Online used-car retailer Shift Technologies plans merger with CarLotz

Online used-vehicle retailer Shift Technologies Inc. said Tuesday it plans to combine with CarLotz, a used-vehicle consignment company, in a stock-for-stock merger.

The companies cited "complementary geographies" as a reason for the merger. CarLotz aims to use Shift's proprietary inventory acquisition software and at-home delivery offering to help obtain "differentiated inventory" and expand the geographic footprint in which it operates. Shift, in its announcement of the deal, said it wanted to use CarLotz's mid-Atlantic retail locations "to scale its dealer marketplace on the East Coast."

The companies didn't announce a name for the combined entity but said it will trade under Shift Technologies' SFT ticker symbol. Shift Technologies and CarLotz, which have each had challenging years adjusting to changes in the used-vehicle market, said they expected the transaction to close in the fourth quarter, pending shareholder and regulatory approvals. Upon the closing, the combined company is expected to have a cash position of about $125 million, Shift's announcement said.

"We are strongly convinced that the merger will put us in a position to pursue a profitable future," Shift Technologies CEO George Arison said in the statement, which was released ahead of Shift's second-quarter earnings release.

CEO transition

Arison will step down as Shift's CEO effective Sept. 1, the company also announced Tuesday.

Jeff Clementz, the current president of Shift, will step into the CEO role. Arison, who founded Shift in 2013, will stay on as chairman of the merged company's board of directors.

Shift Technologies' shares were up 15 percent to $1.47 in Tuesday after-hours trading.

Work force reduction

Shift said it was also implementing an updated business plan, which includes a work force reduction.

In a quarterly filing, the company said it will eliminate about 650 positions — 60 percent of its work force — through the third and fourth quarters.

In the last several months, it became apparent that Shift’s current business plan — which estimated profitability by 2025 — would be “extremely difficult to finance in the current market environment,” Arison told investors and analysts during the company's earnings call Tuesday.

“We needed to come up with an alternative plan that accelerates profitability, with significant lower volume and lower cash burn,” Arison said.

Second-quarter earnings

Later Tuesday, after the merger news, Shift announced a wider loss for the second quarter as it grappled with economic headwinds in the used-vehicle market, including rising interest rates and elevated gas prices.

Shift recorded a net loss of $52.2 million, larger than its loss of $31.7 million in the year-earlier period. Its total revenue rose 44 percent to $223.7 million in the quarter.

Shift’s volume of cars sold online rose 17 percent to 6,872 vehicles. But profitability for those cars fell 38 percent year over year to $1,729.

The company once again noted “substantial doubt” about its ability to continue as a going concern. Shift’s ability to keep operating depends on its ability “to obtain additional equity or debt financing or generate profitable operations,” it said in its regulatory filings.

Shift hopes its updated business plan will put it in a position to “reach positive unit economics” in 2023 and achieve “company-wide profitability” in 2024.

Q2 total revenue: $223.7 million, up 44 percent from a year earlier
Q2 net loss: $52.2 million, wider than its loss of $31.7 million a year earlier
Q2 retail vehicles sold: 6,872, up 17 percent
Q2 total gross profit per vehicle: $1,729, down 38 percent