the business. We continue to make significant improvements to our product with a strong focus on health and web and mobile app visitors, find a car they love and make it easy to purchase a car once they found it.

As a technology company by nature, we are constantly making major steps to improve on the machine that powers all aspects of our operations and our customer experience. We are committed to and believe that we are creating the best car buying experience for our customers, while continuing to be on the leading edge of innovation in the space. We believe the companies who will thrive after the pandemic are the ones that use this period to try new things, adapt and improve and the investments we continue to make into our platform all work toward that end. We have learned a lot from the challenges of 2020 and are now moving forward to applying those learnings in 2021.

Seeing how our team remains solutions-oriented has given us confidence that we have the right people in place to grow Shift effectively. We have hired great talent in 2020, and we expect to continue to invest in our team, hiring strong talent across the organization, including leadership in operations, sales and finance. With that, I will now turn the call over to Cindy to review our financial results.

Cindy Hanford -- Chief Financial Officer

Thank you, Toby. I will walk through our fourth-quarter results and provide additional color. And then review our first-quarter and full-year 2021 business outlook. Unless otherwise noted, all comparisons are year over year.

In the fourth quarter, revenue grew 168% to a record $73.4 million. Total units sold were 4,666, up 147%. This included e-commerce and wholesale unit sales growth of 134% and 186%, respectively. In addition to the unit growth, we also saw our e-commerce average sales price increased 14% year over year in Q4 to $18,188.

This higher ASP is reflective of changes to our inventory mix as we work toward a distribution of inventory across the pricing spectrum. While we have seen meaningful swings in our ASP throughout 2020 and expect this trend to continue, it is important to note that we continue to provide a full spectrum of inventory to our customers, including lower cost value cars, which continue to differentiate our inventory compared to other e-commerce and off-line used car branded peers. Adjusted gross profit in the fourth quarter of 2020 was $1.7 million or 2.3% of sales as compared to $476,000 or 1.7% of sales in the prior-year period. The increase in adjusted gross profit was due to growth in our other revenue as a result of growth in our high-margin F&I products, partially offset by gross profit loss in e-commerce.

Primarily as we had a temporary high usage level of outsourced reconditioning in Q4, and we felt the impact of COVID-19 restrictions on our operations. However, as mentioned earlier, we have made significant improvements in our reconditioning capabilities, and we have since returned to the desired levels of in-house reconditioning. Fourth-quarter adjusted GPU was $514, up from $335 in the prior-year period. While this was an increase year over year due to higher sales of ancillary products, as Toby mentioned, it was below our initial expectations due to the impacts of high reconditioning costs and low sellable inventory.

In addition, the reconditioning capacity constraints compounded by the COVID-19 surge in Q4 resulted in us taking more cars to wholesale than originally anticipated, which created an additional drag on adjusted GPU for the quarter. The benefit of this action was that we cleared out aging inventory, which improved inventory health heading into Q1. And Toby has already spoken to the improvements we've made to reconditioning in the period so that today, we no longer face similar constraints. Moving to expenses.

SG&A was $31.8 million in the fourth quarter, or 43.3% of total revenue as compared to $17.6 million or 64.4% of total revenue in the prior-year period. The absolute dollar increase in SG&A is primarily due to increased marketing spend as we made strategic investments to increase Shift's brand recognition as well as higher personnel expenses as we've grown our team over the past year. The decline in SG&A as a percentage of revenue indicates the power of the operating leverage we will achieve as we continue our rapid revenue growth throughout 2021. Net loss for the quarter was $4.5 million compared to $20.5 million in the fourth quarter of 2019.

Net loss includes a noncash net benefit of $31 million related to changes in the fair value of financial instruments. This was primarily attributable to the change in fair value of the earn-out shares that are held in escrow to be released to legacy Shift investors upon the achievement of certain stock price milestones. Adjusted EBITDA loss was $28.9 million in the fourth quarter as compared to $12.8 million last year, driven largely by the increase in marketing costs previously mentioned, as well as increased general and administrative costs associated with being a public company, including legal, recruiting and other professional service fees, which totaled approximately $2.2 million for the quarter. While we expect to incur increased general and administrative costs as a public company when compared to previous levels as a private company, we expect to see a decrease in certain costs that are nonrecurring in nature, including recruiting, legal and consulting fees on a quarterly basis in 2021 compared to Q4 levels.

Moving to the balance sheet. As of December 31, 2020, cash and cash equivalents totaled approximately $234 million. In the fourth quarter, cash flows from operations were a use of approximately $39.9 million of cash. This use of cash was primarily due to building inventory to meet increasing demand.

In the fourth quarter, we used cash to finance this inventory versus utilizing our floor plan, as the rate at which we were acquiring outpaced the rate at which we could get all the cars floored. As a result, cash use was meaningfully higher than usual in the fourth quarter. During the fourth quarter, we used $15.6 million to acquire inventory and made net payments of $6.6 million on the flooring line. As of year-end 2020, we had approximately $24 million of cash sitting in inventory.

We do not expect this to be an ongoing trend, and we'll look to leverage our flooring line more as we move through the first half of 2021. In addition, we paid off $25 million delayed draw term loan and a $6.1 million PPP loan during the quarter. On December 24, we completed an exchange offer for publicly traded warrants of approximately 93% of total public warrants outstanding for approximately 1.8 million shares of common stock and $7.2 million in cash. We exchanged all remaining warrants in early January.

As of December 31, 2020, we had 83.9 million shares outstanding. Now turning to our business outlook. As Toby mentioned, for the first quarter of 2021, we are guiding to a total revenue of $90 million to $95 million, which represents three times year-over-year growth and 24% growth from Q4 2020. For adjusted GPU, we expect to be in the range of $1200 to $1350, more than two times improvement over Q4.

We expect the adjusted EBITDA loss will be in the range of negative $33 million to negative $35 million. With the primary drivers being sustained high in-market opex during COVID and the near-term impact as we invest in our new marketing strategy to drive sustained long-term growth. Just at this guidance in context of our expectations for full-year 2021, we expect to deliver over $450 million in revenue, 130% increase over 2020. We expect to sell over 20,900 e-commerce units.

While predicting ASP is difficult as that metric varies based on inventory mix, our revenue expectations do assume that ASP will come down in the coming quarters from a Q1 high. Adjusted GPU, we expect to come in above $1,600, representing a 19% year-over-year improvement over our full-year 2020 adjusted GPU of $1,350 with substantial upside opportunity in F&I as we make certain planned vendor changes in H2. We are still trending on track for our targeted midterm adjusted GPU of $2,500. Finally, we will continue to see operating leverage as we scale and expect adjusted EBITDA margin better than negative 25% for the full year, demonstrating continuous improvement in our adjusted GPU and CAC metrics from where we started in Q1.

While our top-line results and outlook reflect the demand for Shift's product offering, our profitability metrics reflect the reality of managing a high-growth company and the challenges of operating in COVID-19 environment. We expect 2021 to be a big year for not only investing for future growth, but also continuing to pursue improving our GPU and establishing operating leverage as we scale the business. With that, I will now turn the call back over to George.

George Arison -- Co-Chief Executive Officer

Thank you, Cindy and thank you, Toby. We remain focused on what will drive Shift's growth over the long term, increasing brand awareness, growing our presence in existing markets, expanding into new markets and driving F&I. On behalf of the board and the management team, I want to thank our employees for their tremendous efforts and dedication in 2020, throughout the year of ups and downs amid the pandemic. The hard work is paying off, and we continue to lay the foundation for long-term success.

I would also like to thank our partners and shareholders for their support. Operator, please open up the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question coming from the line of Mike Grondahl with Northland. Your line is open.

Mike Grondahl -- Northland Securities Inc. -- Analyst

Yeah. Thank you guys. Could you go into a little bit more detail on Sacramento in sort of the marketing strategy you deployed there? It sounded like your CAC was 50% lower and you had better-than-average unit growth. A few details there and then just how quickly and how aggressively do you plan to roll that out to other cities?

Toby Russell -- Co-Chief Executive Officer

Thanks for that question, Mike. This is Toby. The Sacramento approach was actually meaningfully different from what we've done in the past at Shift. We typically had a very digital heavy approach and in Sacramento, that particular test cell, tested out doing much more of a 360 approach to customer.

We did everything from TV out-of-home, a much more full-cycle marketing approach. We saw tremendous success, and that's the nature of that thing. Based on that, we've actually -- and this is -- to get to your second part of your question, we've rolled that out very rapidly. By the middle of this Q1, we had that rolled out across all of our other markets and are seeing early signs of really good success of that new marketing strategy.

Mike Grondahl -- Northland Securities Inc. -- Analyst

Got it. And would that include Seattle and the Texas markets or only Texas when you begin to sell cars?

Toby Russell -- Co-Chief Executive Officer

The fundamentals of that marketing strategy do apply to all markets. But in Texas in particular, we are only acquiring select cars at this time. So we are working through the process on the regulatory front to get Texas to the point that we're going to be selling cars there in addition to acquiring select models. So primarily it's Seattle and the West Coast footprint.

But I do want to say that we are doing -- we've launched our first campaign on national TV, and that is part of the strategy that we have over the course of the year. That benefits and it's a classic rising tide list all boats. That's an investment not just for Q1, but for years to come because those are nonperishable, brand-accretive impressions, and we see that as a long-term investment.

Mike Grondahl -- Northland Securities Inc. -- Analyst

Got it. And do you have enough mechanics today and maybe how many more do you need over the next 90 or 180 days?

George Arison -- Co-Chief Executive Officer

Hey, Mike. This is George. So as Toby mentioned in the prepared remarks, we've had really great progress in hiring mechanics. And we've been able to move our reconditioning to be vast majority in-house.

In January, we're down to only 15% of our reconditioning being outsourced, which is in line with what happened in January of 2020. So a year ago, which I think is great. We are in a very good place in terms of hiring. We've got the right hiring numbers in terms of mechanic hiring, much faster than we had anticipated.

We thought they would take through the end of Q1 for us to get to the right employee levels, and we've been able to do that much sooner. So the end result has been that we, in the middle of Q4, we're processing roughly 300 cars per week. And today, we are processing about 500 cars per week. So we are in a very good place from the production perspective, and we continue that -- we expect that to grow as the year progresses.

Obviously, we will be launching our in-house reconditioning in new markets like in Texas as we scale those markets. And so our production numbers will increase as the year progresses.

Mike Grondahl -- Northland Securities Inc. -- Analyst

Got it. OK, thank you.

George Arison -- Co-Chief Executive Officer

Thank you.

Operator

Our next question coming from the line of Sharon Zackfia with William Blair. Your line is open.

Sharon Zackfia -- William Blair & Company -- Analyst

Hi. Good afternoon. I was hoping to bridge the drivers of the GPU improvement from the first quarter through the remainder of the year? And kind of maybe breaking those into three different parts, unless there's one I'm missing it. And what I'm thinking of for those three parts would be kind of the lesser reliance on the third-party recon and then it sounds like you've made some pretty substantial reconditioning cost improvements just in general in your own reconditioning.

And then lastly, improved pricing algorithms. So can you help us understand kind of how those will interplay or contribute through the remainder of this year.

George Arison -- Co-Chief Executive Officer

Absolutely. Good to talk to you, Sharon. So I think it's correct. There's really three components to improving GPU.

Number one, reconditioning. Number two, pricing and number three, F&I. So when we think about that, reconditioning being in-house is really critical, and that's, by far, the biggest portion of the change that you're seeing between Q4 and Q1 because that's something that has already been driving us in the latter half of last year. And we are in a really good place today.

Number two, around pricing, we were very inventory constrained in Q4 and Q3. When I say inventory constrained, I specifically refer to sellable inventory. Meaning because reconfining was behind and couldn't really produce at the level that we needed, we couldn't get all the cars that we were buying to become sellable cars. That limited our ability to price things well and price as high as we want to price.

Given that we've moved from having roughly 800 cars in sellable at the beginning of December to having over 2,000 at the beginning of March. We think that really helps us with improving GPU. And then thirdly, F&I. We are on a big push to increase our F&I numbers.

The Q4 F&I was about $760, which was about a 60% improvement over the last year, but we still think there's a ton of appreciation to be had there. And so all three of those pieces kind of are part of the longer-term story. So we believe there is still cost reductions to be had in reconditioning. I think for Q4 and the first half of this year, the focus was on getting throughput high.

For the rest of the year, the focus will be more on getting costs down on reconditioning. #2, we think that both with the marketing efforts and with more inventory, we can price higher and generate more GPU that way. And then lastly, we do expect significant improvements in our F&I numbers as the year progresses, which is how we see ourselves getting to at least $1,600 and hopefully more in GPU by -- as the year progresses. And obviously, in latter quarters, we'll have to be higher than $1,600 to get to an average of $1,600 for the full year.

Sharon Zackfia -- William Blair & Company -- Analyst

That's helpful. Thanks. And then I heard you talk about new markets. I assume that's Texas contributing more in the second half of the year.

I'm just wondering with the new marketing, I mean how do you project Texas? Are you projecting Texas-based on how historical markets have debuted? Or is there an expectation for kind of a steeper ramp for Texas?

Toby Russell -- Co-Chief Executive Officer

So it's a great question, Sharon. In terms of Texas, we are really excited about it, as I mentioned. And we are primarily projecting growth and in particular, in the current quarter is driven by our current and existing footprint. That is our kind of view for the whole year.

And part of the guidance that Cindy shared for the year is the bulk of that unit and revenue growth is going to be coming out of the existing West Coast footprint. So we're actually not how should we say banking on, so to speak, the steep growth per se in any one new market. Instead, what we're doing is driving growth from existing footprint, deepening market penetration, and we've demonstrated that already. Because with that deeper market penetration, it shows that we're able to sequentially roll out across the U.S., drive that deeper penetration and sustainably grow.

In terms of Texas and other new markets, we do see a lot of goodness happening there, and we actually think they're going to be advantaged relative to previous market launches due to our new marketing strategy, but we haven't released specifics about the exact growth market-by-market because we're not sure on that at this time.

Sharon Zackfia -- William Blair & Company -- Analyst

OK, thanks. And then just one last question. Cindy, do you have the amount of advertising that was spent in the fourth quarter?

Cindy Hanford -- Chief Financial Officer

Thank you, Sharon. In the fourth quarter, total advertising, total marketing was about $10.9 million. We don't provide a breakdown to whether it was brand or digital.

Sharon Zackfia -- William Blair & Company -- Analyst

Thanks.

Operator

And our next question coming from the line of Marvin Fong with BTIG. Your line is open.

Marvin Fong -- BTIG -- Analyst

Hi. Thanks for taking my questions. A couple for me. Just curious though, I think you spoke to five -- your reconditioning capacity of 500 a week now.

Basic mass says that capacity of about $26,000 a year versus your guidance, a little under $21,000. So just curious, what kind of cushion in terms of reconditioning capacity? Do you like to operate at? Just to make sure that you don't have to go back to third-party reconditioning? And then I want to follow-up also on what you were saying about improving the F&I. I think George mentioned some changes coming to the vendor side. Just wanted to drill down on how you see F&I growing? Are you going to be doing more on the financing side or the service contract side or both? And do you see the improvement coming in terms of better monetization from your vendors or better attach rate? Just some more color on that would be great.

Thanks.

George Arison -- Co-Chief Executive Officer

Absolutely. Thank you for those questions. So on the first question is regarding reconditioning. To be clear, 500 is the actual number of cars that we are throughputting in Q2 during the middle -- sorry, in Q1, during the middle of the quarter.

So we're actually reconditioning 500 cars. We technically have capacity for more. But obviously, we are managing inventory acquisition with that as well. I think your numbers are correct, and you have to consider that you do want to have more cars and inventory going into any given month or any given quarter than you intend to do in that particular month.

And as we've said in our prepared remarks, our goal is to be in roughly 48 to 58 days of turn per unit on average. To do that, you have to have reconditioning that's outpacing sales in a reasonably strong way. We believe that being in kind of that range of 48 to 58 days, allows us to price in an appropriate manner to generate the most gross profit that we can at this time as a business. So we do aim to be ahead of it.

As I mentioned earlier, as we launch our own facilities in Texas. We would expect to have additional reconditioning throughput added to what we can already do. And we still have ability to add more reconditioning throughput in our existing markets as well. So we can increase on that 500 number.

We think that 500 was a great place to be in Q1, but that's expected to grow as the year progresses. And so we will continue to build inventory throughout the year. And obviously, it's kind of logical, but you want to end Q4, 2021 with substantially more sellable inventory than we ended Q4 2020 with -- because, obviously, next year, we'd expect to continue to grow in an aggressive way, and we want to have a lot more inventory sellable on January 1, 2022 than we did on January 1, 2021. So that's on the reconditioning question.

With regards to F&I, we have seen really good progress on F&I. As I mentioned, about a 60% improvement year over year in Q4 on net F&I. We are going to be making some changes to our vendors in the second half of the year. That's on mostly on areas around vehicle service contracts and other insurance-related contracts.

Those will be -- will allow us to monetize better. And we believe will also help ensure a better customer experience, which, over time, improves your overall F&I take. And so I don't think I want to get into too much detail about what changes we're making since some of this is kind of proprietary to us until we make them. And I think will be an important change for the business and from the consumer expense perspective.

But we think that it will add a reasonable amount of dollars to our F&I. Our overall attach rates are in a very good place on the vehicle service contract and insurance side. We obviously continue to push to improve that on a regular basis, and there's a lot of training that we still need to do with our team to help make it better. Historically speaking, that was not a big focus for us in terms of how do we train our team for F&I sales, but we think there's a big opportunity in that area as well.

Marvin Fong -- BTIG -- Analyst

Great. Thanks, George. And if I could ask one more follow-up. Just on the increase in the ASP this quarter, and I think Cindy indicated would be coming back down.

Could you just kind of elaborate on the dynamics behind that? So it seems like maybe you acquired more younger cars this quarter. Your plan is to maybe maybe reverse that in the balance of the year? If you could just help us with that, that would be great.

George Arison -- Co-Chief Executive Officer

There's really two big things that have driven the increase in ASP. Number one is higher amount of sales in luxury and high-line vehicles. Historically, Shift's has done really well with time line vehicles, which I think makes sense given that kind of high touch white glove service that we provide, it's understandable why consumers would love that type of an experience. And so we've always done well with that in kind of latter part of 2019 and most of 2020, we did not really focus on high line on luxury vehicles because we were capital constrained and didn't want to put downloads behind cars that are very expensive.

Post the completion of the stack process when the capital constraint was lifted. And we felt that we could go after those cars more. And I think that's overall good because it allows us to have more inventory that's in demand and consumers really like and ties well for consumers and . So that's part 1.

And part 2, we spoke to earlier, we actively pushed to make value, be only 20% of our total sales in Q1 and for at least the first half of of this year. That move was done in order to help support the reconditioning team's effort to increase throughput. Value cars generally take more time to recondition. And if they have a very high percentage of your total acquisitions, they can impact and -- reconditioning throughput and really clump you up.

And so we wanted to kind of manage that in a very active way. We still obviously really believe in having a full step of inventory. And 20% value is still a pretty high percentage. Obviously, it's a lot higher than anybody else in our kind of overall industry.

But it's not as high as it had been in various parts of last year when it reached 30-plus percent at various points in the year. So those two things combined together led to a high ASP. As reconditioning continues to improve, we would anticipate that we will increase the percentage of value in total inventory, and that we believe will help drive ASP price down. But again, obviously, we're not really managing the business for specific ASP.

We are managing the business for having really good inventory that consumers want. And then ASP will be what it is from that. It's not really -- it doesn't really fundamentally matter for us what the ASP is from the perspective of how the business is performing.

Marvin Fong -- BTIG -- Analyst

That was very helpful. Thank you, George.

Operator

Our next question coming from the line of Zach Padam with Wells Fargo. Your line is open.

Unknown speaker

Hey, guys. Curious if you could update us on market share in your mature regions. And when you think about the $450 million in top line for the year, could you talk through what's embedded here for share gains in your mature regions like San Francisco relative to the ramp-up in newer markets like Portland, Seattle or Texas?

George Arison -- Co-Chief Executive Officer

Thanks, Zach. Great question. So I don't think we are in a position to update on market share numbers specifically. We don't actually actively buy that data every month.

We did last year as we were going through our transaction process because we thought that it would be helpful to have. But that is not something that we normally buy every month. So we can't give you specific numbers to certainly kind of consider that for the future, but we don't have that today. What I can say, however, is the following.

All the growth that we've seen in Q1, which is obviously very substantial year-over-year growth is coming in existing markets, except for Seattle, which is a new market compared to last year. And vast majority of the growth that we're projecting for the year is coming in existing markets as well. So the projections are assuming really substantial and significant increase in market share in our existing markets, since that's the only way we could drive for the kind of growth that we are projecting in existing markets. Obviously, as we ramp up some of the new markets that we've talked about, those will add to the revenue, but we don't expect them to be significant in the first half of the year, and then they will ramp from there in the second half of the year.

So in a kind of -- in the summer of last year in the fall when we would meet with analysts and investors, folks would oftentimes ask are there -- what's the assumption for growth here? And we would say 75% of the growth that we expect in the model will be coming from existing markets. And I think that's very much still the case. Made perhaps even more than 75% coming from the markets. They're all performing extremely well, and we think there's a ton of opportunity for growth in our existing markets.

Unknown speaker

Thanks, George. That's good color. And next question on the improvement in days to sell. I think it is 43 this quarter versus I think 63 in last year.

Curious if you could talk through the drivers. And when you're looking at days to sell, I'm curious what percentage of your sales involve a test drive versus those that don't involve a test drive? And whether that has an impact to days to sell as well?

George Arison -- Co-Chief Executive Officer

So look, last year was an unusual year and demand was extremely high. And as we mentioned several times over the many months, we have been sellable inventory constrained on last year, which kind of inevitably leads to a lower days to sell as a result of that you're moving the cars that you have, and you don't have that many in sellable mode. So that's kind of was a big driver of what happened last year. We think that there is kind of an ideal time for how long it takes you to do to move cars through kind of the range that Toby gave in the prepared remarks of like 48 to 58, I think kind of is that fair rate number.

The reason being that, that allows you to price cuts a little bit higher in the beginning, keep them at a high price for a little while. See if you generate demand for that car at a higher price than your average price to market. If you can, great, that means you're going to make really great gross profit on that vehicle, and you can kind of sell it that way. But if the car does not -- is not able to generate demand at that higher price, and you can lower it more to the to the kind of midpoint of where you normally expect to transact at and then sell the car at that point.

That's the kind of focus for us in how we manage our time to sell. In the last year when we didn't have as my sellable inventory, we didn't have the flexibility and the opportunity to price cars higher at that slightly above typical percentage to market that we transact at. Which we -- which is something that we wanted to get back to with having more sustainable inventory, and we've now been able to achieve that. So we think 48 to 58 is a good place to be.

And that's what we're going to be managing to this year. Last year, while in some respects, was very low days to sell, it did have a negative implication on the GPU, and we're trying to correct that. This year was slightly higher time to sell. As far as the difference between cars itself with a test drive and cause the sells without a test drive, there's not really any meaningful difference in the time to sell for those two approaches in terms of the consumer experience, they generally end up are roughly in line with each other.

Unknown speaker

OK. That's good color. I just want to square the lower days to sell with liquidating cars through the wholesale channel. Was that just a onetime dynamic around COVID? Or is that something where we should -- something that you would more regularly do if you have aged inventory?

George Arison -- Co-Chief Executive Officer

No. So what we did last Q4 is we liquidated cars that otherwise could have been sold retail to wholesale, prior to reconditioning those vehicles, right? So we bought them from consumers. We could have technology sold them as consumer cars after being reconditioned. But instead, we chose to not do that not to keep them through reconditioning and just wholesaler.

The reason being that we needed to help our recognitioning organization have a smaller percentage of value cars that they use recondition. And so we picked cars that otherwise would have a kind of high amount of recon needed value vehicles, and we push them off to wholesale. As the reconditioning improves and is able to address some of the additional things that it needs to work on in the coming quarters, such as cost reductions, we would expect to then allow for more value cost to come in through recon. And like I said, this year, we're trying to manage to about 20%, but that number could increase the preconditioning team is in a better position to handle a high percentage of value, in which case, we would not wholesale those cars, we would try to bring them into the retail segment.

But we just had acquired a bit too many of these late-stage value vehicles in Q4. And we made the decision that it makes sense to move them to recon, given that they would take too long. And instead, it makes sense to just kind of wholesale those in Q4.

Unknown speaker

Got it. That make sense. Appreciate the time, George.

George Arison -- Co-Chief Executive Officer

Thank you.

Operator

Our next question coming from the line of Seth Basham with Wedbush. Your line is open.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good afternoon. My first question is just around your guidance for 2021, which implies EBITDA losses more than doubling. You guided it just a few months ago at the time of your SPAC transaction to over $110 million. Can you give us some sense of what gives you confidence that you're creating shareholder value?

George Arison -- Co-Chief Executive Officer

So our guidance implies that we will have EBITDA loss of below 25%, which is a significant improvement over last year, and we will be showing a very significant improvement in our overall operating leverage, which we are very excited about. At the same time, we believe that investing in marketing is really important. And we have launched significant marketing efforts as we've spoked earlier. And we believe that investing at makes sense, and we'll continue to do that.

Building brand for Shift, we think will be very valuable over time. And it has payback in the short term, it has taken for the long term, but we've seen peers in this industry achieved really strong results through marketing efforts because you can, over time, drive your price to market up, if you are able to build brand. It's a trident full strategy, and we're pushing that in a rest way because we think will be -- the results will be strong as we have seen in the tests that we've run so far.

Seth Basham -- Wedbush Securities -- Analyst

So since the time of your back transaction, the biggest thing that changed in how you're looking at 2021 is a national branding strategy, and that's driving much higher losses than you previously anticipated?

George Arison -- Co-Chief Executive Officer

That's the primary driver of our -- of additional dollar losses in 2021k. Correct.

Seth Basham -- Wedbush Securities -- Analyst

OK, thank you. And then my last question is just in terms of your inventory management, which likely fell shorter your expectations this quarter. As you think about your strategy going forward, what safeguards have you put in place to better manage your inventory, avoid the types of losses that you experienced on even cars and your retail? It seems like the selling margin on retail cars was down this year. Negative.

George Arison -- Co-Chief Executive Officer

Toby, I think you're speaking now. We can't hear you.

Toby Russell -- Co-Chief Executive Officer

I'm sorry. That's a great question, Seth. One of the biggest things that drove down our inventory to historic lows was the COVID environment. Uncertainty around the market, caused us to take a cautious approach during the height of COVID around inventory acquisition.

That structurally put both our inventory position and our recon operations behind so as we sought to ramp-up going into the latter part of Q3 and the latter part and into Q4, we were actually working to make up a tremendous amount of ground. That was created or a gap that was created by COVID. How we do that going forward is we've enhanced our supply chain planning, and in particular, our forecasting around our expected number of vehicles on hand going into any given week relative to how many cars we want to sell that week. We used to these projections more on a monthly basis.

But during the COVID time period, we realized we needed to be much, much more -- have much higher fidelity, both forecast and execution in that area because we recognize the sensitivity therein. And so we've changed the way we do our supply chain planning, the fidelity with which we've done it, and we've exited the historic change that was COVID that caused us to really deplete our inventory to levels that are here to for unseen.

Seth Basham -- Wedbush Securities -- Analyst

Thank you.

Operator

Our next question coming from the line of Mike Baker with D.A. Davidson. Your line is open.

Mike Baker -- D.A. Davidson -- Analyst

Hi. Thanks, guys. So maybe a little bit of a follow-up on Seth's question, but I'm just -- can you explain again where the -- why the GPU came in so much lower than your plan? I mean I get that you have a third-party reconditioning and all that, but you knew that. And it sounds like it actually went better than you expected.

So what was lower than you expected? I guess to Seth's question, some of that was the pricing. Was that really the biggest factor in the delta between your guidance and where you came in? Or was it again, you knew about the reconditioning issue. Sound to me as if you worked through quicker than expected, but maybe it was just more expensive to work through? Thanks.

George Arison -- Co-Chief Executive Officer

No, absolutely. So the fact that with fixed recommissioning in Q4 tells us in Q1 of 2021. It doesn't really help in Q4 because vast major the cars that you reconditioned, say, in December, once things started to improve or what are going to be cars that are going to sell in 2021, not in 2020, right? And one of the challenges with Q4 going into that quarter was that a very large portion of the inventory that had to be sold, meaning sellable inventory going into Q4 and then inventory has reconditioned in October of Q4, stuff that you actually selling Q4 had an external reconditioning component. And that is much more costly and much more challenging.

So that that really hurts you. Second point is, as Cindy discussed in her prepared remarks, we had wholesale losses in part because we took a certain set of inventory that otherwise could have been sold for retail. And decided to wholesale it rather than pushing it to recon in order to help our reconditioning team improve its throughput overall, setting us up for a better Q1 and a better 2021.m And then thirdly, this does not really impact much of the rest of the country, but California being our biggest market, there were much more significant COVID lockdowns in California in late November and in December than anywhere else. And those definitely had impact on the business overall and on the leads coming in.

So not the most significant by any means, but some level of impact from that as well.

Mike Baker -- D.A. Davidson -- Analyst

OK. So I guess if I could summarize that. Yeah, you did get through the 3P situation in the quarter but a little bit too late in the quarter to help the fourth quarter. But the good news is it will help the first quarter.

So I think that's right. Correct me if I'm wrong.

George Arison -- Co-Chief Executive Officer

Correct. That's a 100% Correct. I think when we were asked this question, when do you expect to kind of solve the third-party recognitioning, the most comfortable that we are on saying that sometime in Q2 of 2021, we believe it will be solved. In practice, it got fixed faster.

And in January, already, we were down to only 15% external reconditioning, which is just slightly higher than external conditioning that we used a year ago in January. So obviously, we continue to improve than what we do in recon, but the benefits of getting recon to be where it is now, are going to be more significant in Q1 than we would have anticipated at the same time that we did this call a quarter ago. There's still obviously some cars that we sold in January of 2021, that were external reconditioning. And that's obviously, that's still hurting a little bit, but that's going to be all gone by the time Q2 rolls around.

And then we still had some wholesale sales that otherwise might have gone to retail in that Value segment in January. But overall, we think that the recognitioning getting to where it is now is a huge improvement, and we're seeing the improvement in the gross profit guidance that we're giving for Q1.

Mike Baker -- D.A. Davidson -- Analyst

OK. Understood. One more, if I could. Longer-term question, I guess.

But -- so I understand that your losses listen to dollar amount might be more significant in 2021 than you maybe thought previously because you're ramping up the advertising. I think that makes sense. Eventually, you leverage it. But if you think about the time to profitability, I know you haven't necessarily given a time frame, but does this get you to profitability quicker or does it get you to profit because you'll eventually leverage this quicker than you expected? Could the sales go up? Or does it lengthen the time to get to profitability?

Cindy Hanford -- Chief Financial Officer

This -- Mike, this is Cindy.

George Arison -- Co-Chief Executive Officer

So -- Go ahead, Cindy.

Cindy Hanford -- Chief Financial Officer

Yup. Go ahead. Well, George, do you want to take it?

George Arison -- Co-Chief Executive Officer

No, please go ahead.

Cindy Hanford -- Chief Financial Officer

All right. I don't think it's necessarily longer. I think what we're doing is we're focusing on getting the unit economics, getting that GP up and tracking to the original plan as best as we can.

Mike Baker -- D.A. Davidson -- Analyst

So same time frame, a different way to get there, more market share, and then I presume over time, as you have that market share, the long-term profitability would probably be enhanced as you start to leverage that advertising?

Cindy Hanford -- Chief Financial Officer

Yeah, I think that makes sense.

Mike Baker -- D.A. Davidson -- Analyst

OK, thank you.

Cindy Hanford -- Chief Financial Officer

But I think critically, we're probably looking somewhere into 2023 range.

George Arison -- Co-Chief Executive Officer

And at the same time, what we do think the value is here that going back to an earlier question that was asked, we do believe that investing in marketing now allows us to grow faster. And allows us to drive to better gross profit over time by selling at a higher price to market than we otherwise would be able to do.

Mike Baker -- D.A. Davidson -- Analyst

Make sense.

Operator

And I'm not showing any further questions. At this time, I would now like to turn the call back over to George Arison for closing remarks.

George Arison -- Co-Chief Executive Officer

Great. Well, thank you, everybody, for joining us. We really appreciate your questions and your attention, and we look forward to speaking to everybody in the coming weeks as we do some of the meetings that we have planned.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Henry Bird -- Vice President of Strategy and Finance

George Arison -- Co-Chief Executive Officer

Toby Russell -- Co-Chief Executive Officer

Cindy Hanford -- Chief Financial Officer

Mike Grondahl -- Northland Securities Inc. -- Analyst

Sharon Zackfia -- William Blair & Company -- Analyst

Marvin Fong -- BTIG -- Analyst

Unknown speaker

Seth Basham -- Wedbush Securities -- Analyst

Mike Baker -- D.A. Davidson -- Analyst

All earnings call transcripts

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