AUTO1 Group SE (AG1) Earnings Call Transcript & Summary

Hello, good afternoon, and good morning to American participants. Welcome to the Auto1 Group Second Quarter 2023 Results Presentation. I'm Philip Reicherstorfer, Group Treasurer. As always, I'm joined by Christian Bertermann, our Co-Founder and CEO; and Markus Boser, our CFO. We will start with the presentation followed by questions and answers. [Operator Instructions] Before I hand over, I must make you aware of the safe harbor provisions at the beginning of the presentation here. This will apply to any forward-looking statements made by management today. And now over to you Christian.

Thank you, Philip. Hi, everyone, and welcome to the AUTO1 Group Q2 Earnings Call. In Q2, we took a major step forward towards reaching EBITDA breakeven. Our team successfully executed initiatives that are leading the way to profitable and strong growth while we continue to move the European used car market onto our platform. We strongly improved our cost base and trading efficiency at the same time. As a result, we delivered record gross profit per unit for the full business. We achieved all that against the backdrop of challenging macroeconomic conditions in Europe and the used car market that was characterized by tight volumes and continued price pressure. We have mostly completed our work on the cost side, allowing us to switch gears now and start investing into growth again. We run a unique platform, and we are convinced that we have the power to transform one of the largest markets in the world to the better. Since the inception of the company, it has always been our goal to offer the best possible experiences for all of our customers, dealers and consumers alike. This conviction is determining everything that we do and is paramount for our product development strategy. We have built products that are category leaders in their areas and others like Autohero that are on their way to market leadership. We will add more products to the Auto1 ecosystem in the future that have the potential to multiply our current market share, driven by the strong value they will provide to our customer base. Taking a look at the market, we find ourselves in an ongoing tense environment. The AUTO1 Group price index shows prices in July of this year being 13.6% lower than in July of last year. Wholesale prices quickly and steeply dropped in the last Q4 before stabilizing again in the first half of this year. The drastic year-over-year market price change is still being digested by many merchants across markets. At the moment, we see a mixed picture. While some markets are already closer to normalized price levels, others are still remaining on quite high levels, like France, for instance. Many merchants have full inventories and are experiencing slow terms. They are step-by-step starting to discount their cars to match current consumer demand at lower price levels. This effect led to muted merchant demand levels over the last couple of months. We have the right tools and measures in place to manage these market conditions adequately, and we continue to support our partner dealers and customers to navigate this dynamic environment. Let's take a look at group financials for the last quarter. We continued our focus on the cost base and on trading efficiency to significantly improve profitability year-over-year. We delivered on that goal from every angle. Group adjusted EBITDA was negative EUR 14.8 million, a further improvement of EUR 10.3 million quarter-over-quarter and a very strong EUR 32 million step-up year-over-year. Total gross profit for the group was EUR 128 million, up around EUR 2 million year-over-year and the highest Q2 gross profit level so far. Group units sold were 142,000, mainly driven by a lower margin basket than one year ago. Overall, we are on a very good track to manage the dynamic market environment and our path to breakeven at the same in time. After thoroughly structured and efficient work on the cost side over the last 12 months, we are convinced that we now have the right structure in place to start investing into growth again. And everyone in AUTO1 is extremely excited about this. Let's switch to our different segments, and let's start with merchant. In Q2, we sold 127,000 units to our partners, generating gross profit of EUR 103 million for the quarter. This expresses the more muted merchant demand environment over the course of Q2 and this evidence of dealers across Europe in full inventories and experiencing slower term. While merchants adjust their inventory for falling prices, we continue to optimize our trading systems further during Q2. As a result, we reached a new record level for merchant GPU at EUR 810, 11% up year-over-year. With this GPU level, our merchant business now carries excellent unit economics and very good inventory turns, putting us in the position to start investing for profitable growth. Over the next couple of quarters, we will smartly invest into our dealer base with the goal to increase merchant basket and repeat purchasing behavior and at the same time, invest into the density of our purchasing network. We plan to expand our purchasing branch network across Europe to be even closer to our customers and make our product even more convenient. We started to add nodes to our network and locations, which are highly frequented by potential customers, such as parking lots or supermarkets. We believe that there is capacity to expand the branch network by more than 1,000 additional locations across Europe, and we're very excited about growing our footprint. So now let's take a look at retail. So our team's strong focus on Autohero unit economics is continuing to pay off. We are happy that this hard work and focus resulted in exceeding our year-end retail GPU target of EUR 1,500 already in Q2. We achieved a record retail GPU of EUR 1,680, representing a 62% increase compared to Q2 of last year. Despite having improved retail GPU to strong levels already, we aim to grow it even further for the rest of the year and beyond, step-by-step moving closer to our long-term target. Retail gross profit for Autohero increased by 52% to EUR 24.7 million year-over-year, up from EUR 16.3 million in Q2 of last year. Units came in at 14,400 vehicles sold in Q2. We would have liked to sell more units, but we're constrained in some of our production centers by hiring personnel fast enough. Nevertheless, we believe that prioritizing our in-house production strategy is the right thing to do to ensure our high level of customer satisfaction paired with solid financial results. Let's deep dive into our production center status. In June, 68% of all units sold were produced internally in one of our in-house production centers, while the internal production share increased by 240% compared to Q2 of last year, the quarter-over-quarter comparison shows slower growth than we had anticipated in the beginning of the year, mainly due to delays in hiring. Hiring for production centers is one of our top priorities right now. Taking a look at production itself, we were able to reduce cost in our flagship production center in Berlin brand book for the fourth quarter in a row. We are now at EUR 690 production cost per unit. That is EUR 330 lower compared to the cost we reported for that center in Q2 of last year. And the combined cost of all of our internal production centers is also decreasing, showing that we are on the right track of reproducing our learnings and best practices from our flagship facility to sites across Europe. External production costs slightly increased from Q1 to Q2 by EUR 40 per unit, reinforcing our strategy to in-house production to fully control cost and quality. Overall, I'm very satisfied with the optimized Autohero unit economics. It shows that we can continue to revolutionize how cars are being sold in the future by building a profitable, high market share growth product that continues to delight our customers. Our customer satisfaction is a very strong and sustainable levels. Over the course of the last quarter, we again achieved high Net Promoter Score levels of 72%, in line with the result of one year ago. Our Trustpilot score of 4.6 and first-time published ruble score of 4.3 across all markets demonstrate our internal assessment of customer happiness levels also externally. We are creating exceptional experiences for our customers, and we are convinced that this high customer satisfaction is the key to success. Taking a look at Autohero marketing efficiency. We continue to be on track. Overall, marketing cost per unit was flat in Q2 at EUR 700 per car deliver, which is in line with our plan to reach EUR 500 per car sold towards the end of the year. Let's do a summary of Q2 and take a look at what's coming up. With Zoom out, we started to lay the foundation for long-term profitable growth exactly 1 year ago in June 2022. Since then, we have made impressive progress towards adjusted EBITDA breakeven. We have improved our OpEx base by EUR 30 million year-over-year. We have delivered a new record for GPU and retail and in merchant and therefore, GPU for the total group. And combined, we can say that we have understood each of our businesses better than ever and have now reached a comfortable point from which additional top line growth will lead the way to breakeven. One, in our view, very likely calculation on how to reach that point is shown on the slide with about 30 additional retail units delivered at EUR 100 additional GPU and a 7.5% GP expansion in merchant, assumed to be mainly driven by units, we are reaching our goal. Each of those import factors could, of course, look differently in the final result, but gives you a sense of how close we are and how much operating leverage the business has from the point that we have reached today. We are confident and excited to start growing our top line again to first reach breakeven and then continue to grow strongly at profitable levels. We also want to take this opportunity and reiterate our long-term growth strategy. In the year ahead, we will very much focus on adding is to our platform. We will, on the one hand, grow using our existing products. We plan to grow our merchant segment by an increased investment into our dealer network and the density of our purchasing network. On the other hand, we believe that launching new products on our platform for our core customer base, our partner dealers will contribute to overall revenue growth in our large business segment by making them even more successful. Seeing our continued path to segment profitability in retail and the very positive trajectory on unit economics, '24 will be the year where we plan to return to substantial growth in units in our newest segment. Our increasingly powerful trading system will continue to generate strong network effects. With the value we generate for our customers and our constant commitment and unleash, we are convinced that we will grow our market share in the years to come and everyone at AUTO1 is excited about what lies ahead of us. I'm now handing over to Markus, who will give you a more detailed financial overview.

Thanks, Christian. Overall, our move over to profitability remains our target despite a difficult trading environment with our adjusted EBITDA improving to minus EUR 14.8 million as we've become better at both pricing our products and their true value, but also continue to improve our cost controls, notably by reducing our OpEx by almost 18% year-on-year and almost 10% quarter-on-quarter, while continuing to invest selective REIT. While units are down in line with many other market players, as Christian -- as Christian notes, we've been able to improve our profitability per unit significantly. As a result, we saw a marked improvement in our profitability while keeping gross profit at levels similar to Q1 despite declines in our seasonally weak Q2. If we compare our improved EBITDA quarter-on-quarter, we were able to compensate the lower gross profit of EUR 4.2 million through a combination of improved employee costs of EUR 3 million as well as a better position in other OpEx and other income, which primarily consists of a reversion of the increase in those additions in Q1. While marketing increased by EUR 2.5 million, this increase was exclusively in our WKDA purchase channel. We have continued to maintain a high level of cash, ending the quarter with EUR 554 million, a result of continued improvement in our cash conversion and our efficient balance sheet supported by our nonresource asset-backed securitization. Inventory remained stable at EUR 429 million. Our consumer loan portfolio, which are the loans on our balance sheet for making consumer loans in Germany and Austria increased 8% quarter-on-quarter. Note that these loans are refinanced through our consumer loan securitization. Lastly, we've been much more efficient with our CapEx spend than expected. Evenly spent around EUR 6 million on CapEx in the first half of the year. Notwithstanding our investments to densify our purchase network in the second half of the year, we are reducing our CapEx guidance from EUR 50 million to circa EUR 16 million for this year. In terms of our guidance, we are taking our profitability guidance up and our unit guidance slightly down. These revisions reflect our ongoing focus on profitability, as you've seen in our results. On our merchant units, we are amending our year-end guidance to reflect the first half performance, and so we believe that we will end the year with 560,000 units plus minus 5%. At the moment, we are run rate towards the low end of that guidance and we believe we can grow towards the top, but much depends on how the end of the year evolves, particularly December seasonality. In retail, we are expecting to sell 65,000 units in 2023, plus/minus 5%, reflecting the current speed of the build-out of our production capacity and therefore, our focus on overall Autohero profitability. On our financial guidance, we are maintaining our existing guidance of EUR 500 million to EUR 550 million of gross profit for 2023, but believe that we will end the year in the mid- to upper half of this range. On adjusted EBITDA, we are increasing our profitability guidance from minus EUR 60 million to minus EUR 9 million to minus EUR 50 million to minus EUR 70 million, reflecting our improving profitability and positive expectations. Overall, we continue in improving our unit economics, having established the conditions to invest effectively to pivot back to growth. With that, I'd like to open up to Q&A.

I am Rafael, your zoom operator. [Operator Instructions]

Thank you, Rafael. And we will start with Catherine O'Neill from Citi.

Great. I have a few questions actually. To start with, I wondered if you could give us a bit more detail on how you think about getting back to group unit growth? And what makes you confident you can get back to growth without giving up some margin. And I guess more specifically, what type of products you're looking to add and the time frame of getting to the 17,000 units per quarter Autohero?That's the sort of first set of questions. Secondly, you were talking about the sort of hiring challenges around production. I just wondered how you're addressing those and whether you expect that to continue to be a constraint into 3Q for Autohero units? And on GPU, merchant GPU, in particular, where you're now above EUR 800. Do you see this as a sustainable level and one we should assume can be ongoing? And then finally, actually on your target free cash flow breakeven in 2024, I just wondered if you could provide a bit more detail around the assumptions on things like minimum unit volume, GPU expansion, how much of your inventory you expect to be financed by ABS and CapEx for us to think about the bridge to get there.

Thank you, Catherine. So these were a couple of questions. So the first one -- so the first one was how do we plan to get back to unit growth? And maybe I would take the merchant unit growth perspective first. So we think that -- as I referred to in the presentation, we're seeing at the moment in an environment with more muted demand versus 2022. So if you compare the basket with 2019, you could also say that we are heading towards a more normalized merchant demand environment. So out of the perspective from 2022, it's more muted because we're seeing a lower basket year-over-year versus 2019, it's actually more in line, which I would call the last normal year. So number one is we are adjusting ourselves to that new reality, and we will increase our investment into the dealer network. That means, namely investment, for instance, in our number of sales representatives and also in features and tools on the platform to increase merchant demand on a relative base. So I think that's part one of the answer. Then part 2 of the answer is units are in remarketing are down so much year-over-year, not only because of more muted demand versus 2022 levels, but especially as certain units were managed out because of profitability requirements. So in remarketing, we've made substantial progress towards profitability. If you take this part of the business, which is reported as one segment together with the C2B business under merchant. But if you look at it separately, which we're not disclosing, then we have made substantial progress in profitability there. And we think that, for instance, an extension in remarketing, adding a product extension in remarketing that does not require, for instance, us transporting every car, us putting every class shortly on balance sheet for remarketing. So actually like a more, let's say, base light model that this can actually lead back the way to the units that we used to see in remarketing in 2022. But while actually growing profitable and not at the negative profitability that we have seen last year. Time frame for Autohero to move to, I think you said 17,500 units. I don't know you.

I read from your presentation, I think there was a 72,000.

Yes, exactly. Yes. Obviously, we wanted to do it as fast as possible. I think the official CFO answer, Markus, would be.

I mean I think if you take a look at our overall unit guidance and subtract what we've done so far, we should be able to get there by the end of the year.

Okay. And then talking about hiring challenges in production, yes, they are still a constraint to a certain extent right now. I mean, we're working with a lot of focus and I think with very innovative ideas, especially our European footprint as a company helps us. I mean, we have offices in almost every country and also have potential to hire there. So there will also be the potential to bring mechanics from other regions, for instance, from Spain or from Eastern Europe into the centers that are missing those. So I would expect it to be a short-term constraint, but I can see that we're making progress here. With respect to merchant GPU, is this a sustainable level? Maybe we have overdone it a little bit. If you look at the fact that we reduced total gross profit in merchant. So I would say maybe we can be there EUR 20, EUR 30 lower, maybe EUR 40 lower, but then have substantially more units. That's actually also one of the optimizations that we're constantly at the moment going through with the goal to bring in the absolute highest possible euro amount in total gross profit. So I would think probably it makes sense to reduce it a little bit in favor of more units. But I would say also only slightly. So we also like that level because it's bringing in a lot of additional margin. In the cash flow question, I would refer to Markus.

Sure. So in terms of our plan to a cash flow breakeven, I think as we talked about, a lot of it is really a combination of on the one hand, GPU and on the other hand, units to build out. So if we think about getting from our $14.8 million adjusted EBITDA kind of bridging that down to profitability and then to cashflow. We see that on a quarterly basis, we have probably around another $10 million or so of additional lease expenses. As I mentioned, we spent $6 million in the first half of the year in CapEx and see that going up a little bit in the second half of the year more from the catch-up of refurbishment. And already, when we first talked about our CapEx expectation, we had already -- the branch increase is something that we were already thinking about at the very beginning of the year, but I think now have made it much more concrete, and I think know much more about the actual expenditure that we have. The cash flow usage from the consumer financing facility, we expect to disappear over the course of next year as we change the refinancing from today a private financing get a rating and are able to securitize that in the public market. And then are still getting around less loan to value on the inventory. So I think from that, you can get, I think, some idea of where we are kind of from adjusted EBITDA to net income other cash flow items. In terms of really bridging on the net income side of things because I think you're talking now about sort of the CapEx and the working capital around consumer loans and inventory, I think kind of step 1 is really to bring Autohero to breakeven. We haven't provided specific guidance around that, but it's -- again, it's a combination of getting to the units, I would say, kind of north of where we were in Q1 to really make sure that we have the right kind of utilization of our people and facilities. But then it kind of -- we could become profitable there, even at relative -- just a slight increase in the GPU on other, where we're looking at towards the end of the year cost a little bit north of that or if we -- even at lower units, we then, of course, need to increase the Autohero units so I think it's really finding a balance to the 2. Obviously, at the moment, we're trying to do both. So we'll increase the Autohero GPU and I think see a good road map clearly to the 1800. But as we talked about also north of that to our longer-term goal of the 3,000. I think the second point, as Christian talked about, is then really optimizing on the absolute gross profit in the merchant business. I think as we talked about, I think, in remarketing, I think you've done a very good job now of really making sure that we're at the right level of per unit profitability. And I think from there, we see a lot of opportunity to invest and grow that business. And likewise, on the C2B side, similarly see, I think, some opportunities to grow that business. And I think we don't need that much growth on the absolute gross profit to then the again kind of depends between the 2, between the balance of autoeroand the merchant business or for the entire business to become cash flow positive.

And now Lisa Yang from Goldman Sachs.

The first question is a follow-up to one of the previous questions. So it looks like a lot of the profitability improvement came at the expense of this especially at the Autohero level. So I'm just wondering if you could maybe help us maybe a out why -- what makes you confident that when to units grow again, this is not going to hurt your profitability or your GPU could even go backwards. And I think elite question, do you still see that post appetite for buying costs online? I guess, at the end of the day, that's the key question. And my understanding is that it still needs a lot of marketing spend to decade customers, but maybe I'm wrong. So that's the first one. The second question is on Autohero, obviously, you're already well target expectations, 1,800 at the end of 2023. So how do you see the GPU progression going forward in 2024, 2025? Should we expect like 100 million to 200 million - 100 to 200 per year or maybe 2024 could be flat if you're investing? So just maybe help us understand the trajectory for GPU progression from 2024. And the third question is on your refurbishing capability within Autohero. Could you maybe elaborate how much is in-house were external refurbs today? And how many cars you can now republish in-house, what do you think can get to by the end of the year and next year.

Thank you, Lisa. So if we talk about Autohero first and also demand for Autohero and your questions, it's like it's high marketing needed and when actually does the unit growth kick in. So we see Q2 units mainly as a result of sourcing lower units because of production center constraints. So April is for production center, quite a horrible month with all those holidays going on and also may still carries a lot of holidays. And if you have on top, not yet fully staffed your centers, then you are -- yes, you cannot buy that many units in order to refurbish them at the same production cost per unit, which clearly is something that we want to do and have also done. So we first and foremost would say, look, this is where we would see a constraint for Q2. We're actively solving it for also the answer that we've given to Catherine. We don't see any demand weakness on the Autohero and consumer side. So we see -- we've improved our systems by a lot, and we see a lot of demand for buying cars online, and this is specifically driven by the great experience that we are providing there. So the feedback that we're getting also what was shared on the slide at the very high NPS levels that we are makes us very confident that this is a category that will see very high growth rates in the future. And if we talk about marketing, I mean, we can say that we have reduced marketing cost per unit drastically and are targeting a euro investment level per unit of round about EUR 500, where we -- our business plan can run Autohero on a GPI level, so before central headquarter cost, which is our goal profitable, then that EUR 500 per unit is still quite an investment versus what other dealers are doing and specifically building up a venue that is, in my point of view, very valuable for the future because there's not that many venues in the online space that are actually collecting so much demand for car purchases, right? So I think it's -- just from that angle, also a highly valuable asset. And therefore, I think it's actually high marketing needed versus out of the perspective of a standard offline car dealer. But for us, in our calculation, it works, and it's great that we can spend that level even in a profitable case to further build up the brand and strengthen that value that I've been speaking about. So autinity view progress that we see upside also for 24. Markus, is there already some specifics that we would get.

So we're not giving any specific guidance for 2024. As you've seen, we obviously have, I think, that kind of clear goal towards getting to a large portion of getting to the 3,000 would depend on us having the securitizations from our own consumer finance and doing that not just in Germany and Austria, but also across all of our markets. So it's a -- that probably represents around 700 or 800 or so of that road to 3,000. So I think somewhere between what we stated as our goal to get into that 1,800 by year-end. And so we're below not having the impact of the securitization across all of Europe is likely where we will be during the course of 2024, but I think not giving any guidance here.

And your last question was on production center capacity and internal refurbishment capacity. So we are per this slide, at the moment, refurbishing around about 60 to 68% of our cars internally, and we see continued upside in that number. So we are still aiming as fast as possible to ramp up that share to 90%. We believe that we can also get there until year-end. But at the moment, yes, it's a little bit lower than we had anticipated it. And if you would think, okay, what's our current refurbishment capacity. If you look at the cars that are sold and internally refurbished. And I think it will still require one more step to actually go to the 17,500 at the high internalization share that we want to reach. So it's pretty much kind of ton strengths that we're managing in parallel because we do not want to dilute our Autohero profitability via going to external refurbishment.

Now over to Adam Berlin from UBS.

Adam, I think we can't hear you.

I think Adam wanted to know about the strategy to deliver Autohero volume growth in '24 and beyond and where we get the cars from.

If that's the question, then the answer is we continue to see that the majority of those costs will come from our own sourcing. So that means our C2B channels and also our remarketing channels. We continue to see good conversion rate improvement as we are driving up also more and more algorithm, let's say, efficiency driven by more and more retail transactions with respect to the price level that we can actually quote in Autohero. So in other words, our data algorithms are learning and learning and learning every minute and our that we do this business. And therefore, we remain on the primary source of -- at the moment, the source of Autohero cars will pretty much stay the same in '24. And then the main point for us is actually similar to the full business that we now are strongly convinced that the GP4 target that we have for Autohero, so to be profitable before headquarter, will be reached via additional units at those higher GPUs that we have been talking about. So it's pretty much a similar path across the full business to now invest into the areas that are generating more unit sales while improving Artrehero GPU only slightly versus current levels. And I think that will then give us decent growth potential because then we will feel really confident about adding those units to Autohero if we see those profitability improvements.

So Christian, can you hear me now?

Yes.

If I can have a follow-up. I think for this equity story to really work it, we need to see material growth in Autohero units. And all the things you just talked about just seem very marginal and incremental. I mean can you just say a bit more about trying size for us. Where are these cars going to come from that is going to mean we get -- we're selling -- originally especially hundreds and thousands of these Autohero units a year to get there, and we're struggling to sell 60,000. So I'm just trying to understand how we're going to deliver this big step-up in units over the next 5 years.

I think it's really about hitting that profitability milestone because as long as you're not profitable and you're scaling units, you can see how that went also for the competition, right? So we -- if we look at our monthly data, then we are step-by-step with every month improving profitability in Autohero on a per unit basis and also on a full euro calculation. And what we're at the moment doing is really increasing the units when we can. It's also like on a per country level where we're looking at this equation. But as soon as we hit GP4 profitability, then there is a lot of units that we're seeing in our funnel offered to us that we could process. But obviously, you also need to be able to progress them. At the moment, we have one a constraint in hiring as we refresh towards and b, a constraint in total profitability. So if we now added 40,000 units, let's say, Autohero in one quarter, then it would not look very nice for overall group profitability. And that's kind of the 2 or 3 constraints that we manage in parallel while we are advancing in that segment as well. But overall, I would not say that the equity story of AUTO1 is just Autohero, right? I think the equity story of AUTO1 is really launching products on a platform that is the central piece in the European used car market and maybe in some years also go global. But we are conceding Autohero as one product. We're seeing 3 2B is another product. We're seeing remarketing as another product, and we believe that there is 1, 2, 3, maybe 4 more products that we will add and we will disclose once they're ready. But for us, it's really about connecting the European used car market and making sure that we are transforming this market into the place that it deserves to be. And for us, Autohero is a vitor, but also, yes, only one of the puzzle pieces that it takes.

And now over to Andrew Ross from Barclays.

Andrew, can you unmute because we say we can't seem to hear you.

Sorry, can you hear me now?

Yes.

Sorry about that. I've got 2 more, if that's okay. First one is to ask about the retail market in terms of pricing in Germany. It kind of feels like there was a correction in the wholesale market late last year. And if you look at the Autohero index, for example, the retail market now seems to be softening. Can you talk through what you're seeing in terms of retail pricing and how you've budgeted for any softening in the GPU for Autohero over the next couple of quarters? And then the second question is on the marketing in merchants. It looks as though it went up quarter-on-quarter in Q2, you sold fewer cars. So can you tell us about what's going on in terms of marketing cost per car in merchant, any change in trends in that space?

Absolutely. So on retail market pricing, yes, it's completely correct what you're referencing, if you take constance German data and now to Scout data and other market players and also other European players will see similar, you can see like a very -- yes, in our point of view, a beautiful thing is like as we're tracking wholesale prices, you can see how actually the price development is then making their way into retail. So when I was referring in the presentation to merchants chewing through their inventory that they -- to a certain extent, have purchased at high prices, and that is exactly what is happening. So we're seeing it as one of the earliest or the earliest market participants at price levels change. We've already seen it in Q4. And now we've seen like a little bit further downward trend. And that is now what is happening in the retail market. So we're seeing that the retail market is now moving step-by-step lower, especially in Germany, but it also depends on the market. For instance, France is not yet correcting so much. And I think also there, the geopolitical situation, also like strong holiday season right now is actually leading to slower price added patients just to quote 2 markets that have a different price development curve. But eventually, all of that inventory is going to be repriced lower, but step by step. So what we would expect is that the market is continuously moving a little bit lower, but in a pace that has not drastically impacts our GPU, which you could have seen or can have seen also with the Q2 numbers. With respect to Autohero GPU, we are facing that downward trend is exactly as every other participant as well. And the numbers that we have reported in Q2 are already impacted by that downward price trends. So we are still confident that we have other measures to actually increase the GPU. So we would not see a major risk to not with our GPU target in Autohero, but we're seeing that effect on the market. And on marketing for merchant, your second question, we've seen increased euro spend level. That's mainly a function of seasonally more expensive TV spend. So TV still accounts for an important portion of our marketing mix. Q1 is the lowest TV seasonality scores because most of the retailers. I mean, noncar retailers, but retailers are buying the most of the volume in Q4 and Q1 will be the cheapest Q2 moves up. Q3 moves up Q4 as most expensive. So this is mainly an effect of that. But then if you calculate marketing cost per unit and obviously, it will be higher because we purchased lower units as a factor of this muted merchant demand or, let's say, normalized merchant demand basket and demand level that we have been already talking about.

Thanks, Christian. And we've got a few questions from Chris Johnen at HSBC.

First, there was a quote on the slide that says we'll refocus merchant on growth, including new platform products. I'm curious what that means. What are new platform products. I mean one of the other answers you were talking about working on a number of different new products to be market ready. Maybe I'm not up to speed, but I'm curious what that is. Yes. Second question, if I'm not mistaken, the advertising deals with Paris and WFE are coming down to an end or have already come down to end. I'm just curious what happens with the money on those deals that you're saving now? Will they be reinvested? Will we see an impact on that in H2? Also looking into next year? I'm just curious what your views are on that on the marketing spend side? And then maybe a bit more color on the ramp-up of the microbranches. Is there anything you can -- a bit more color, CapEx, OpEx per store, how many people it takes, what the operating environment looks like? Just to get a bit more of an idea also how long it takes to get to 1,000. Is that a long-term view?

Yes. Thank you for those questions. So on new products, I mean, the message that we wanted to send is we see the potential, and we're actively working on new products. While our philosophy will be to disclose products when they're ready and when we actually can talk about them what they are and how much volume contribution they could be in the future and so on. So with -- yes, with regard to that, I'm sorry that I cannot exactly detail what those products will be because I think it's only most only valuable for you, for the market and also for our customers if we can actually -- if we actually launch them. But the direction that we're thinking about is, on the one hand, products that involve finance. So supply and finance to more of our participants. And then on the other hand, we also feel like that there is the potential to add products where the processing and the way that we're doing, like I was referring for remarketing. At the moment, if you're a remarketing merchant, it's a very premium product that we're offering in remarketing. What I mean by that is we are transporting or collecting the car from you as a dealership. We are handling the paperwork. We are doing the balance sheet clearing for you. So the cars shortly on our balance sheet. We are dealing with the claims. So it's -- if you want so for -- out of the perspective of the dealership, it's a luxury product. So it's a premium handling, a premium processing product. And we see the potential to add an enhanced product or that product by actually providing a solution where all those requirements don't have to be met and you don't need to wait for a transport and potentially, you can actually clear the transaction yourself with another dealer. But that's kind of as far as I would go because I don't -- yes, I would like to talk about it once we are ready and once we know exactly what it is. But I also wanted to give this perspective to the market that this is not the end. So we think of AUTO1 as a platform that can carry many products and that step by step can broaden its reach across Europe and at some point also beyond. Referring to Paris Sage and WC sponsoring deals that were not renewed, so that's completely correct. So this was a way to build a brand awareness very, very fast, and that worked out very well. So Autohero made the trajectory to a very strong awareness levels, let's say, 3, 4, 5x faster than our C2B brands, but it also costs that much more. So we're not going to reinvest that euro amounts. We are instead at the lower marketing budget continue to run smaller brand campaigns and partnerships that we will also step-by-step disclose if there's something to announce there. But a lot of them are smaller and let's say, I would say, more suited to where we are now in the sense that we have a high brand awareness, and we can continue to use brand marketing to keep that brand awareness at the levels where it's currently at. And I think this describes more our strategy. With respect to the micro branch rollout CapEx, OpEx, I would refer to Markus.

Yes. So I think on the aberrant side on the net did vary much by size. So each one of them can vary all the way to being extremely small. But effectively, we want to be able to make them so that we can utilize our payroll most effectively as well as just getting the benefit of having customers who maybe not travel quite so far. On average, we see there being around 15 to 20,000 CapEx per branch. And we see the rollout happening really over the next 3 to 4 years to get into that thousand branches over the next 4 years at over the next few years that Christian talked about.

And I think just some of me also addresses maybe a little bit on Adam's question earlier, which is not only are we seeing a huge number of those cars in our existing funnel. But of course, as we expand that funnel, we expect that also to increase.

And then finally, we got Nizla from Deutsche Bank.

Great. Just a couple of questions from my end. A lot have been answered already. But when you think of your EBITDA sort of trajectory to in this year, I think previously, you've mentioned sort of a potential breakeven in Q4. Is that something you're comfortable for the group given the underlying economics you're seeing? That's question one. And secondly, when it comes to sort of C2B units, are you seeing an improvement in the merchant behavior going into sort of Q3 is sort of demand improving from certain countries that you can maybe comment on already, just to see what that trend is looking like right now. And yes, I guess my last question was on the rollout of those 1,000 additional sort of sourcing branches. You mentioned that it's in a few years. Is there an OpEx impact related to this as well? Or would that be absorbable.

Markus, maybe you take 1 and 3, and I talk about C2B kind of current perspective.

So on Q4 EBITDA or adjusted UDA break EBITDA, it's still very much our target. I think -- so very focused on that. I think the one caveat to that is that it, of course, depends on December seasonality. So we clearly see ourselves reaching it over the course of Q4. But as you saw last year, if in December sometimes, beater behavior could really slow down dramatically. And so I'd say that's the one caveat to achieving that, but that's still very much the focus for this year. In terms of -- I think your third question was on the OpEx impact. So yes, so I think in addition to the CapEx that I talked about, there are some rent costs associated with that. So we would be looking at a fairly opportunistic way to rent either in parking lots and places like that, that come with those branches. We kind of go from a broader assumption, I say, around 35,000 or so a year rents on average can be less or potentially a bit more. And I think there is some payroll associated with that. Again, because their micro branches trying to keep those to a relatively small amount of somewhere between 1 and 2 people per branch.

And with respect to the -- your second question is a C2B unit improvement. So I think we see like a slight upward trend. But I mean, we're also now in the middle of August. So this is seasonally quite low. So I think on relative terms, I would say it's looking a little bit better, but we would expect to have much more growth in September, October, November and then hopefully a decent December, as Markus was saying.

Okay. That is set with questions, and we're actually also exactly on the hours. So well timed to everybody, and thank you, Markus. Thank you, Christian. And you'll either see on one-on-ones or latest on the Q3 calls in early November.

Yes, totally. Thank you, everyone, for all those very insight questions and hope to see you soon.

Thanks all. Bye-bye.