Vroom, Inc. (VRM) Q3 2021 Earnings Call Transcript

Vroom, Inc. (VRM 0.43%)
Q3 2021 Earnings Call
Nov 10, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for standing by. Welcome to Vroom's third quarter 2021 earnings conference call. At this time all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

Joining us on the call today are Paul Hennessy, chief executive officer; and Bob Krakowiak, chief financial officer. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website at ir.vroom.com. The third quarter earnings release and earnings presentation are also posted to the IR website. Before we begin, please note that the discussion today includes forward-looking statements within the meaning of the federal securities laws including but not limited to statements about Vroom's operations and future financial performance.

These and other forward-looking statements are subject to a number of risks, uncertainties, and other important factors that may cause actual results to differ materially from those in such statements. We direct you to the company's most recent SEC filings including the Risk Factors section of Vroom's most recent Form 10-K for the year ended December 31, 2020. As updated by our quarterly report on Form 10-Q for the three months ended September 30, 2021. For additional discussion of factors that could cause actual results to differ materially from those in the forward-looking statements.

Please note further that today's discussion including the forward-looking statements speak only as of the date of this call and Vroom assumes no obligation to update such statements based upon future developments or otherwise. The company may also discuss certain non-GAAP financial measures during today's call. You can find a presentation of the most directly comparable GAAP measures and a reconciliation of those measures in the third quarter earnings press release. I'll now hand the conference over to your first speaker today, Paul Hennessy, chief executive officer.

The floor is yours.

Paul Hennessy -- Chief Executive Officer

Thank you, and welcome, everyone, to Vroom's third quarter earnings call. Today, Bob and I will walk you through a presentation reviewing our third quarter performance and provide an updated outlook on the balance of this year. Before I dive in, I'd like to thank our employees and board members for their incredible efforts this quarter as we build an outstanding customer-centric company. I'd also like to thank our investors for their ongoing support as we scale our business.

Let's start on Slide 3. I wanted to take a minute to formally introduce our new chief financial officer, Bob Krakowiak. While many of you have heard from Bob on our United Auto Credit Corporation or UACC acquisition call, this is his first time joining us for earnings. He's been with us for two months now and his experience and guidance have already been a tremendous asset for Vroom.

Bob joined us from Stoneridge Corporation, a designer and manufacturer of electronic systems for the automotive industry where he served as CFO for over five years. Previously he served in finance and investor relations leadership roles at Visteon, Owens Corning and Kmart Corporation. I'm thrilled to have Bob on the team. His season track record of results-driven leadership will help propel Vroom to the next level.

Let's turn to Slide 4. We are proud of our performance during the third quarter. We drove triple-digit year-over-year e-commerce unit growth as we ramp output across the business to keep pace with record demand while we were slightly light of our guidance on e-commerce units. We feel good about taking a disciplined approach to our acquisitions, pricing, and supply chain.

Our e-commerce gross profit per unit or GPPU came in well ahead of our guidance as we preserve vehicle margins and expanded product margins. We delivered strong results on the expense side as well coming in better than our initial expectations while still investing in our long-term objectives. We're making progress on our strategic initiatives as we announced last month, we entered into an agreement to acquire UACC. With UACC in our corner, we'll be able to build out a captive finance business commencing in 2022 driving greater profitability and expanding our reach to consumers.

We are on track to exceed our key 2021 supply chain targets. We completed our 2021 rollouts of last-mile hubs ahead of our expectations reaching over 40% of our customers during the third quarter. Additionally, we grew consumer sourcing to a record high of 81% of our vehicles sold during the quarter. Looking ahead, we are bullish about the fundamentals of the underlying business and we'll continue to take a disciplined sustainable approach to our unit targets.

We'll talk more about our outlook later in the presentation. Now on Slide 5, I'm going to go through a few of our e-commerce highlights. E-commerce units grew 123% year over year to 19,683 units as we capitalize on marketing investments and increase our listed inventory levels in a high-demand environment. Our e-commerce revenue growth outpaced our unit as average selling prices accelerated through the quarter, which we attribute mainly to elevated vehicle prices in the broader market.

E-commerce gross profit per unit increased 17% year over year to $2,560. We hit a record high in product gross profit through higher attachment rates while our vehicle GPPU slightly increased. We'll get further into GPPU puts and takes later in the presentation. Let's go deeper into unit trends on Slide 6.

As we look across our business holistically, we like to think about total e-commerce transactions. This means units sold plus units sourced from consumers. We've experienced tremendous growth in total transactions year-to-date in excess of 200%. As we execute our consumer sourcing initiatives and scale our selling and processing capabilities.

As you can imagine our consumer sourcing programs have been a key driver of growth for our transactions. In the third quarter, we sourced 81% of retail units sold directly from consumers. Nearly triple our rate in the third quarter of last year and up significantly from 65% in the prior quarter. Our competitive algorithm-based pricing methods make us a compelling option for consumers wishing to sell their vehicles.

Our sell us your car and other marketing efforts have also catalyzed seller demand for our model in a favorable market environment. We amplified marketing this quarter with increased investments and national campaigns. As a result, we achieved a record high in website visitation with over 2.2 million average monthly unique visitors in the third quarter up 28% compared to the prior quarter. Turning to Slide 7.

As we announced previously, we entered into an agreement to acquire UACC expecting to close late this year or early next year. We expect our business to reach several benefits from this acquisition. First and foremost, UACC combined with Vroom will allow us to build captive finance capabilities increasing our product gross profit opportunity as we capture more economics of the transaction. We also expect scale benefits and an improved conversion rate.

Currently, we have significant potential with lower credit score consumers who make up over half of the credit applications we receive. The acquisition of UACC will allow us to increase our reach across the entire consumer credit spectrum. Integration planning is well underway, once the acquisition is complete we expect to begin integrating our backend systems and processes in the first half of 2022. In the second half of the year, we'll scale e-commerce loan originations as we begin to develop UACC into an integrated captive finance operation.

We remain committed to an asset-light funding strategy for our direct-to-consumer lending business and we'll provide more specifics on the combined opportunity of Vroom and UACC after the transaction closes. Back to our current operations on Slide 8, I'm proud of our logistics accomplishments this year. Our rollout of our last-mile program continues. We opened our 30th last-mile hub in the third quarter achieving our annual target for 2021 ahead of schedule.

We've also accelerated deliveries with our own last-mile experience to 41% of e-commerce deliveries. Meaningfully above our 26% last-mile delivery rate achieved in the second quarter. As we head into the fourth quarter, we are already nearing our 2021 exit run rate target of 50%. Our last-mile program allows us to deliver a superior customer experience and paves the way to better unit economics by improving delivery efficiency.

In addition, we've also made further investments in our line haul program adding new trucks and drivers to our network this quarter. I would like to point out that we are currently experiencing reconditioning constraints due to labor shortages and historically high demand levels that our third-party reconditioning centers. We view this as a transitory issue while we continue to like the optionality of third-party sites and we'll continue to work with our partners to expand capacity as part of our hybrid approach. We acknowledge the increasingly competitive environment for reconditioning capacity.

Growing interested and selling cars online will also require Vroom to invest in selected dedicated reconditioning capacity. Our hybrid approach is the best strategy to scale for the future. On Slide 9 is an update on our sales support and technology. In the near term, we continue to invest in people to scale our business and improve our processes.

Our ability to process higher volumes of transactions on the support side has improved significantly since the beginning of the year as we work toward providing a touchless experience for both buying and selling vehicles. Going forward, our investments today will move us toward the seamless end and e-commerce experience as well as driving improved scale economics. Stepping back, I want to recap the themes for this quarter on Slide 10. We had strong year-over-year e-commerce unit growth.

We achieved exceptional gross profit per unit results versus our guidance. We advanced our supply chain strategy and kick-started plans to build a captive finance arm for our business in 2022. In the near term, we continue to navigate through the current supply constrained environment to continue to grow our business. Now I'll hand it over to Bob to walk you through the financials of the quarter and our outlook.

Bob?

Bob Krakowiak -- Chief Financial Officer

Thanks, Paul. It's great to be a member of the pit crew at Vroom and to join everyone for the third-quarter earnings call. I would like to begin on Slide 12 with our financial highlights. We had a strong quarter as we drove healthy year-over-year unit growth and outperformed our expectations for the quarter on revenue, e-commerce gross profit per unit, total gross profit, and adjusted EBITDA.

Total revenues of $897 million increased nearly 180% year over year and 18% sequentially. Coming in above the high end of our guidance. Our overall growth was principally driven by growth in retail units higher than expected average selling prices further drove the outperformance relative to our expectations. Third-quarter e-commerce units of 19,683 grew 123% year over year and 8% quarter over quarter.

We experience healthy growth for the quarter as consumer demand remains high for used vehicles and as we delivered strong execution and a healthy demand environment. During the quarter continued focus on our strategic objectives drove increased listed inventory and amplified marketing. Our e-commerce GPPU hit $2,560 up 17% year over year on meaningfully higher product GPPU is slightly increased vehicle GPPU. I'll go further into the drivers of e-commerce units and e-commerce performance on the next slide.

Total gross profit for the quarter of $58 million increased 128% year over year and came in ahead of our expectations. This was driven primarily by the expansion of e-commerce GPPU in higher unit volumes. As expected, our per-unit profitability contracted versus the second quarter as we experienced transient macro headwinds to sales margins. Despite the headwinds, we surpassed our gross profit guidance for the quarter.

Thanks to better than anticipated performance across all three lines of our business. EBITDA, which was adjusted for acquisition costs related to our announced UACC transaction came in at an $87 million loss versus a $36 million loss in the prior year. This was also ahead of our expectations for the quarter. Third quarter adjusted loss per share of $0.70 was better than our guidance due to improving revenues, gross profit, and expense levels.

At the bottom of Page 12, you can see the primary highlights of our fourth quarter outlook. For more details regarding our fourth quarter guidance, please see our earnings press release. We're expecting 20,000 to 20,500 e-commerce units in the fourth quarter. This implies 84% year-over-year growth at the midpoint.

As Paul mentioned, we are experiencing transitory events that are reducing throughput in our supply chain. As a result of these temporary issues, we anticipate total revenues of $865 million to $900 million. A year-over-year midpoint increase of 117% was primarily driven by unit growth and current elevated average selling prices. We expect e-commerce gross profit per unit in the range of $2,100 to $2,300.

This implies 21% year-over-year growth at the midpoint. We are guiding to a total gross profit of $50 million to $58 million primarily driven by our annual growth in e-commerce units and GPPU. We remain focused on achieving over 200% gross profit growth for 2021. Slide 13 provides a summary of our third quarter e-commerce performance.

As we've discussed previously on today's call, our e-commerce units grew 123% year over year but came in slightly below our expectations. E-commerce revenues hit $702 million. An increase of 216% year over year driven by strong unit growth in higher average selling prices. Our third quarter e-commerce average selling price of approximately $34,400 expanded significantly year over year and was higher than our guided range.

As we continue to improve our pricing algorithm in a historically strong vehicle pricing market. E-commerce vehicle GPPU of $1,315 increased slightly from $1,302 in the prior year. During the quarter, we continued to deliver improved productivity on reconditioning costs, which were partially offset by lower sales margins as the cost to acquire vehicles in the current environment was higher than the prior year. E-commerce product GPPU of $1,245 increased $359 or 41% from $886 a year ago and also showed quarter-over-quarter gains.

Our higher product profitability was primarily driven by higher attachment rates as well as higher average loan sizes due to higher e-commerce average selling prices. Moving to the other segments on Slide 14, wholesale units of 9,760 grew 58% year over year. Wholesale gross profit per unit up $215 contracted year over year as expected. It came in ahead of our guidance of $50 to $100.

As our pricing strategies kept pace with increasing prices in the used vehicle market throughout the quarter, we were able to book higher gross profit on wholesale units than we originally anticipated. We sold 1,749 TDA units in the third quarter. Growing 20% year over year and surpassing our expectations. We saw a positive customer response to our inventory selection improvements for TDA.

TDA GPPU also increased to $2,175 for the quarter up $347 over the prior year and well ahead of our guidance range of $1,650 to $1,750. TDA GPPU benefited from lower per unit sourcing costs year over year as well as higher product profit due to higher average loan balances. Turning to Slide 15, I would like to provide some additional color on our SG&A performance. On an absolute spend basis, our SG&A increase as we continue to make key strategic investments in staffing and new technology to keep pace with demand, as Paul discussed earlier in his comments.

The chart on Slide 15 shows our SG&A spend per total e-commerce transaction year-to-date for 2021 versus 2020. For 2020, our total SG&A spend for total e-commerce transactions was $5,401. Year-over-year increases in logistics rate inflation and expenses related to the announcement of the acquisition of UACC added $169 per unit on a year-to-date basis. Our total e-commerce transactions, which we define as e-commerce vehicle purchases plus e-commerce units sold have more than tripled year-to-date versus 2020.

Purchases include trade-ins and straight buys and exclude auction source units. Despite the increase in logistics and transaction expenses, we are seeing the benefit of leveraging our scale by reducing per-unit costs by $1,617 year over year. On a net basis, this benefit resulted in a 27% reduction to our year-to-date SG&A per total e-commerce transaction versus 2020. Enclosed on Slide 16, I am pleased with our performance during the third quarter.

We are working tirelessly to continue executing our growth strategy. Our fourth quarter guidance continues our track record of strong year-over-year growth and we are looking forward to closing the UACC acquisition in welcoming their team as partners in the future growth of our company. We are excited to share with you the transformational aspect of the UACC acquisition and we'll do so after the transaction closes late this year or early in 2022. Thank you for your time, everyone.

It is great to be at Vroom. With that Paul and I are ready for your questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Zach Fadem of Wells Fargo. Your line is open.

Zach Fadem -- Wells Fargo Securities -- Analyst

Hey, good morning. So if I take your current output of about 1,500 e-comm units per week, it suggests you're running at about 52% of your reconditioning capacity and I realize there are some near-term labor constraints that are bogging you down today. But can you talk about what needs to happen to unlock that full capacity and whether it's reasonable for us to expect you to break through that 60% utilization level in the upcoming quarters?

Paul Hennessy -- Chief Executive Officer

Yeah. Thanks, Zach. I'll take that one. What's required to unlock that capacity is doing what we've been doing, which is we've been adding additional facilities.

We've been in adding additional headcount to those facilities. And we've been adding additional headcount to our own facilities. And then when you think about that's the near-term outlook. We continue to work with our third-party partners to scale our reconditioning capacity and we've been absolutely successful in doing that throughout the year.

Even quarter to quarter growing that expressed capacity from 2,800 units to 3,200 units. So it's, Zack, it's really doing what we've been doing where we see a challenge in our business. We lean in on that challenge and we fix the problem and we see this again as a transitory short-term issue, not a long-term issue.

Bob Krakowiak -- Chief Financial Officer

Zach, one thing I just want to add to that is just -- to Paul's comment is what we're seeing is there is a significant piece of this that it's just it's a labor issue with our partners at the third party locations. So to the extent that we're working hard as Paul mentioned in our own facilities and partnering there with our third-party partners to do everything we can to get the staffing levels correct. So that's one key driver. Then Paul mentioned in his comments as well as the current high-demand situation that we're facing nationally is driving a very competitive situation in the reconditioning centers.

At this point times as well. 

Zach Fadem -- Wells Fargo Securities -- Analyst

Got it. And then I like the way that you guys framed the total e-comm units both buys and sells. And I'm curious if you could talk about 80% of cars now sourced from customers in Q3. Can you talk about how you're managing through the constraints on resources and your infrastructure? Just given that sharp rise in customer sourcing and then how you think about the trade-offs between the GPPU benefit higher customers sourcing versus the added SG&A and capacity constraints and to what extent you think this pivot is accretive versus dilutive.

Paul Hennessy -- Chief Executive Officer

Absolutely Zach. Thanks. Thanks for the question. So the way that we look at it is it's basically a dial for us.

And right now, with the current situation in the auction market, a lot of people showing up for auctions, lots of bids on vehicles are extremely priced competitive. So really the trade-off that you do when you do the when you do a transaction like this when we buy from a consumer, generally speaking, you incur a higher inbound logistics into the recon centers. You get a better vehicle, but you also spend some additional SG&A as well. So really the trade-off is a better vehicle versus the additional costs from this unique perspective and from an amount logistics perspective.

And we're constantly looking at that and making a determination in terms of what's the right trade-off. But right now, with the current auction market, the trade-off is definitely to our benefit to move the dial toward consuming resources but we'll continue to tweak that and adjust that based upon -- based on current market conditions as they develop over time.

Zach Fadem -- Wells Fargo Securities -- Analyst

Got it. Thanks for the time, guys.

Paul Hennessy -- Chief Executive Officer

Yeah. Thank you, Zach. Thanks for the questions.

Operator

Thank you. Our next question comes from Rajat Gupta of JPMorgan. Please go ahead.

Rajat Gupta -- JPMorgan Chase and Company -- Analyst

Great. Thanks for taking the question. Just a kind of follow-up on the reconditioning question that the dedicated centers that you're adding. Could you give us a sense of the timing of the capacity and just the cash needs for those dedicated centers? How did those ramp? And I have a follow-up.

Thanks.

Paul Hennessy -- Chief Executive Officer

Yeah. Thanks, Rajat. Yeah. I'll take that one.

First and foremost, I signaled in our second quarter earnings that we would start to contemplate this. And look we're going to be incredibly thoughtful about where we're putting these reconditioning centers. We'll obviously be matching supply opportunity and demand opportunity so that they are super strategic in our location in the size and scale in their ability to coordinate with our logistics requirements. So, we're going to be thoughtful on that.

And when I think about the investment thesis, the language that we've been using is thinking six of 60 locations. So, our hybrid approach, our asset-light approach still rule the day here so that we're aligning to the needs of the business and being judicious in our capital deployment. So, we think of these as a $100 million maybe as great as $150 million in total capex, not $2 billion and we don't see this to be a 60 own Vroom reconditioning centers. Again, we think to call it to call a half a dozen or so.

In all of the places that you might expect to be strategic areas that have high demand and high supply.

Bob Krakowiak -- Chief Financial Officer

Yeah. Rajat, I just want to add to that -- just to Paul's comment. We really view this as just responsible capacity of planning for the company where we have -- high-demand areas, it's going to make a lot of sense for us to make some reasonable investments to support the company because what we'll have it we'll be able to have various people operations in the reconditioning centers and more stable operations mean it means higher throughput and lower cost. So it basically addresses more buying to our customers and more lower-cost volume and that's better for shareholders as well.

Rajat Gupta -- JPMorgan Chase and Company -- Analyst

Understood. Thanks for the color there. Yeah, I just had a question on GPU, e-commerce GPU in particular. For the fourth quarter, you're guiding to a roughly $350 drop at the midpoint.

Presumably, that's all on the retail side. Is that primarily baking in some seasonality or maybe even higher reconditioning and inbound logistics? Or is there some comes over to zone around the direction of used vehicle pricing for the remainder of the quarter. Just trying to get a better sense of that bridge from 3Q to 4Q GPU, particularly given like used vehicle pricing still remains pretty elevated in the year into October and November. Thanks.

Bob Krakowiak -- Chief Financial Officer

Yeah, Rajat. Thanks for the question. Most of the delta that we're seeing between the third quarter and the fourth quarter was the second GPPU is really being driven by additional cost in -- as a result of reconditioning and logistics. So that's really what you're seeing on 3Q to 4Q.

Rajat Gupta -- JPMorgan Chase and Company -- Analyst

Got it. Thanks for the color.

Bob Krakowiak -- Chief Financial Officer

Well, let me be very clear about the reconditioning and then actually shipping the vehicles as well. So inbound and outbound, just in inflation and what we're seeing in terms of rate inflation and not just on a year-over-year basis and what the trend is like.

Rajat Gupta -- JPMorgan Chase and Company -- Analyst

Understood. That's clear. Thanks. I'll jump back in the queue.

Paul Hennessy -- Chief Executive Officer

Thank you.

Bob Krakowiak -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Sharon Zackfia of William Blair. Your question, please.

Sharon Zackfia -- William Blair -- Analyst

Hi, good morning. A couple of questions. I guess first it would be helpful to get an update on kind of how the recon cost is trending at your third-party partners versus your own facility particularly as you contemplate opening more owned facilities. And then secondarily, I guess it's obviously difficult to control what's going on with your third-party partners, but where is the staffing level now versus where you would ideally want it to be? And how confident are you in kind of those parties getting the staff in up to the levels you need in order to prepare for a tax refund season?

Paul Hennessy -- Chief Executive Officer

Great. I'll take that one. Thanks, Sharon. In terms of the cost structure, we continue to deploy the hybrid approach because would we see attractive cost structures both within our own and with it our third parties.

And so, we're managing that well and are comfortable with the reconditioning cost. In terms of trend, the overarching trend for reconditioning in terms of efficiency will start to decline as we scale in the near term is as you've heard from our prepared remarks and from the debt. In the near term, there's pressure, which leads to the second question, how confident are we in our third party. We're working with them directly to make sure that we've got the mechanics that we need, the staff that we need to get our output to where we needed to be.

And to dimensionalize that, we're modestly off of where we wanted to be in Q3. And again, modestly off from where we wanted to be in Q4. Thinking that in that couple hundred units maybe two 1,000 units and when you spread that across 30 reconditioning locations it's handfuls of the unit by location. So, we don't -- again, we see this as a transitory issue that our teams are working to solve rather than something that's structural in nature and in long term.

Bob Krakowiak -- Chief Financial Officer

Yes. Sharon, just to add to what Paul said. If you put the unit -- if you look at the units and context we were about 400 units below the low in the bar of our range for the quarter and then if you spread that across 30 reconditioning centers over a 90-day period you're basically talking about one vehicle every nine days. In terms of the overall impact that would drive that kind of shortfall.

So it's well with -- really, when you look at it that way, you look at the data to the labor constraint it has impacted our unit volume. And as Paul mentioned earlier, we're working hard to continue to expand our capacity with other third-party partners with our existing third-party partners and then making those strategic responsive strategic investments with them with our own dedicated capacity as well.

Sharon Zackfia -- William Blair -- Analyst

That's really helpful. I guess one other question. Are your agreements structured such that if the third parties are having labor pressure that that's passed on to you is that like a cost-plus arrangement or how does that kind of work?

Paul Hennessy -- Chief Executive Officer

Yeah. We don't share the particulars sharing of any of our agreements. We're confident we're working through the problem without it impacting costs in a material way for the long term. So we're -- I think we're in good shape there with our agreements.

Sharon Zackfia -- William Blair -- Analyst

Thank you.

Paul Hennessy -- Chief Executive Officer

Thank you, Sharon

Operator

Thank you. [Operator instructions] Our next question comes from the line of Seth Basham of Wedbush. Your line is open.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot. And good morning. I have a question around GPU, e-commerce GPU in the third quarter start just thinking that that huge increase in the mix of vehicles that you saw that was sourced from consumers. Those usually come with much higher GPUs, but that didn't seem to be reflected on a year-over-year basis improvement driven sequential improvement in your e-commerce vehicle GPU.

Can help us understand, why? 

Bob Krakowiak -- Chief Financial Officer

Sure, Seth. I mean, it's really along the same lines that we talked about in the third, fourth quarter. What's baked in our guidance in the fourth quarter it's just the incremental cost we're seeing on the logistics side and the other reconditioning side as well is really driving the difference.

Seth Basham -- Wedbush Securities -- Analyst

OK. And just a follow-up on that. If we look at your e-commerce GPU guidance for the fourth quarter $2,200 at the midpoint relative to $2,560 on your fourth or third quarter. That's a $360 decline and you're attributing that primarily to the higher reconditioning logistics cost, that's a pretty substantial increase on a three-month basis.

Bob Krakowiak -- Chief Financial Officer

That's correct. It is a substantial increase. And that's --if you look at the trends that's what we're seeing especially in more so in the reconditioning side and the logistic side, but that's -- those are the primary drivers.

Seth Basham -- Wedbush Securities -- Analyst

OK. And then lastly, if you look at the guidance for the full year around gross profit increase over 200%. It implies that gross profit dollars for the fourth quarter are going to be at the high end of that guided range and unless I'm doing the math wrong.

Bob Krakowiak -- Chief Financial Officer

No, you're doing the math correctly. That's the way to look at it.

Paul Hennessy -- Chief Executive Officer

Correct.

Seth Basham -- Wedbush Securities -- Analyst

Thank you.

Paul Hennessy -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Edward Yruma of KeyBanc Capital Markets. Your line is open.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hey. Good morning, guys. Thanks for taking the question. I guess first, good progress on the consumer-sourced vehicles.

That 81% thought is that kind of ahead of where you would buy in the longer term. Are there some downsides to having a high consumer-sourced percentage? I guess second, given, you guys talk through these reconditioning issues, are you slowing the buys? Or are you expecting that inventory levels of vehicle progress should increase in the interim? And that the final line, you guys are really transforming the business this year, how should we think about the longer-term algorithm around profitability given all the services you brought in-house? Thanks.

Paul Hennessy -- Chief Executive Officer

OK. Great. I'll start with that, and Bob can add comments at the end. In terms of a consumer source and Bob articulated this earlier, we're going to be good stewards of the business.

So, we're going to dial that in as appropriate based on what we're seeing on-demand where we're using all of our data scientists and algorithms to be good buyers and whether that number remains at 80% or 81% or drop down to 70% or 75% or are actually creeps up. That's something that we'll be evaluating over time and we're going to be opportunistic on the market. So if it turns out that there are cards that we want that are good deals and they happen to be at auction we'll do that. And if we continue on our kind of consumer care, we'll do that as well if that makes sense for our business.

In terms of the, are we ahead of schedule. We've been good at it's been in our DNA buying cars from consumers. We think that's super strategic for us not only because of the unique economics associated with those cars. But also, because that becomes a great target audience for us to sell cars too.

And so, we think it's strategic -- we've got the marketing right, we've got the algorithms, and we've got the people in the process now working right that allows us to get to 81% of our mix. So, we're really proud of that. And again, we'll be thoughtful on what the perfect mix is by quarter based on the market environment. Regarding these slowing buys, again, we're buying inventory based on our forecast and what we see not only in the fourth quarter, but what has been historically Q1 typically is a strong quarter for us.

So again, we're buying supply to match what we forecast the demand to be and so we -- that's reflected on the number of cars that you see on our website and as we scale that business. We ultimately know that that more cars drive better conversion. So again, we'll be a thoughtful quarter-to-quarter on what that right number is. So that we don't get into an oversupply situation or a missed opportunity situation in terms of undersupply in the business.

In terms of long-term profitability, again, I'll let Bob comment on that. But I think we'll be in a much better position as we complete the year-end and complete our potential. Our acquisition and our transaction with UACC to give you a better view of not only 2022 in the aggregate, but also what this business looks like going forward multiple years out.

Bob Krakowiak -- Chief Financial Officer

Yes. The only thing I would add to what Paul said is on the estimates side and I referenced it in my comments on the slide today, that we are starting to see leverage on totally full of e-commerce transactions and we continue to look at it on a per-transaction basis and expect to continue to see that leverage as we continue to ramp up volume next year. But I will have -- I'll have more to -- with respect to a long-term outlook, I'll have more to say after the UACC transaction closes.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Thanks so much.

Paul Hennessy -- Chief Executive Officer

Thank you.

Bob Krakowiak -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Alex Potter of Piper Sandler. Your line is open.

Alex Potter -- Piper Sandler -- Analyst

Hey, guys. One more question on the, I guess, the implied GPU guide in Q4 and it's clear that the labor the reconditioning costs, and logistics costs are a headwind. What are you, I guess, expecting for F&I attach rates as the ancillary products things like that. Do you expect that to be flattish versus Q3 or ticking down also?

Bob Krakowiak -- Chief Financial Officer

Yeah. Well, so thanks for the question. We don't guide specifically on what attachment rates are going to be for our product revenue. But I do want to say just a little bit more on the logistics aspect of the cost increase from the third quarter to the fourth quarter.

If part of the additional expense as well the reason this is transitory is we are doing some things shipping vehicles some additional distances between some of the reconditioning centers because of -- just because of capacity constraints. So, we are incurring that we are getting some additional mileage on an average transaction, and that's driving up costs plus. We have some rate inflation. But on top of the rate inflation, as we go into the holiday season, we generally see rates get up to move up a little bit around the Thanksgiving and the Christmas holiday.

But in addition to that, we are doing some things in terms of shipping to get some additional businesses to make sure that that we have enough fuel as possible to satisfy that the great demand that we have from our customers.

Alex Potter -- Piper Sandler -- Analyst

OK. Good. That's helpful. And then maybe one last one on marketing.

Looks like if I'm doing the math correctly it looks like you're marketing expense per e-commerce unit is maybe 1,600 or a little bit about that. In Q3 looks like guidance implies a similar level of spending maybe a little higher again in Q4. Just wondering if you can comment maybe a qualitatively on what are you working on, you've referenced a couple of national campaigns. Things like that.

But then also looking forward is this run rate level of spending is this something that you're sort of choice in the near term and then we'll come back down? Any qualitative and quantitative comments would be helpful. Thanks.

Paul Hennessy -- Chief Executive Officer

Yeah. Great. I'll take that on. Look we're building a super brand and so we will be good marketers both and in building our brand and telling our story and in the various media channels whereas that works well, as well as being very, very strong digital marketers to drive transactions in our business.

And so, we mentioned that we were working on a national campaign that led to some of the increase in the spend in the third quarter. And I'll tell you this, we're very pleased with the way that the marketing is not only building brand awareness. The trend in our brand awareness is exactly where we want it to be but also as you can see in the total transactions of our business, we're both buying a lot of cars and selling a lot of cars. So, we're feeling very, very positive about the job that the marketing is doing for us.

And so we'll continue to be on use that as a lever in our business to scale our business in the future. And so I'm very pleased with the outcome of our marketing initiatives.

Alex Potter -- Piper Sandler -- Analyst

Great. Thanks, guys.

Paul Hennessy -- Chief Executive Officer

Thank you. 

Bob Krakowiak -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from John Colantuoni of Jefferies. Your line is open.

John Colantuoni -- Jefferies -- Analyst

Thanks for taking my questions. Just a quick one on capex the $100 to $150 million that you mentioned. Can we think about that as a 2022 investment or multiple years? Maybe you could just give us a little bit more sense of the timing there. And then related to that based on the results from the last mile build-out, which seems to be going well, is the expectation that you'll continue to build the percentage of units delivered by Vroom trucks over time? And I have a follow-up.

Thanks

Bob Krakowiak -- Chief Financial Officer

Sure. John thanks so much for the question. With respect to the capex and so the first thing that we know we talked about in the queue that if you look at our in our capacity in a normal situation where we were fully staffed with our third-party locations we've got capacity for about 3,200 units a week. So, we take that, and you basically annualize it and that's why we're really focused right now on responsible capacity additions.

So, we're -- the primary focus right now is helping our partners step up the current locations that we have and making sure that they are dedicated group facility is fully staffed and as productive as possible. So that's always the lowest capital alternative and that's the first thing that we look at. In terms of the investments that Paul referenced, you would see that this would be over -- this would be over a few years. So there's no -- we're not saying that we're going to spend it all.

We are not going to spend it all next year. This is over the next three to four years. And with the additional probably being a one -- maybe two facilities. Would probably be one or two next year but not fully operational and that -- and probably not firing on all cylinders but if we're looking at this over a -- over a few-year period.

And then I'll have Paul take the second part of your question.

Paul Hennessy -- Chief Executive Officer

Yeah. On the last mile, we couldn't be happier with the progress that we've made. We're running ahead of schedule. We're delivering customers a great experience.

And we feel great about our run rate out of hitting our 50% target at year-end and we're going to keep going because the customers love it. At scale, you get efficiencies in your logistics. We can schedule not only the day of the delivery but the time of the delivery. And it's just a fundamentally better experience and as a result, our business gets much more predictable and with predictability comes efficiency.

So we're going to keep going on the last mile and we're really pleased with how it's going so far.

John Colantuoni -- Jefferies -- Analyst

Great. And just had one more on the wholesale segment midpoint of guidance for the wholesale segment is implying roughly a 30% sequential decrease in the number of units sold. Could you just talk about that kind of puts and takes here. Is this a reflection of a need to sell down a bit of an inventory buildup from the ramp in consumer purchases during Q3 and then maybe some elasticity headwinds to conversion from increased retail prices particularly given Vroom's inventory mix already skews to vehicles that are close to new vehicle prices? Thanks.

Paul Hennessy -- Chief Executive Officer

Yeah. I'll take that one. And the answer is no. That's not how we think about wholesale.

We didn't have an inventory buildup that -- then we ended up [Inaudible] into the wholesale market. When we put a price on every car that comes to us, right? And we're seeing massive demand for our product again because we've got this marketing mix in the machine cranking in terms of buying cars from consumers. We are an outstanding place to go. We get a disproportionate amount of wholesale cars that come into us and when we buy those cars, we sell them into the wholesale market.

And so that -- and then we're obviously looking to buy for retail because that's what fuels our growth business. But where we're not doing anything adverse to the retail business to move it into the wholesale market. And what you see in terms of the return, the gross profit per unit associated with the wholesale market that's because of the broader market and that effectively moves with this unprecedented all-time high market that we're operating in and that's just reflected there.

John Colantuoni -- Jefferies -- Analyst

Thanks so much.

Paul Hennessy -- Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from Nick Bacchus of Raymond James. Your line is open.

Nick Bacchus -- Raymond James -- Analyst

Hey, guys. Thanks for taking my question. A couple of quick ones. On your UACC, can you just talk about the timeline? Give us some more detail around the time for integration and when you would expect to start to see some benefits in terms of market-share gains and increased conversion in the sub-prime market? And then secondly, just on used car inventory, as that potentially starts to normalize perhaps next year.

Obviously, you've seen significant ASP growth this year. How do you think about that dynamic kind of pricing starts to normalize? Is that a headwind to that '22? Thanks a lot.

Bob Krakowiak -- Chief Financial Officer

Sure, Nick. Thanks for the question. So on UACC, we talked about it a little bit. So from the timing of the transaction closing late this year, early next year, and then in terms of -- that we've talked about, it is our goal and we will set up a captive finance structure to support a company.

We'll do some things initially that will allow us to go after some low-hanging fruit, and the teams are working together, but we're not going to comment on what the long-term outlook is going to look like until after the transaction closes. And then, Paul on the used car.

Paul Hennessy -- Chief Executive Officer

Yeah. Nick as far as the used car inventory returning to some normalcy. Look, we welcome that. I think, when we think about the inflated average selling price that we're seeing now that's really market-driven.

And that market is -- on the wholesale side about in excess of 45% since the beginning of the year. And on the retail side are off approaching 40% since the beginning of the year. So it's been frothy. We'll -- we've been good executors in some crazy markets.

We've been we've done an outstanding job navigating the tough waters of COVID. We've done an outstanding job navigating the tough markets of COVID resurgence and variance and then it was microchips in new cars. And we'll, again, continue to navigate those -- that supply and pricing environment by leveraging our data science and ours and our e-commerce platform and the smart folks who we've got in our business. And so what we expect in the longer term is that ASPs will start to come down again and we know that the bigger, broader market is ultimately in the $20,000 to $25,000 range and we expect that at a scale that's exactly where everyone will be operating.

So, we'll be taking advantage of the highest chance of the demand in that market. And you also ask the UACC question as we're better able to serve the sub-prime market. That will also move us down in average selling price as well because you can imagine on sub-prime customers are buying cars that are close to the $20,000 range. So, we expect to move with the market and move with the acquisition.

Nick Bacchus -- Raymond James -- Analyst

Thanks a lot. 

Paul Hennessy -- Chief Executive Officer

Thank you. 

Bob Krakowiak -- Chief Financial Officer

Thank you, Nick.

Operator

Thank you. Our next question comes from Naved Khan of Truist Securities. Your line is open.

Naved Khan -- Truist Securities -- Analyst

Yeah. Hi. Thanks a lot. Maybe turning to the GPU and e-commerce.

Can you just maybe talk about the different puts and takes there? It seems like you have been able to realize some efficiencies that allow staying price fluctuations. You could -- one could argue that this is a very favorable environment for pricing and therefore should retail into GPU, but maybe just caught on the different factors. How should we think about the sustainable GPU, excluding all this noise from ASP calculation? How should we think about that in a more normalized way?

Paul Hennessy -- Chief Executive Officer

I'll start and Bob will chime in. And again, you did a bit of a -- there's a bit of a broken record here. When logistics -- when there are capacity constraints in the supply chain it adds delays in time and costs. So whether that's in our logistics or in our reconditioning or as Bob said, even in our logistics costs are up keeping up or moving inventory to make sure that we're balancing our work in progress and capacity so we can drive throughput.

Those are all drivers of expense. We're also operating in a very, very high price market. And just because we're paying a high price as you can imagine that means you have to sell us cars for high prices too. So there are not absolutely clear gains when you're paying a premium for inventory.

And I just would make one more point about the challenge, our used car prices average selling price is now at or above new car pricing. And so you can imagine that just puts a chilling effect on how much you can ultimately charge. So that's creating some pressure on our sales margin. So look, I think that the data science or our ability to buy cars from consumers, our ability to manage our business these are all structural fundamental improvements we've baked to the business.

And these incremental costs that we're seeing in logistics and recon are transitory. And that's really the way to think about it.

Naved Khan -- Truist Securities -- Analyst

Great. Maybe another question on consumer sourcing. Can you maybe just touch on how much are you relying on third party for the pickups, scope of efficiencies in doing this?

Paul Hennessy -- Chief Executive Officer

Yeah. We've got a hybrid approach. As we use third parties and we pick up cars ourselves and you can imagine with a growing fleet of last-mile that drops off cars. That's a logical time to pick up cars that drives efficiency in our network as well.

So it's a mix. We don't articulate exactly what that mix is. But look, what I can tell you is if we're leaning in on last-mile and building that out that that mix will shift to our own fleet to gain those efficiencies at scale.

Operator

Thank you. At this time, I'd like to turn the call over to Paul Hennessy for closing remarks. Sir?

Paul Hennessy -- Chief Executive Officer

Great. Thanks, everyone for joining the call, and a special thanks to all the Vroom employees and Vroom partners that can help us deliver a great Q3 and we're going to deliver a great Q4. Thanks, everyone.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Paul Hennessy -- Chief Executive Officer

Bob Krakowiak -- Chief Financial Officer

Zach Fadem -- Wells Fargo Securities -- Analyst

Rajat Gupta -- JPMorgan Chase and Company -- Analyst

Sharon Zackfia -- William Blair -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Alex Potter -- Piper Sandler -- Analyst

John Colantuoni -- Jefferies -- Analyst

Nick Bacchus -- Raymond James -- Analyst

Naved Khan -- Truist Securities -- Analyst

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