Shift Technologies, Inc. (SFT) Q2 2021 Earnings Call Transcript

Shift Technologies, Inc. (SFT)
Q2 2021 Earnings Call
Aug 10, 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 Shift Technologies second quarter of 2021 earnings conference call. [Operator instructions]. I will now like to hand the conference over to you speaker for today, Henry Bird, vice president of strategy and finance. Sir, you may begin.

Henry Bird -- Vice President of Strategy and Finance

Good afternoon and welcome to the Shift Technologies second-quarter 2021 earnings call. Joining me on the call today are co-CEOs, Toby Russell and George Arison, and CFO Oded Shein. During our remarks, we'll make some forward-looking statements that 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 the call, we will be referring to non-GAAP measures as defined and reconciled in our earnings material. With that said, I will now turn.

And the call over to Toby.

Toby Russell -- Co-Chief Executive Officer

Thanks, Henry, and good afternoon, everyone. In the second quarter, our business exceeded all expectations. Through the hard work of our team, we delivered incredible performance across key metrics, 155 million in revenue representing year-over-year growth of 377%, 5,871 e-commerce units sold, adjusted GPU of $2,809, and significant improvement in our operating leverage. With these results, which greatly exceeded the guidance that we gave on our first-quarter call and strong momentum into Q3, we're now raising our full-year revenue guidance to between 575 and 595 million.

At the midpoint, this represents about a 3x increase over last year, for nearly 50% more revenue than we had originally anticipated for 2021. We achieved these strong results while continuing to provide exceptional service to our customers in a very unusual environment brought about by COVID, and continuing to drive toward achieving our mid and long-term strategic goals. These goals will be the core focus over the rest of my prepared remarks today and afterward, Oded will discuss the financial results and guidance in greater detail. As we've discussed before, we have several key strategic focus areas, investment into which will set shift up for long-term success.

These include deepening market penetration within our existing markets, expanding our geographic footprint, building lasting brand awareness, and driving efficiencies in our full-stack operations while improving unit economics. Once again, our growth this quarter was primarily driven by the strength of our most mature regions along the West Coast of San Diego up to Portland. These five legacy markets in which we had operated prior to 2020, accounted for nearly all of the 377% year-over-year growth in the quarter. At the same time, we are encouraged by what we're seeing in newer markets, such as Seattle and our Texas markets.

And Las Vegas, where this time we're buying, but not yet selling cars. The newest markets will be valuable contributors to our sustained growth in 2022 and beyond. One of the key drivers of growth across all of our geographies has been our new marketing strategy that we've talked about at length in prior calls. This campaign has proven to be highly effective in supporting immediate and mid-term sales efforts, while also building durable, non-perishable brand impressions for the long term.

In our May call, we set the expectation to reduce CAC by roughly half in Q2. We achieved this with a 46% CAC decrease quarter over quarter, with total marketing spend also decreasing sequentially, despite accelerating unit sales growth. Given the momentum, we're seeing in our business and the effectiveness of our branding effort campaign, we will continue to prioritize and, in some cases, accelerate investment in building our brand. As of late Q2, we're now in a position to utilize powerful third-party data tools to measure the impact of our branding efforts on shifts aided awareness among customers.

We believe that with the right investments over the next six to eight quarters, we can drive faster awareness growth than our peer set has when they embarked on brand and growth, and do so at a lower total spend level, despite a more expensive COVID driven marketing environment. That in turn will drive deeper market penetration, support growth, and front-end GPU, and help new markets grow with faster ramp in their earliest quarters. Turning to operations, we continue to see strength across business functions. While many in the industry struggled to find supply, Shift was able to grow our sellable inventory by nearly 40% throughout the quarter, with 93% of cars sourced in Q2 coming directly from consumers and partners.

Our in-house reconditioning facilities did an excellent job keeping pace with the growing supply and currently can process over 600 cars per week without additional staffing, which is more than sufficient to meet our 2021 inventory needs. Q2 saw some of the most unusual used car market behavior that the industry has seen in decades. And certainly, in the 7.5 years since Shift has been in operation. A confluence of factors called multi-week steep pricing appreciation, rather than the depreciation the industry normally sees across all used car cohorts.

Market tailwinds benefited the industry and helped us achieve the $2,809 GPU over-performance. Oded will provide additional color on the drivers of that and overall unit economics. That said, our nearly 5x revenue growth year over year significantly outpaced that of the broader market. Given this momentum, based on the branding and operational investments we are making, we are positioning to continue significant market share growth in existing and new markets for the rest of the year and beyond regardless of market pricing dynamics.

Regardless of how the market moves in the short term, our strategy, technology, and operational excellence are well-positioned to respond appropriately to drive growth while delivering on our mission of making car purchase and ownership simple and trustworthy for the long term. I would like to thank all of our employees at Shift for their hard work and dedication to make these great results possible. Our people stepped up and delivered exceptional results. We had a great quarter and we're excited for the growth ahead in 2021, I will now turn the call over to Oded to go over our second-quarter financial results, as well as provide guidance.

Oded Shein -- Chief Financial Officer

Thank you, Toby, and good afternoon. The second quarter was a very strong financial quarter for Shift, providing record metrics across the board and demonstrating meaningful progress toward our long-term goals. I will first review our second-quarter results and then share guidance for the third quarter and the fiscal year. Total revenue for the second quarter grew to 154.9 million, an increase of 377% to the prior-year period, and 46% to the prior quarter.

Total units sold were 7,815, an increase of 240% year over year with the e-commerce channel growing to 5,871 units up to 222%. E-commerce average selling price was 22,019, 11% higher than last quarter, in part due to pricing appreciation we saw throughout the quarter. Adjusted gross profit increased to 16.5 million versus 3.7 million in the prior-year period, and 7.5 million in Q1. I'll focus my remaining commentary on sequential changes.

Our adjusted gross profit per unit reached 2,809 in the quarter, up 66% from Q1. As Toby mentioned, in the second quarter, we saw unique market dynamics with significant appreciation in car prices. A large portion of the cars that we sold in Q2 were purchased before price appreciation really took hold and were sold at much elevated profits. We estimate that this unusual appreciation dynamic contributed approximately 6 to 700 incremental of GPU in Q2.

Looking at Q3, most of the cars we're selling in the first half of the quarter were purchased in Q2 at the very peak of price appreciation in order to ensure adequate supply to meet our growing demand. As a result, we expect GPU margins for the second half of the year to be lower than they would be in a more normal environment. Given these unusual swings in market pricing conditions between Q2 and Q3, looking at the average GPU over the combined two quarters helped to balance this short-term volatility. Market appreciation helped Q2 but is expected to hurt Q3.

I'll discuss this fully in the guidance section. Other revenue and mostly F&I, with 5.1 million in Q2 compared to 4 million in Q1. We remain encouraged by the fundamental performance of our F&I business. F&I per unit in Q2, after adjusting for changes in accounting reserve was 938, same as in Q1.

After consistently delivering around 900 per unit of F&I revenue in the first half of the year, we continue to see meaningful opportunities in this space. Total marketing expense for the quarter was 10.9 million down from 15.4 million in Q1 as the new strategy emphasizing brand marketing took hold and yielded impressive results. As Toby mentioned, Q2 customer acquisition cost was 1,897 down 46% from Q1. Total SG&A in the quarter was 48.1 million or 31.1% of revenue, compared to 50.2 million or 47.4% in the previous quarter, demonstrating significant operating leverage.

EBITDA loss for the quarter was 26.1 million or 16.9% of revenue, compared to a loss of 34.4 million or 32.5% of revenue in Q1. Turning to the balance sheet and cash flow, we ended Q2 with cash equivalents of 238.2 million. This represents a 61 million increase compared to the Q1 cash balance. Our Q2 cash balance includes a 115.3 million for them -- from the May 2021 issuance of convertible notes, net of origination fees, and capped-call purchase.

Primary uses of cash for both the second quarter and year to date were funding inventory purchases and marketing investments supporting our accelerated growth. Partially offsetting these cash outflows in the quarter were full utilization of our 50 million floor plan facility, and normalization of our accounts receivable balance when compared to Q1. Turning the spotlight on inventory, we ended the quarter with a 122.5 million, a 48 million increase to our Q1 inventory. Our strong sales in GPU performance in the second quarter speak to our continued ability to procure desirable cars, the vast majority of which are bought directly from customers.

Looking forward to the second half of the year, we expect to achieve the accelerated growth embedded in our guidance with only modest inventory investment. As we have demonstrated this year, we are able to quickly strive our inventory to changing demand and market conditions, we're utilizing the inventory increase in Q2 to fuel our current quarter growth and plan to replenish when prices become more favorable in full. Turning to guidance. For the third quarter, we expect revenue to be in the range of 155 to 170 million or a 159% to 184% higher than Q3 of 2020.

adjusted GPU is expected to be in the range of 1,500 to 1,600 for the third quarter. This will create an average of approximately 2,100 for the Q2 and Q3 periods. Our adjusted EBITDA loss for the quarter is expected to be in the range of 34 to 36 million. Based on positive results year to date, and momentum we're seeing across our business, we are again raising our annual revenue guidance for 2021.

We expect total revenue to be in the range of 575 to 595 million, approximately three times our revenue for 2020. We expect to sell 22 to 24,000 e-commerce cars. As we've demonstrated in prior quarters, our growth strategy allows us to grow well in excess of the market. While the volatile market dynamics do not slow down our growth, they do impact GPU.

Due to limited price visibility later in the year, and with an abundance of caution, our full-year expectation for GPU remains at greater than 1,800, well on track to reach our sustainable GPU target of 2,500. We now expect our EBITDA loss margin to be better than negative 23% versus our previous guidance of better than 24%. I will now turn the call over to George for closing remarks.

George Arison -- Co-Chief Executive Officer

Thank you, Toby and Oded. Over the years in the past, before we were a public company, I was often asked, what is the governing constraint on Shift's growth? I would regularly say that we were capital constraints that we could not invest in the areas we needed to drive growth, but that if we have the capital we needed, we'd be in a position to drive exponential growth and bring this company to scale much faster. Now, after removing the capital constraint once we went public last year, it has been very exciting for us to see our team deliver on accelerating growth for three subsequent quarters, with a 168%, 254%, and 377% year-over-year growth for Q4 of 2020, Q1 2021, and Q2 2021, respectively, while driving significant operating leverage this year. It is also exciting that almost all of this growth is coming in existing markets, providing a further proof point that our model is positioned to aggressively gain market share in each of its operating markets by providing consumers with the broadest possible inventory and test-drive delivery.

Given these strong results in Q1 and Q2 and our newly increased guidance for the full year, we are now expecting to hit 1 billion in run-rate revenue, a few quarters ahead of our original expectations. We're looking forward to continued efforts to invest in the areas that have supported this industry-leading growth trajectory while driving significantly sustained improvements in our gross profit, as well as in improving our operating leverage on a drive toward scale and profitability. Thank you to our shareholders, customers, and team members, especially those working on the front lines and in midst of the pandemic, who are all helping Shift deliver on our mission. We look forward to answering your questions.

Operator, please open up the line for Q&A. Thank you.

Questions & Answers:

Operator

Thank you. [Operator instructions]. Please stand by while we compile the Q&A roster. Our first question comes from the line of Alex Potter with Piper Sandler, your line is open.

Alex Potter -- Piper Sandler -- Analyst

Excellent. Thanks very much, guys. Great quarter. First of all, obviously, the focus on marketing is clear.

Is it possible that the CAC looks as good as it does right now because there's just this unprecedented demand for used vehicles, so customers are just falling all over themselves trying to find used vehicles and that that could normalize a couple of years down the line or a couple of quarters down the line once the market settles down?

George Arison -- Co-Chief Executive Officer

Hi, Alex. Great to talk to you and thanks for the question. So, as we had said, in our previous call, our plan was to reduce our tax by about 50% or roughly half. And we've got to about 46% reduction.

So, it's very much in line with what we had expected. And we think that the way to think about tax in our approach is twofold. One is maybe you could just be targeted for acquiring customers today, and then secondly, targeting toward building aided brand awareness among consumers for the long term. So a lot of what we're doing today in our marketing strategy is not focused on immediate results, but it's focused on results over the long term.

We've seen with our peers that as they build brand awareness there -- I believe higher-priced market increases, which then results in better front-end gross profit. So, a lot of our investment had to do with this kind of long-term strategy and long-term plan. I think if we were just targeted customer acquisition for today and not for the long term, we probably could drive to a much lower CAC if we wanted to, but we don't think it will be the right approach, given that we are trying to invest for growth over the long term. So, I think the reality is that CAC reduction is part of the operational and strategic focus that we've had to drive for results in our marketing campaigns and our efforts.

And really not connected to the market conditions overall. As we talked about in our prepared remarks, we think market condition definitely impacted gross profit. But what we're seeing with our e-unit and revenue growth is primarily and vast majority, driven by our own results and very much in line with what we wanted to accomplish as a business.

Alex Potter -- Piper Sandler -- Analyst

OK. Great. That's very clear. Clearly, you've got a business model that seems to be working.

Is there urgency then on your part to try to expand out, maybe expedite this business model to other regions, or are you going to stick with your historical plan in terms of a deliberate market-by-market, region-by-region rollout?

George Arison -- Co-Chief Executive Officer

I'll let Toby take that. Toby, you might be on mute.

Toby Russell -- Co-Chief Executive Officer

Thanks for that question, Alex, we had previously as you referenced, said that we wanted to grow about two markets per year. And as I mentioned in our prepared remarks, the vast majority of our year-over-year growth came from in-footprint. We continue to see just tremendous potential from our existing in-footprint base for delivering large volume per shift. But we are growing our market expansion faster than that to, that I had mentioned or we had talked about in the past.

I think we are going to continue gauging that and continue moving ahead of that target for 2021. We're excited about that, and we're seeing really great reception of both the brand marketing campaign and the footprint expansion, both immediately within the footprint and in surrounding areas when we see cars being shipped to nearby areas, a penumbra footprint alongside our existing markets.

Alex Potter -- Piper Sandler -- Analyst

OK. Great. Maybe one last one, and then I'll turn it over. You mentioned the in-footprint -- the existing footprint that you've got on the West Coast there.

And you also mentioned that you have the ability of 600 vehicles a week, which I think is what you said to meet your 2021 targets. Is there a point on the somewhat near horizon where you foresee bumping up against capacity constraints in your existing markets, where you would need to deploy additional capex or start adding square footage, adding parking spaces, anything like that that could potentially constrain your growth? Thanks.

George Arison -- Co-Chief Executive Officer

Thanks. I think it's a good question and I know that with our peers that's more of an issue. So I think what we said in our remarks on this point specifically related to a kind of what we can process today with the labor that we have. Our real estate can process a lot more than 600, but obviously, you need to hire and train the labor force for more.

So we don't -- in the past, this has been an issue for us, it's not an issue for us right now. As we said, we are in a very good place with reconditioning capabilities that we need for this year. Obviously, given that our model does not assume building massive reconditioning facilities, we are able to turn on additional facilities as we launch into markets. And then the second kind of variable there is labor force, and that's how we've approached thinking about whatever conditioning needs are.

So I think we want to be able to grow production organically, and we are able to do that with the model we have today, being really close to the customer.

Alex Potter -- Piper Sandler -- Analyst

Great. OK. Thanks a lot, guys. Great quarter.

Operator

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

Sharon Zackfia -- William Blair & Company-- Analyst

Hi, good afternoon. Congratulations on the quarter. I guess we wanted to unpack what you were talking about when you mentioned growing your brand awareness faster at lower spend than some of your peers did previously. Could you help us understand tactically what that really means and how you do that? And then separately, if I look at your units sold relative to your average monthly unique visitors, it looks like your conversion went up in the quarter.

Can you talk about what's going on there? Are you getting better leads? Is it something that ties into the brand strategy? I'm just curious about that metric.

George Arison -- Co-Chief Executive Officer

Sure. I'll start with the first question. We can't really share too many details right now on that. What we can say is that over the last quarter or so, we have gotten access to a lot more data that allows us to measure what impact our brand campaign is having.

And this is probably a result of the fact that as you spend more money in aggregate you get access to information that previously might not have been available to you through agencies and other partners. And so that is allowing us to track the effectiveness of our branding efforts really well. And to also set mid-term goals for our team in terms of what we want to accomplish, as far as our branded awareness. And so, we believe that with the right investments over the next six to eight quarters, we can achieve really strong results and drive faster growth in our awareness versus what other folks have been able to do with what would hopefully be an [Inaudible] less total spends.

Hopefully, in the coming months and quarters, we can talk more about that, but at this point, in a directionally quiet it'll be useful folks to know how we're thinking about that. I know in the past we've gotten questions about, hey, what are the goals of it reshuffled and so we wanted to indicate where we are leaning. Can't really go into more detail than that right now, but hopefully, in the future, we will be able to. And then I will turn over to Toby for the second part of your question, which has to do with conversion.

Toby Russell -- Co-Chief Executive Officer

Actually, that's a great question on conversion. Multiple factors helped drive up our conversion. Better targeting and marketing of course, additionally, as Oded mentioned, we grew our inventory, which means having more inventory and more cars for people. It's easier to do the thing that we do, which is match people with cars when you got a larger pool of inventory to match folks with.

And finally, we've been making some great strides in our technology experience. We're continuing to actively invest in our web and mobile technology experiences. Investing in improving the -- we're going to removing fiction for customers and improving features that make it easier to find cars and easier to connect with those cars. So we're seeing multiple levels of activity combined to really improve that conversion.

And that remains an ongoing focus for us.

Sharon Zackfia -- William Blair & Company-- Analyst

That's really helpful. And then one last question. On the F&I GPU, was there any benefit therefrom the pricing environment?

George Arison -- Co-Chief Executive Officer

I believe Toby will take that one.

Toby Russell -- Co-Chief Executive Officer

In terms of the -- our F&I at a high level, we have found that that is just a great business area and business line, it's an incredible value add as you allude. Most people don't walk around with like $20,000 in their pocket. And so, one of the top questions we get from buyers are -- in the early days of a ship, some buyers say, hey, I love the car, I love the experience, do you have financing for that? We said, yes, we can do that. The combination of being able to offer financing and warranty is critical.

We're continuing to build technology and build out that entire product offering, both from intangibles, the financial offering, and the technology offering to keep improving what we offer to customers. There are variations with things like ASP and vehicle segment. We've talked in the past about the variations in F&I, between what we described as core cars or our certified cars versus value cars, etc. But I wouldn't say that in this particular period we saw a wild variation based on ISD.

Sharon Zackfia -- William Blair & Company-- Analyst

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Zack Fadem with Wells Fargo. Your line is open.

Zach Fadem -- Wells Fargo Securities -- Analyst

Hey, good afternoon. So, on your thousand unit increase in the full-year unit outlook, to what extent would you describe this as flowing to the outperformance in Q2, as opposed to raising your unit assumption in the second half? And then as we think about the total top-line, could you talk a little bit about your expectations for price and where you expect the retail ASPs to land at the end of the -- excuse me, at the end of the year versus the 22,000 level today?

Oded Shein -- Chief Financial Officer

Thanks for the question. As you know, we just raised total revenue guidance by $85 million for the year. We also raised our unit volume guidance by 1,000 cars. So it's a combination of each one of the quarters and our trajectory being faster than we originally anticipated.

But specifically, toward the end of the year, we don't have very good ASP visibility right now. So if you really do the math, there may be -- if ASP remains at the 22-plus thousand range, there may be some upside for total revenue by the end of the year.

Zach Fadem -- Wells Fargo Securities -- Analyst

Got you. So, I guess another question on car sourced from customers up to 93% in the quarter. And then your wholesale units up over 300%. Can you just talk about what you attribute to the external environment here, and how should we think about modeling out these line items over the couple -- over the coming quarters?

George Arison -- Co-Chief Executive Officer

Oded, do you want to take that? So, I'll take that. The way we think about that, we've not really been buying cars at auction other than very opportunistically given the pricing environment at auction. So, I think the vast majority of the inventory that we are getting is coming from consumers. It has historically and we very much want to lean into that as far as driving our inventory needs.

And so I think folks should assume that that's what we'll continue to do. Obviously, we actually would prefer to be able to get the more covered option if we can but, in this environment, where prices are just way too high, we really haven't felt like it made sense to do that. But again, I think that the enough talked about this in the past in other conversations that historically speaking, we did not really been into auction because our F&I numbers were not as good as they needed to be for us to be able to bid of auction. But given where the F&I numbers are now, we actually are capable to do a much larger number of cars from auction, if auction prices were in a better place.

And so long term, I would expect that as auction prices come down, we would lean into that a little bit more. So that's how we think about our inventories, kind of purchasing. And I'll let Toby talk about inventory disposition in terms of wholesale.

Toby Russell -- Co-Chief Executive Officer

On the wholesale side, this is not a massive focus for us at this point. There are other players out there that have built out a big wholesale business. In a lot of ways, our wholesale disposition really is an offshoot of what is the core of what we're focused on, which is acquiring consumer cars to sell to consumers. We're really putting our primary focus on that.

And the wholesale business, while it is valuable and it supports that consumer mission, we have not yet built out or captured the real opportunity of that thing as a large stand-alone unit, hosting our own auctions at large scale, etc. But we do think there's future opportunity in that, but in terms of your question, early back about how to model that, there may have been a little bit of a difference in terms of what was going on wholesale this past quarter, in terms of this shortage of cars at wholesale. Increasingly we are seeing that normalized and for the latter part of the year and in the next year. Our indications are, that the market is returning to a normal supply date and we wouldn't expect anything extraordinary or unusual either in terms of wholesale pricing or supply, particularly if new car supply comes back online following chip shortages through the earlier year.

From a modeling point of view, can't be super specific on the taxes, but I think we're about to return to more of a normalized environment in the latter part of this year and in the early next.

Zach Fadem -- Wells Fargo Securities -- Analyst

Got it. That makes sense. And then lastly, just a follow-up on the F&I question, is it fair to say the 900-ish level is the right way to think about this item in the near term, or are there reasons to believe that there could be some upside here in the back half of the year?

Oded Shein -- Chief Financial Officer

So, as you know, our mid-term goal for F&I is to be somewhere in the 1,200 to 1,400 range. So if we're in the 900 now, we are making good progress, but we still have ways to go. And in another way, we are thinking about it, is that we continue to improve hiring and training of our staff. They do a better job and become more productive, but they still have, again ways to go.

We think about the product and so on. So it's always been our strategies to talk about growth in that area from this level to a higher level. How fast can we ramp up to that higher level? Time will tell. We're doing every effort to do that.

It may take us several quarters to get to that promise range.

Zach Fadem -- Wells Fargo Securities -- Analyst

Got it. Thanks for the time.

George Arison -- Co-Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Marvin Fong with BTIG. Your line is open.

Marvin Fong -- BTIG -- Analyst

Good evening. Thank you for taking my questions and congratulations on the quarter. I thought I would just start with a question on GPU. Thank you for putting a number on, what you thought the pricing environment contributed to the expansion, but that still leaves about, something like $500 plus or minus of GPU improvement quarter over quarter.

Just curious if you could help us unpack that. How much was reconditioning? How much maybe is structural price gains or pricing power. Anything else you can expand on that. And then a second question, just again on sourcing.

Are you seeing -- are you able to isolate what's going on in terms of the elevated pricing between just the overall pricing environment and any impact that you might be seeing from more companies getting into consumer sourcing? Thank you.

Oded Shein -- Chief Financial Officer

Thanks for the question. I'll start with the GPU compared to Q1. So a couple of things going on. Q1 as we said last time was -- we had a little bit of hangover from Q4, especially on the reconditioning side, right? So the costs there were a little bit elevated and we had some improvement in this quarter as well.

So -- and plus of course, what we talked about market conditioning, the combination of those two factors contributed to the big rise. Obviously, what you said in the comments, the market dynamics was the bigger part of that and it's going to be equalized in Q3. That's why we suggest looking at the average of the two quarters, Q2 and Q3, to get a more normalized balance number.

Toby Russell -- Co-Chief Executive Officer

And, Marvin, on the second part of your question around sourcing, I think it is a very valuable and important one. What we saw was a true anomaly in the market, and that was rapid appreciation, like something on the order of 25% appreciation between January and April of used vehicles. With that and that shortage environment, you saw a lot of focusing well. If you're an auction buyer, if you source primarily through auction, you were having to pay very high prices to be able to source that auction.

Fortunately, for Shift, we were able to not rely on the auction channel to do our sourcing, as we mentioned this past quarter, 93% of our sourcing came from consumers. There is a real advantage there, we've spent years building out that capability. And while we see others moving in that direction, we tend to say that that's the validation of a great strategy. And we have no concern about that competitive environment, instead, we see the real competitive advantage on our part, making that a key area.

And in the past, Shift has been able to diversify and source elsewhere. But that core consumer sourcing is always going to be a great and best way to get cars. Those are the cars that we say people want. You are looking for that one owner, no accident, strong options package, relatively lower price because it's a slightly older car.

And that's always been the bread and butter in the core of what Shift's done really, really well. That proved out very nicely this past quarter and we think that that will continue to be true. Additionally, because we've been so focused on consumer sourcing, we have a wider spectrum of what we sell. So the Shift value offering, for example, is a key differentiator.

It is a unique capability to be able to source, recondition, and then merchandise that vehicle set. And that is an outgrowth of our years of experience and focus on the consumer vehicles you just wouldn't ever find those vehicles really at an auction to buy them. We think that that is another key advantage and puts us in a strong position. We're excited about that and we've seen that -- the advantage of that strategy play out during this past quarter.

Marvin Fong -- BTIG -- Analyst

That's terrific. Thanks, Toby and Oded. And if I could ask a follow-up question, just the forward looking on your new markets. I think you only recently begun selling operations on a couple of those expansion cities, but anything you're seeing you know with the with the buying operations or anything that you could comment on how these new markets compared to to the core West Coast markets that you've been operating in or while.

Just any insight there would be great. Thank you.

George Arison -- Co-Chief Executive Officer

Another great question. As I mentioned we're just saying most of our growth and tremendous growth in the core footprint, the -- that San Diego up to Seattle and kind of Canada and Mexico, West Coast region is just coming we're really excited about that Seattle being one of the newer markets as well. But Texas has landed very nicely. While we don't see any need to rely on it for our 2021 numbers and we see it really as the foundation of our growth in 2022 and 2023, the rapid move to seven cars out of Dallas and are being able to have both the Dallas Fort Worth and awesome San Antonio markets up and running and selling cars is just real indication that we're bullish on the market.

That's going really well. Furthermore we're super excited about the idea of Texas being a great anchor for the central and eastern United States. We built out our entire footprint on the West Coast with interlocking mutually supporting regions. You can shop in L.A.

or San Francisco anywhere up and on the West Coast and now from Texas and we see that as a great beachhead to just build out through the central and eastern United States. So we're feeling really bullish on that. And there's been great reception of the shift offering there in Texas.

Marvin Fong -- BTIG -- Analyst

That's great to hear, and congratulations again. Thank you.

Operator

Thank you. [Operator instructions]. Our next question comes from the line of [Inaudible] with Wedbush Securities. Your line is open.

Unknown speaker

Thanks a lot and good afternoon. My question is how you thinking about managing growth versus profitability here. It seems like demand remains really strong. Your inventory sourcing capabilities are really strong and while you might be coming into it, it does seem like you're taking off for the gas well but as relates to growth.

First of all is that accurate? And if so, why wouldn't you try to drive more units if you have the ability to have strong demand environment.

Oded Shein -- Chief Financial Officer

So I'm not sure I understand your question because the growth pattern that we have exhibited ongoing, five times more than last year, and just raising our guidance by $85 million, I think indicates pretty fast growth. You know we have to think about the way we grow the company in our existing markets and the infrastructure that we have to support. I love that we are continuing to increase our capacity in things like reconditioning capacity has been growing just in the few months I've been here by more than 25%. Our sales force is growth growing, serving our customers better.

So we are doing everything we can to grow the top-line in a very fast way. Our guidance again indicates that we're going to grow revenue this year by 3x compared to last year aside. Some think we're not trying hard enough to grow.

Unknown speaker

I was just noticing that your guidance implies in terms of Puerto Rico a unit growth slowdown relative to what you just did in the past quarter. So seems like you had the ability to scale but you're slowing down that scaling a little bit.

Oded Shein -- Chief Financial Officer

Yes. So I think would have been better and the market dynamics, we are here right now. We have a great inventory position. We want to maintain that but we also have to be cognizant that the market is expensive, right, for purchasing cars and in order to grow our GPU you and maintain profitability we have to think about how fast we grow the inventory at the same time.

So there are many considerations here.

George Arison -- Co-Chief Executive Officer

I think it's also important to remember that Q4 historically has very strong seasonality in this market. I've kind of I learned a tough lesson back in 2014 and 2015. And so, in general, we tend to be quite conservative in our assumptions about Q4. Oded spoke about that in the prepared remarks.

And so, across the board, we are pretty conservative in our assumptions about Q4. Obviously if -- part of our assumption here is that if you will come back to normal levels in Q4, and potentially even will have a steeper seasonality curve than normal because of how Q2 and Q3 have gone, right? So as a result of that we've been concerned about Q4 and obviously, if ASP does not come down, there will be an upside to what we have already said as far as 3x growth for the full year.

Unknown speaker

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Ben Sherlund with Cantor Fitzgerald. Your line is open.

Ben Sherlund -- Cantor Fitzgerald -- Analyst

Hey, guys. Thanks for taking the question. So your customer service vehicles are just going back to this -- came at ninety three percent which is pretty significantly only above some of your competitors. Does this suggest that you might have some pricing power on the vehicle acquisition side down the road, and maybe if you could kind of talk about how the pricing or the sourcing of vehicles varies from newer markets versus older markets.

And have a falls on CAC if I could.

Toby Russell -- Co-Chief Executive Officer

It's a great question, and I'm going to answer it both in terms of sourcing, as well as selling. We do believe in core to our strategy is that building out the shift brand as a destination for selling or buying your car does create long term pricing advantage allowing us to trade at reasonable market places on both sides of that thing. In the short term, we do think we do have an advantage -- It is mentioned this past quarter of being able to move our pricing quickly along with the consumer market so as to not necessarily be dependent or subject to the auction inflation that we saw and we were able to move to a ninety three percent mark with that consumer sourcing. But again the long-term sourcing pricing does relate back to great customer experience and our brand journey, and we're coupling both of those.

We believe we have the best customer experience in the industry both sides for buying or selling your car, and we want to brand that shift number one challenge is that we're great people to know about it. And so we do think that that brings with it both through the final conversion advantage, as well as pricing power if that makes sense.

Ben Sherlund -- Cantor Fitzgerald -- Analyst

OK. Great. And then on the CAC side, maybe you could just talk a little bit about how CAC varies between some of your more established markets like San Francisco versus some of the newer markets. And then also -- sorry, go ahead.

George Arison -- Co-Chief Executive Officer

No, go ahead. Finish the question.

Ben Sherlund -- Cantor Fitzgerald -- Analyst

And I was going to say in 2Q It looks like your marketing expense per unique visitor was up about 76% which compares to a lot of pricing in performance marketing space and due to a triple digits. What are you guys seeing in 3Q? Are you seeing any easing and kind of the impression costs on performance marketing side.

George Arison -- Co-Chief Executive Officer

Awesome questions, and I wish I could speak in more detail but we haven't release any kind of any data on how our older versus newer markets do as far as marketing. And so what I can say is the following. We have found -- and have spoken about this in the past but it's important to reemphasize. We have found that given our presence in the various locations we're already in, especially San Francisco and Los Angeles, that marketing nationally for brand is really beneficial.

We don't spend all our own dollars nationally but a significant amount we do, and so obviously there you know the cost kind of more similar across the board. And we think that is a positive impact from that. And then second point that I think is really important to consider that we have very strategically pushed our spend more to brand and away from digital spend. We've found over the years of building this company that building a strong brand is really, really critical.

And so we can't -- we couldn't do that, which is digital. I and others that came into this business thinking that you could literally build the whole company was just digital spend. And that's kind of not possible to do here. Brand is really crucial.

And so from from that standpoint, we kind of don't just think about kind of wrapping up this and cost from just the digital find, we're kind of more more holistically including the the brand side of things.

Ben Sherlund -- Cantor Fitzgerald -- Analyst

OK. Great. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Mike Ward with Benchmark. Your line is now open.

Mike Ward -- The Benchmark Company -- Analyst

Thanks. Good afternoon, everyone. I just wanted to provide a bit more clarity on the walk in the gross per unit coming from Q2 to Q3. We're about halfway through Q3, and so have you seen a significant drop off already in the gross per unit? What are you -- Is it just you know the acquisition cost went up in some of those units kind of matured in from Q1 from late Q4 to Q1 and now to Q2.

Is that what we're seeing?

George Arison -- Co-Chief Executive Officer

So what we have seen -- let us go back a sec. The majority of the units that we sold in Q2 were acquired in Q1 before prices really went up. Right?

Mike Ward -- The Benchmark Company -- Analyst

OK. Right. Right.

George Arison -- Co-Chief Executive Officer

Q2, it was such a windfall of selling high after buying low. We can see in Q2 to Q3 is in much flatter line and maybe even starting to show some signs of declining prices. We bought at the peak of the market and now we're selling it's still a good price, but clearly not as high a spread as we've seen in Q2. So that's why two things.

A, that's why we guided lower, and also that's why we think that it makes sense to look at the two quarters together and do an average because that's more like our seasonal normal average would indicate.

Mike Ward -- The Benchmark Company -- Analyst

OK. So it's not as big collapse. And so basically what we're seeing as we've gone through July and August, we're seeing the transaction price is still remaining on the e-commerce side remaining elevated north of $20,000 -- 21, $22,000. But the cost of those has come up.

So you're not seeing a collapse on the market so to speak, but you're just going with the expectation that basically the maturing process of the purchasing of the selling price differential, is that a right way to look at it?

George Arison -- Co-Chief Executive Officer

Yes. Absolutely. You can see market dynamics and prices as well as us. And we can see that there hasn't been any collapse --

Mike Ward -- The Benchmark Company -- Analyst

Right. No. I know.

George Arison -- Co-Chief Executive Officer

May be a little depreciation in the wholesale market, less depreciation in the retail market, but it's not the same windfall and buying gape at those prices. We boxed up in January KBR and then sold it.

Mike Ward -- The Benchmark Company -- Analyst

OK. And part of that is just you being conservative as you're looking at the numbers going out because it seems to be changing pretty quickly.

George Arison -- Co-Chief Executive Officer

That's exactly right. But just to consider that September is also usually a unique month in this space, because that's usually the time when you start to see seasonality and you kind of have this very strong progress. And then a much weaker September from the seasonality perspective. So what we try to do historically speaking is sell as much inventory as possible in August, go into September with less inventory, and then acquiring maturing September when prices have come down a bit.

And so that obviously -- but you still can cancel all your cards because that wouldn't make any sense. And so you go into September with some inventory that's going to have some GPU pressure. We know that that's normally the case. And so we're kind of managing for that in what we are guiding to look for the quarter.

And I do want to say one other thing which is not something you can trust that will kind of publicly available numbers, but I think it's something that is definitely happening in the space which is that while the list prices for dealers still remain there, they're strong, we are noticing and in dawdled evidence from consumers that the discount dealer are offering are beginning to be stronger than they were 30 or 60 or 90 days. And so that will -- there is an indication to us that you will see some reduction in prices coming into future months. And that's another reason why we're being conservative in our assumptions for the second half of the year as far as those [Inaudible].

Mike Ward -- The Benchmark Company -- Analyst

Makes sense. And on the -- within SG&A, I think in the first quarter you had the big marketing spend where you were kind of doubling up. Did it come back down in Q2? Do you have a 2Q marketing expense portion of SG&A?

Oded Shein -- Chief Financial Officer

Yes, marketing went down from more than $15 million to -- in Q1 to less than 11 million in Q2.

Mike Ward -- The Benchmark Company -- Analyst

11 million.

Oded Shein -- Chief Financial Officer

So, clearly a total dollar decline.

Mike Ward -- The Benchmark Company -- Analyst

Getting back to a more normalized rate.

Oded Shein -- Chief Financial Officer

Yes.

Mike Ward -- The Benchmark Company -- Analyst

Great.

Oded Shein -- Chief Financial Officer

But if you look at the whole SG&A, you've seen a really nice leverage effect of the increase in revenue, and obviously, not as much increase in costs.

Mike Ward -- The Benchmark Company -- Analyst

Perfect. Thank you. Thank you very much.

Operator

Thank you. Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.

Unknown speaker

Hi, guys. This is Owen on for Mike. I just have one quick one. In terms of marketing, are there any major updates here or areas you can call out that are resonating with both buyers and sellers?

Oded Shein -- Chief Financial Officer

Well, I think it's kind of hard to say more than what we've said in the questions so far, which is that we've reduced our CAC by 46%, which is very much in line with what we had said, would be the case. And we're seeing really positive momentum using it in the marketing that we're doing from the consumers, obviously, on both sides. We're really excited about the data that we now have access to and what that's allowing us to see in terms of what the reaction is. We can't really go into more details on that, but we think that the marketing campaign is having a really positive impact.

But I do want to underline one more time that this is not a one or two quarters outcome. This is a multi-quarter investment that we've been making for a long time, so that's how you build the brand. And we think that doing that, will have very positive middle -- medium-term and long-term benefits to the business, from a customer acquisition perspective and from a gross profit perspective.

Unknown speaker

Got it. Thanks for taking my question.

Operator

Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Hi. Good afternoon.

Oded Shein -- Chief Financial Officer

Hi, Brian.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Congratulations on the great quarter.

Oded Shein -- Chief Financial Officer

Thank you.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

So, a couple of questions, what could be follow-ups. First off, just with respect to the market growth, we talked a lot about it. At what point do the new markets become more of a needle mover from a volume perspective for Shift? I mean, you -- they were just saying now, you continue to have such strength in your existing markets, particularly those in the Western or the West Coast of United States. But as you push into these new markets more East to be well, at what point do they really become -- start to stay really become a matter more in the total volume growth for the company?

Toby Russell -- Co-Chief Executive Officer

It's a great question, Brian. Thank you for that. What we're saying is the -- we see the newest markets, the Texas market, the Seattle markets, likely to make a bigger difference next year, so in the 2022 timeframe. And the reason is we have pursued a strategy that is going deeper into our existing markets over time, which means they're pretty substantial market presence in each of those existing markets.

And so for a new market that catches up to that and makes a significant difference, it takes a little while. It doesn't happen in three months, more like it takes about a year or so, to start hitting its stride in terms of total volume. That's a different strategy than if we said, hey, we're going to launch like 50 markets and then each new one adds a little bit, a little bit, a little bit, and we've articulated not that strategy but we wanted to go deeper, get a lot more marketing and brand presence leverage locally, as well as create an ecosystem in our regional strategy, our sort of super-regional strategy. And so that's why you might see those -- we see those markets both incubating for a little longer and becoming part of an interlocking system.

We've talked a lot about the interlocking region, that kind of support each other from a brand presence and total inventory point-of-view.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

That's very helpful, I appreciate it. Very helpful. And then the second question, with respect to marketing and the focus now on brand building. So you talked a lot about the shift that happened over the last few quarters, I think the two prior questions you discussed.

Now the lowered marketing dollars, Q1 to Q2. So why -- as we watch the marketing continue to unfold here, what should we expect? Is it more of the same or will there be over the balance of say, 21, where you see new efforts come in that helped us this branding campaign?

George Arison -- Co-Chief Executive Officer

I think for right now, the best we can say, is that we're going to continue doing what we're doing. I think Toby has spoken in the prepared remarks that we believe that over in six to eight quarter investments, if we do the right investment, we can have some really positive impact on our brand and how much aid that we announce we have. And then that obviously has to be tangible implications for our GPU on hand customer acquisition costs over the long term. I don't think we can kind of say more than that at this point, but we think that minimum continue what we're doing will be very much the case for the next few quarters.

And obviously, as our volume grows, the total dollar amount might increase, but we think that the CAC where it is now is in a good place.

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

Got it. Thank you very much, and congrats again.

George Arison -- Co-Chief Executive Officer

Thank you.

Operator

I'm not sure of any further questions in the queue. I would now like to turn the call back over to George for closing remarks.

George Arison -- Co-Chief Executive Officer

Thank you, everybody, for joining us, and really appreciate your questions. And we look forward to speaking to you one-on-one in the coming days.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Henry Bird -- Vice President of Strategy and Finance

Toby Russell -- Co-Chief Executive Officer

Oded Shein -- Chief Financial Officer

George Arison -- Co-Chief Executive Officer

Alex Potter -- Piper Sandler -- Analyst

Sharon Zackfia -- William Blair & Company-- Analyst

Zach Fadem -- Wells Fargo Securities -- Analyst

Marvin Fong -- BTIG -- Analyst

Unknown speaker

Ben Sherlund -- Cantor Fitzgerald -- Analyst

Mike Ward -- The Benchmark Company -- Analyst

Brian Nagel -- Oppenheimer & Co. Inc. -- Analyst

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