SHIFT TECHNOLOGIES, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following management's discussion and analysis together with
our condensed consolidated financial statements and related notes included under
Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 8 of our
Annual Report of Form 10-K for the year ended December 31, 2021. This discussion
contains forward-looking statements about Shift's business, operations and
industry that involve risks and uncertainties, such as statements regarding
Shift's plans, objectives, expectations and intentions. Shift's future results
and financial condition may differ materially from those currently anticipated
by Shift as a result of the factors described in the sections entitled "Risk
Factors" and "Cautionary Note Regarding Forward-Looking Statements." Throughout
this section, unless otherwise noted "we", "us", "our" and the "Company" refer
to Shift and its consolidated subsidiaries.

Insurance Acquisition Corp. Merger

On October 13, 2020, Insurance Acquisition Corp. ("IAC"), an entity listed on
the Nasdaq Capital Market under the trade symbol "INSU", acquired Shift
Platform, Inc., formerly known as Shift Technologies, Inc. ("Legacy Shift"), by
the merger of IAC Merger Sub, Inc., a direct wholly owned subsidiary of IAC,
with and into Legacy Shift, with Legacy Shift continuing as the surviving entity
and a wholly owned subsidiary of IAC (the "Merger"). The public company
resulting from the merger was renamed Shift Technologies, Inc., which we refer
to as Shift, we, us, our, SFT, or the Company. Upon the consummation of the
Merger, Shift received approximately $300.9 million, net of fees and expenses.
For financial reporting purposes IAC was treated as the "acquired" company and
Legacy Shift was treated as the accounting acquirer.

Overview

Shift is a leading end-to-end ecommerce platform transforming the used car
industry with a technology-driven, hassle-free customer experience.

Shift's mission is to make car purchase and ownership simple - to make buying or
selling a used car fun, fair, and accessible to everyone. Shift provides
comprehensive, technology-driven solutions throughout the car ownership
lifecycle:

•finding the right car,

•a seamless digitally-driven purchase transaction including financing and
vehicle protection products,

•an efficient, fully-digital trade-in/sale transaction,

•and a vision to provide high-value support services during car ownership.

Each of these steps is powered by Shift's software solutions, mobile
transactions platform, and scalable logistics, combined with the Company's
centralized inspection, reconditioning and storage centers, called hubs.

Recent Events

Project Focus Restructuring Plan

On August 9, 2022, the Company announced the implementation of Project Focus, a
restructuring plan designed to position the Company for long-term profitable
growth by prioritizing unit economics, reducing our operating expenses and
maximizing liquidity ("Project Focus", the "Plan"). The primary elements of the
Plan are as follows:

•Optimizing unit economics and GPU, by

•Streamlining all sales through Shift's most profitable online checkout channel,
which allows consumers to purchase a vehicle entirely online, and eliminating
test drives

•rebalancing inventory mix and assortment to favor Value vehicles, which Shift
defines as older than 8 years or over 80,000 miles

•Consolidating Shift's physical operations to three West Coast hubs in Los
Angeles, Oakland, and Portland to efficiently support our new, delivery-centric
fulfillment model, and closing seven existing hubs
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•Restructuring our workforce around our reduced physical footprint and
more-efficient fulfillment model, eliminating approximately 650 positions or 60%
of our workforce

•Undertaking additional efforts to reduce spending on overhead

We expect the reduction in force to be completed in the third and fourth
quarters of 2022 and the remaining aspects of Plan to be implemented by the end
of 2022.

In connection with the implementation of the Project Focus, we expect to incur
total cash charges of approximately $2.4, consisting primarily of severance and
other related personnel reduction costs. Additionally, we expect to recognize
approximately $11.5 to $14.5 million of non-cash lease impairment and other
charges related to closing physical locations in the third fiscal quarter of
2022.

The foregoing estimates are based upon current assumptions and expectations but
are subject to known and unknown risks and uncertainties. Accordingly, we may
not be able to fully realize the cost savings and benefits initially anticipated
from the Plan, and the expected costs may be greater than expected. See Part II,
Item 1A of this Quarterly Report on Form 10-Q under the heading "Risk Factors-
Risks Related to Our Financial Condition and Results of Operations." for more
information.

CEO Transition

On August 9, 2022, the Company announced that Jeffrey Clementz will succeed
George Arison, our co-founder, as the Company's Chief Executive Officer. Mr.
Arison will continue to serve in his capacity as Chairman of the Board of
Directors. Mr. Clementz previously served as our President since September 2021.
The Company has entered into a new employment agreement with Mr. Clementz in
connection with his appointment as Chief Executive Officer.


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Business Description

Launched in 2014, Shift operates vehicle inventory inspection, reconditioning
and storage centers. For the three months ended June 30, 2022, the Company had
$223.7 million in revenue, an increase of 44% compared to $154.9 million of
revenue for the three months ended June 30, 2021. For the six months ended June
30, 2022, the Company had $443.3 million in revenue, an increase of 70% compared
to $260.9 million of revenue for the six months ended June 30, 2021. By
targeting urban, densely populated markets, Shift has used direct-to-consumer
digital marketing and a responsive ecommerce sales approach to grow its market
penetration.

Shift's differentiated strategy offers a wide variety of vehicles across the
entire spectrum of model, price, age, and mileage to ensure that Shift has the
right car for buyers regardless of interest, need, budget, or credit.

For all ecommerce buyers, Shift offers a full suite of options to consumers to
finance and protect their vehicle through our mobile point-of-sale solution.
Through our platform, we connect customers to various lending partners for a
completely digital end-to-end process for financing and service products. A
customer can also complete a short online prequalification form and immediately
see a filtered view of cars that meet their budget based on the financing
options for which they are likely to be able to qualify. Customers can also get
approved for financing before they select a car, making it much more likely that
the customer will purchase a car from us.

Shift focuses on unit economics driven by direct vehicle acquisition channels,
optimized inventory mix and ancillary product offerings, combined with
streamlined inventory onboarding, controlled fulfillment costs, and centralized
software. For the three months ended June 30, 2022, Shift sourced 95% of its
inventory from consumer-sellers and partners driving improved margins and
customer acquisition cost. Our data-driven vehicle evaluations help ensure
acquisition of the right inventory at the right price to reduce days to sale. We
believe that a differentiated ability to purchase vehicles directly from
consumer-sellers provides Shift access to a deep pool of scarce, highly
desirable inventory.

Sellers are able to go to Shift.com, submit information on their car, and get a
quote instantly. Shift uses a proprietary algorithm for pricing that utilizes
current market information about market conditions, demand and supply, and car
option data, among other factors. Using proprietary pricing and Shift-built
mobile diagnostic tools, Shift provides an immediate quote for a customer's
trade-in vehicle, and will schedule an on-demand evaluation at the customer's
location by a member of Shift's staff. Shift provides selling customers with
information on market rates and, when a customer is ready to sell their car, we
can digitally initiate e-contracting and an ACH transfer and conveniently take
the car on the seller's behalf so the seller doesn't even have to leave his or
her home to sell their car.

Over time, we intend to expand our machine learning-enabled recommendation
engine to better help customers find the cars best suited to them. Customer
response to the Shift experience is extremely positive, resulting in a rating of
4.4 out of 5 stars on Trustpilot as of July 2022, compared to a weighted average
review of 2.3 out of 5 stars for our two largest ecommerce peers. These positive
experiences are expected to allow Shift to serve customers over the entire
lifecycle of vehicle ownership and retain customers for repeat sales and
purchases. By continuing to invest in services that benefit the customer
throughout the ownership phase of the lifecycle, we will continue to establish a
long-term customer base that will return for future transactions.


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Revenue Model

Shift's two-sided model generates value from both the purchase and sale of
vehicles along with financing and vehicle protection products. We acquire cars
directly from consumers, partners, and other sources and sell vehicles through
our ecommerce platform directly to consumers in a seamless end-to-end process.
This model captures value from the difference in the price at which the car is
acquired and sold, as well as through fees on the sale of ancillary products
such as financing and vehicle protection products, also referred to as finance
and insurance ("F&I"), and services. If a car that we purchase does not meet our
standards for retail sale, we generate revenue by selling through wholesale
channels. These vehicles are primarily acquired from customers who trade-in
their existing vehicles in connection with a purchase from us. Our revenue for
the three months ended June 30, 2022 and 2021, was $223.7 million and $154.9
million, respectively. Our revenue for the six months ended June 30, 2022 and
2021, was $443.3 million and $260.9 million, respectively.

Inventory Sourcing

We source the majority of our vehicles directly from consumers and partners who
use the Shift platform to resell trade-in and other vehicles. These channels
provide scarce and desirable local inventory of used cars of greater quality
than those typically found at auction. In addition to those primary channels, we
supplement our vehicle acquisitions with purchases from auto auctions, as well
as some vehicles sourced locally through the trade-in program of an original
equipment manufacturer ("OEM").

Proprietary machine learning-enabled software inputs vast quantities of data
across both the supply and demand sides to optimize our vehicle acquisition
strategy. As we accumulate data, we expect to improve the performance of our
model to optimize our vehicle selection and disposal.

Vehicle Reconditioning

All of the cars Shift sells undergo a rigorous 150+ point mechanical inspection
and reconditioning process at one of our regional reconditioning facilities (or
at a third-party partner when additional capacity is needed, such as during the
establishment of a new hub location) to help ensure that they're safe, reliable,
up to cosmetic standards, and comfortable. We have created two classifications
of inventory for reconditioning - Value and Certified - to optimize the level of
reconditioning for each vehicle classification. This allows us to efficiently
provide each customer with the greatest value through a tailored reconditioning
approach. Value cars are typically sold at a lower price point and are sought
after by consumers who have different expectations and tolerances for cosmetic
reconditioning standards - therefore, we focus on mechanical and safety issues
for these vehicles, with less emphasis on cosmetic repair, in order to optimize
reconditioning costs. This operational flexibility in our reconditioning process
improves our ability to grow profitably and is a primary factor in our decision
to conduct reconditioning in-house.

Logistics Network

The primary components of our logistics network consists of intra-city Shift
personnel and inter-city third-party carriers. Shift personnel are able to
transport vehicles to and from customers, while providing a customer friendly
white glove experience, including delivery and disposal. This provides the
benefit of a seamless experience as well as an on-site sales support agent to
guide the customer through the process. Our agreements with long distance
haulers allow us to combine the nodes in our network and deliver vehicles
between cities. The Company has also recently invested in in-house long-distance
hauling capabilities. Strategically, this provides customers with a broad set of
inventory and a great speed of delivery.

Financing and Vehicle Protection Products

We generate revenue by earning no obligation referral fees for selling ancillary
products to customers that purchase vehicles through the Shift platform. Since
we earn fees for the F&I products we sell, our gross profit on these items is
equal to the revenue we generate. Our current offering consists of financing
from third-party lenders, guaranteed asset protection ("GAP") waiver, vehicle
protection plans and vehicle service contracts. We plan to offer additional
third-party products to provide a wider product offering to customers and expect
these products to contribute to reaching our revenue and profitability targets.
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Factors Affecting our Business Performance

Various trends and other factors have affected and may continue to affect our
business, financial condition and operating results, including:

Shift Marketplace Launch

Late in the second quarter of 2022, we soft launched our Shift Marketplace
powered by Fair (the "Marketplace"). Customers in the greater Los Angeles area
are able to shop inventory from both Shift's first-party owned vehicles and
third-party dealer partners. While still in the very early stages, we believe
the Marketplace business will be a significant contributor to our future growth.

Deeper Market Penetration Within Our Existing Markets

We believe that there remains a substantial opportunity to capture additional
market share within our existing service areas. We've proven our ability to
command a strong market share through effective marketing channels, as
demonstrated by our current market share in our most established cities.

Improvements in Technology Platform

We are constantly investing in our technology platform to improve both customer
experience and our business performance. We regularly implement changes to our
software to help customers find the right car for them, while the machine
learning component of our inventory and pricing model ensures we get the right
cars at the right price. As our algorithms evolve, we are able to better
monetize our inventory of vehicles through better pricing, while simultaneously
customers are much more likely to purchase a car on our website, thus driving
higher demand and sales volume.

Improvements in Reconditioning Processes

We learned early on from our experience in the used car sales business that to
be a reliable used car resource with desirable inventory for all customer types,
we needed to control our own reconditioning processes. Our reconditioning
program has constantly improved over the course of our history, and we are happy
with what we have achieved. Each unit of our inventory is reconditioned with a
focus on safety first, while optimizing for repairs that will have the highest
return on investment ("ROI"). We believe that our network of reconditioning
centers and connecting logistics routes have excess capacity, which we plan to
utilize as we increase retail sales volumes. Increasing capacity utilization
will positively affect gross profit per unit by reducing per unit overhead
costs.
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Growth in Other Revenue from Existing Revenue Streams

We have made great strides over the past two years developing our "other
revenue" streams, which comprise the financing and vehicle protection products
that we can offer on our digital financing platform, and other ancillary
products. We have invested in the technology, as well as the sales team, to
increase the likelihood that consumers will purchase ancillary products in
connection with the sale of a vehicle, and we see more opportunity for
additional revenue within our existing channels purely from further expansion of
our attach rates for our entire financing and vehicle protection product suite.

Growth in Other Revenue from Expansion of Product Offerings

We see great opportunity to further expand our other revenue streams through
additional product offerings beyond the existing offerings on our platform.
These incremental revenue streams will come in the form of on-boarding new
lending partners to our existing loan program, as well as introducing entirely
new financing and vehicle protection products to offer our customers. We intend
to continue to grow this business segment to service every addressable need of
our customers during the vehicle purchase process.

Seasonality

We expect our quarterly results of operations, including our revenue, gross
profit, profitability, if any, and cash flow to vary significantly in the
future, based in part on, among other things, consumers' car buying patterns. We
have typically experienced higher revenue growth rates in the second and third
quarters of the calendar year than in each of the first or fourth quarters of
the calendar year. We believe these results are due to seasonal buying patterns
driven in part by the timing of income tax refunds, which we believe are an
important source of car buyer down payments on used vehicle purchases. We
recognize that in the future our revenues may be affected by these seasonal
trends (including any disruptions to normal seasonal trends arising from the
COVID-19 pandemic), as well as cyclical trends affecting the overall economy,
specifically the automotive retail industry.


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Impact of COVID-19

In March 2020, the World Health Organization declared a global pandemic related
to the rapidly growing outbreak of a novel strain of coronavirus known as
COVID-19, and in the following weeks, shelter-in-place ordinances were put into
effect in regions where Shift operates. We saw a slowing of vehicle sales
immediately following the shelter-in-place ordinances in March; however, within
five weeks, we were back near our pre-COVID-19 weekly sales volumes. Although
the ultimate impacts of COVID-19 remain uncertain, a 2020 survey found that 46%
of U.S. adults surveyed plan to use their cars more often and public
transportation less often in the future. Additionally, the pandemic has
accelerated trends of online adoption more broadly. We believe that this global
pandemic will push people to look to alternative means of personal
transportation, and our product is well suited to provide customers with a safe,
clean means of transportation, through our contactless purchase and delivery
processes. Therefore, while it remains possible that sustained or deepened
impact on consumer demand resulting from COVID-19 or the related economic
recession could negatively impact Shift's performance, we believe that Shift is
well positioned to weather the pandemic. In 2021 and 2022, pandemic-related
economic stimulus and constraints in the supply of new and used vehicles have
increased acquisition cost, demand and pricing for our products, while labor
shortages have abated since the initial pandemic lockdowns.

Ultimately, the magnitude and duration of the impact to Shift's operations is
impossible to predict due to:

•uncertainties regarding the duration of the COVID-19 pandemic and how long
related disruptions will continue;

•the impact of governmental orders and regulations that have been, and may in
the future be, imposed;

•the impact of COVID-19 on wholesale auctions, state DMV titling and
registration services and other third parties on which we rely;

•uncertainties related to the impact of COVID-19 variants and government actions
that that may be taken in response;

•uncertainties as to the impact of vaccination campaigns underway in key
markets; and

•potential deterioration of economic conditions in the United States, which
could have an adverse impact on discretionary consumer spending.

We will continue to monitor and assess the impact of the COVID-19 pandemic on
our business and our results of operations and financial condition as the
pandemic continues to evolve.

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Key Operating Metrics

We regularly review a number of metrics, including the following key metrics, to
evaluate our business, measure our progress and make strategic decisions. Our
key operating metrics measure the key drivers of our growth, including opening
new hubs, increasing our brand awareness through unique site visitors and
continuing to offer a full spectrum of used vehicles to service all types of
customers.

Ecommerce Units Sold

We define ecommerce units sold as the number of vehicles sold to customers in a
given period, net of returns. We currently have a seven-day, 200 mile return
policy. The number of ecommerce units sold is the primary driver of our revenues
and, indirectly, gross profit, since ecommerce unit sales enable multiple
complementary revenue streams, including all financing and protection products.
We view ecommerce units sold as a key measure of our growth, as growth in this
metric is an indicator of our ability to successfully scale our operations while
maintaining product integrity and customer satisfaction.

Wholesale Units Sold

We define wholesale units sold as the number of vehicles sold through wholesale
channels in a given period. While wholesale units are not the primary driver of
revenue or gross profit, wholesale is a valuable channel as it allows us to be
able to purchase vehicles regardless of condition, which is important for the
purpose of accepting a trade-in from a customer making a vehicle purchase from
us, and as an online destination for consumers to sell their cars even if not
selling us a car that meets our retail standards.

Ecommerce Average Sale Price

We define ecommerce average sale price ("ASP") as the average price paid by a
customer for an ecommerce vehicle, calculated as ecommerce revenue divided by
ecommerce units. Ecommerce average sale price helps us gauge market demand in
real-time and allows us to maintain a range of inventory that most accurately
reflects the overall price spectrum of used vehicle sales in the market. We
believe this metric provides transparency and is comparable to our peers.

Wholesale Average Sale Price

We define wholesale average sale price as the average price paid by a customer
for a wholesale vehicle, calculated as wholesale revenue divided by wholesale
units. We believe this metric provides transparency and is comparable to our
peers.

Gross Profit per Unit

We define gross profit per unit as the gross profit for ecommerce, other, and
wholesale, each of which divided by the total number of ecommerce units sold in
the period. We calculate gross profit as the revenue from vehicle sales and
services less the costs associated with acquiring and reconditioning the vehicle
prior to sale. Gross profit per unit is primarily driven by ecommerce vehicle
revenue, which generates additional revenue through attachment of our financing
and protection products, and gross profit generated from wholesale vehicle
sales. We present gross profit per unit from our three revenues streams as
Ecommerce gross profit per unit, Wholesale gross profit per unit and Other gross
profit per unit.

Average Monthly Unique Visitors

We define a monthly unique visitor as an individual who has visited our website
within a calendar month, based on data collected on our website. We calculate
average monthly unique visitors as the sum of monthly unique visitors in a given
period, divided by the number of months in that period. To classify whether a
visitor is "unique", we dedupe (a technique for eliminating duplicate copies of
repeating data) each visitor based on email address and phone number, if
available, and if not, we use the anonymous ID which lives in each user's
internet cookies. This practice ensures that we do not double-count individuals
who visit our website multiple times within a month. We view average monthly
unique visitors as a key indicator of the strength of our brand, the
effectiveness of our advertising and merchandising campaigns and consumer
awareness.

Average Days to Sale

We define average days to sale as the number of days between Shift's acquisition
of a vehicle and sale of that vehicle to a customer, averaged across all
ecommerce units sold in a period. We view average days to sale as a useful
metric in understanding the health of our inventory.

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Ecommerce Vehicles Available for Sale

We define ecommerce vehicles available for sale as the number of ecommerce
vehicles in inventory on the last day of a given reporting period. Until we
reach an optimal pooled inventory level, we view ecommerce vehicles available
for sale as a key measure of our growth. Growth in ecommerce vehicles available
for sale increases the selection of vehicles available to consumers, which we
believe will allow us to increase the number of vehicles we sell. Moreover,
growth in ecommerce vehicles available for sale is an indicator of our ability
to scale our vehicle purchasing, inspection and reconditioning operations.


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Results of Operations

The following table presents our revenue, gross profit, and unit sales
information by channel for the periods indicated:

                                                       Three Months Ended June 30,                                          Six Months Ended June 30,
                                             2022                  2021                Change                    2022                    2021                Change
                                                                                   ($ in thousands, except per unit metrics)
Revenue:
Ecommerce vehicle revenue, net         $      194,981          $ 129,688                   50.3  %       $     378,062               $ 218,642                   72.9  %
Other revenue, net                              9,220              5,075                   81.7  %              17,931                   9,094                   97.2  %
Wholesale vehicle revenue                      19,532             20,087                   (2.8) %              47,319                  33,118                   42.9  %
Total revenue                          $      223,733          $ 154,850                   44.5  %       $     443,312               $ 260,854                   69.9  %

Cost of sales:
Ecommerce vehicle cost of sales        $      191,695          $ 118,785                   61.4  %       $     372,560               $ 204,521                   82.2  %
Wholesale vehicle cost of sales                20,160             19,734                    2.2  %              48,087                  32,637                   47.3  %
Total cost of sales                    $      211,855          $ 138,519                   52.9  %       $     420,647               $ 237,158                   77.4  %

Gross profit:
Ecommerce vehicle gross profit         $        3,286          $  10,903                  (69.9) %       $       5,502               $  14,121                  (61.0) %
Other gross profit                              9,220              5,075                   81.7  %              17,931                   9,094                   97.2  %
Wholesale vehicle gross profit (loss)            (628)               353                 (277.9) %                (768)                    481                 (259.7) %
Total gross profit                     $       11,878          $  16,331                  (27.3) %       $      22,665               $  23,696                   (4.4) %

Unit sales information:
Ecommerce vehicle unit sales                    6,872              5,871                   17.0  %              13,586                  10,323                   31.6  %
Wholesale vehicle unit sales                    1,161              1,944                  (40.3) %               3,136                   3,471          

(9.7) %

Average selling prices per unit
("ASP"):
Ecommerce vehicles                     $       28,373          $  22,090                   28.4  %       $      27,827               $  21,180                   31.4  %
Wholesale vehicles                     $       16,823          $  10,333                   62.8  %       $      15,089               $   9,541                   58.1  %

Gross profit per unit(1):
Ecommerce gross profit per unit        $          478          $   1,857                  (74.3) %       $         405               $   1,368                  (70.4) %
Other gross profit per unit                     1,342                864                   55.3  %               1,320                     881                   49.8  %
Wholesale gross profit (loss) per unit            (91)                60                 (251.7) %                 (57)                     47                 (221.3) %
Total gross profit per unit            $        1,729          $   2,781                  (37.8) %       $       1,668               $   2,296                  (27.4) %

Non-financial metrics
Average monthly unique visitors               833,320            563,497                   47.9  %             828,088                 636,453                   30.1  %
Average days to sale                               63                 53                   18.9  %                  60                      50                   20.0  %
Ecommerce vehicles available for sale           5,359              5,200                    3.1  %               5,359                   5,200                    3.1  %



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We present operating results down to gross profit from three distinct revenue
channels:

Ecommerce Vehicles: The ecommerce channel within our Retail segment represents
sales of used vehicles directly to our customers through our website.

Other: The other channel within our Retail segment represents fees earned on
sales of value-added products associated with the sale of ecommerce vehicles.

Wholesale Vehicles: The Wholesale channel is the only component of our Wholesale
segment and represents sales of used vehicles through wholesale auctions.

                        Three Months Ended June 30, 2022

Ecommerce Vehicle Revenue, Net

Ecommerce vehicle revenue increased by $65.3 million, or 50.3%, to $195.0
million during the three months ended June 30, 2022, from $129.7 million in the
comparable period in 2021. This increase was partly driven by an increase in
ecommerce unit sales, as we sold 6,872 ecommerce vehicles in the three months
ended June 30, 2022, compared to 5,871 ecommerce vehicles in the three months
ended June 30, 2021. The increase in unit sales was driven by increased market
penetration in our existing markets and by increased inventory units available
for sale. The increase in sellable inventory levels was partly due to
investments that increased our reconditioning throughput.

The increase in ecommerce vehicle revenue was also partly due to an increase in
ecommerce ASP, which was $28,373 for the three months ended June 30, 2022,
compared to $22,090 for the three months ended June 30, 2021. This increase in
ecommerce ASP was primarily a reflection of increased demand for used vehicles
coupled with lower-than-average inventory levels across the domestic used
automotive market as a whole.

Other Revenue, Net

Other revenue increased by $4.1 million, or 81.7%, to $9.2 million during the
three months ended June 30, 2022, from $5.1 million in the comparable period in
2021. This increase was primarily due to strategic investments to enhance and
expand our ancillary product offerings to better monetize our unit sales.

Wholesale Vehicle Revenue

Wholesale vehicle revenue decreased by $0.6 million, or 2.8%, to $19.5 million
during the three months ended June 30, 2022, from $20.1 million in the
comparable period in 2021. The decrease was primarily due to a decrease in
wholesale unit sales as we sold 1,161 wholesale vehicles in the three months
ended June 30, 2022, compared to 1,944 wholesale vehicles in the three months
ended June 30, 2021. This decrease in wholesale vehicle revenue was offset by a
62.8% increase in ASP driven by favorable conditions in the wholesale auto
market.

Cost of Sales

Cost of sales increased by $73.3 million, or 52.9%, to $211.9 million during the
three months ended June 30, 2022, from $138.5 million in the comparable period
in 2021. The increase was primarily due to an increase in unit sales as we sold
8,033 total vehicles in the three months ended June 30, 2022, compared to 7,815
total vehicles in the three months ended June 30, 2021. The remainder of the
increase is due to increased buying and selling prices in the used auto market
as a whole, caused by constrained supplies of new and used vehicles.
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Ecommerce Vehicle Gross Profit

Ecommerce vehicle gross profit decreased by $7.6 million, or 69.9%, to $3.3
million during the three months ended June 30, 2022, from $10.9 million in the
comparable period in 2021. The decrease was primarily driven by a decrease in
ecommerce gross profit per unit, which shrank to $478 per unit for the three
months ended June 30, 2022, from $1,857 per unit in the comparable period in
2021. This decrease in ecommerce gross profit per unit was largely driven by
atypical vehicle appreciation witnessed in the comparable period of 2021.

The decrease in ecommerce vehicle gross profit was offset by an increase in
ecommerce units sold, as described in "Ecommerce Vehicle Revenue, Net" above.
This decrease in ecommerce gross profit per unit was largely driven by atypical
vehicle appreciation witnessed in the comparable period. Ecommerce vehicle gross
profit is expected to recover as cohorts of older inventory acquired at higher
prices (lower gross profit) are sold through and as our mix of vehicles shifts
towards a more balanced ratio of Core and Value vehicles. Shift defines Value
vehicles as being over eight years old or 80,000 miles.

Other Gross Profit

Other gross profit increased by $4.1 million, or 81.7%, to $9.2 million during
the three months ended June 30, 2022, from $5.1 million in the comparable period
in 2021. The increase was primarily driven by an increase in ecommerce units
sold, as described in "Ecommerce Vehicle Revenue, Net" above. The increase in
other gross profit was also partly due to an increase in other gross profit per
unit to $1,342 during the three months ended June 30, 2022, from $864 per unit
in the comparable period in 2021. Other revenue consists of 100% gross margin
products for which gross profit equals revenue. Therefore, changes in other
gross profit and the associated drivers are identical to changes in other
revenue and the associated drivers.

Wholesale Vehicle Gross Profit

Wholesale vehicle gross profit decreased by $1.0 million, or 277.9%, to $(0.6)
million during the three months ended June 30, 2022, from $0.4 million in the
comparable period in 2021. The decrease was primarily driven by a decrease in
wholesale gross profit per unit, which shrank to $(91) per unit for the three
months ended June 30, 2022, from $60 in the comparable period in 2021. The
decrease was primarily due to atypical vehicle appreciation in 2021 due to more
severe supply constraints and more favorable economic conditions; as well as a
temporary reduction in our acquisition of direct-to-wholesale vehicles as we
refine our pricing within this segment of our business.

Components of SG&A

                                                                                   Three Months Ended June 30,
                                                                          2022                 2021               Change
                                                                                        ($ in thousands)
Compensation and benefits(1)                                         $        25,985       $     23,778               9.3  %
as a % of revenue                                                            11.6  %           15.4   %
Marketing expenses                                                            10,457             10,913              (4.2) %
as a % of revenue                                                             4.7  %            7.0   %
Other costs(2)                                                                22,302             13,452              65.8  %
as a % of revenue                                                            10.0  %            8.7   %
Total selling, general and administrative expenses                   $        58,744       $     48,143              22.0  %
as a % of revenue                                                            26.3  %           31.1   %


____________

(1)Compensation and benefits includes all payroll and related costs, including
benefits, payroll taxes and equity-based compensation, except those related to
preparing vehicles for sale, which are included in cost of sales, and those
related to the development of software products for internal use, which are
capitalized to software and amortized over the estimated useful lives of the
related assets. Certain reclassifications have been made to the comparable
period to conform to the current presentation. Specifically, $1.2 million of
contractor costs were reclassified from other costs to compensation and
benefits, and $84 thousand of public relations costs were reclassified from
marketing expenses to other costs.

(2)Other costs include all other selling, general and administrative expenses
such as hub operating costs, vehicle shipping costs for internal purposes,
corporate occupancy, professional services, registration and licensing, and IT
expenses.
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Selling, general and administrative expenses increased by $10.6 million, or
22.0%, to $58.7 million during the three months ended June 30, 2022, from $48.1
million in the comparable period in 2021. The increase was partly due to an
increase in compensation costs of $2.2 million, driven by the increase in
average headcount from 930 to 1,198. Lastly, other costs increased by $8.8
million due primarily to increased selling costs in support of revenue growth.

Selling, general and administrative expenses have decreased as a percentage of
revenue from 31.1% to 26.3% as the Company increases in scale and begins to
achieve operating leverage.

                         Six Months Ended June 30, 2022

Ecommerce Vehicle Revenue, Net

Ecommerce vehicle revenue increased by $159.4 million, or 72.9%, to $378.1
million during the six months ended June 30, 2022, from $218.6 million in the
comparable period in 2021. This increase was partly driven by an increase in
ecommerce unit sales, as we sold 13,586 ecommerce vehicles in the six months
ended June 30, 2022, compared to 10,323 ecommerce vehicles in the six months
ended June 30, 2021. The increase in unit sales was driven by increased market
penetration in our existing markets and by increased inventory units available
for sale. The increase in sellable inventory levels was partly due to
investments that increased our reconditioning throughput.

The increase in ecommerce vehicle revenue was also partly due to an increase in
ecommerce ASP, which was $27,827 for the six months ended June 30, 2022,
compared to $21,180 for the six months ended June 30, 2021. This increase in
ecommerce ASP was primarily a reflection of increased demand for used vehicles
coupled with lower-than-average inventory levels across the auto market as a
whole.

Other Revenue, Net

Other revenue increased by $8.8 million, or 97.2%, to $17.9 million during the
six months ended June 30, 2022, from $9.1 million in the comparable period in
2021. This increase was primarily due to strategic investments to enhance and
expand our ancillary product offerings to better monetize our unit sales.

Wholesale Vehicle Revenue

Wholesale vehicle revenue increased by $14.2 million, or 42.9%, to $47.3 million
during the six months ended June 30, 2022, from $33.1 million in the comparable
period in 2021. This increase in wholesale vehicle revenue was primarily due to
a 58.1% increase in ASP driven by favorable conditions in the wholesale auto
market. The increase was partly offset by an decrease in wholesale unit sales as
we sold 3,136 wholesale vehicles in the six months ended June 30, 2022, compared
to 3,471 wholesale vehicles in the six months ended June 30, 2021.

Cost of Sales

Cost of sales increased by $183.5 million, or 77.4%, to $420.6 million during
the six months ended June 30, 2022, from $237.2 million in the comparable period
in 2021. The increase was primarily due to an increase in unit sales as we sold
16,722 total vehicles in the six months ended June 30, 2022, compared to 13,794
total vehicles in the six months ended June 30, 2021. The remainder of the
increase is due to increased buying and selling prices in the used auto market
as a whole, caused by constrained supplies of new and used vehicles.
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Ecommerce Vehicle Gross Profit

Ecommerce vehicle gross profit decreased by $8.6 million, or 61.0%, to $5.5
million during the six months ended June 30, 2022, from $14.1 million in the
comparable period in 2021. The decrease was primarily driven by a decrease in
ecommerce gross profit per unit, which shrank to $405 per unit for the six
months ended June 30, 2022, from $1,368 per unit in the comparable period in
2021.The decrease in ecommerce vehicle gross profit was also offset by an
increase in ecommerce units sold, as described in "Ecommerce Vehicle Revenue,
Net" above. This decrease in ecommerce gross profit per unit was largely driven
by atypical vehicle appreciation witnessed in the comparable period of 2021;
and, sell-through of inventory acquired in late 2021 during periods of
abnormally high used vehicle pricing, which we sold early in the first quarter
of 2022. Ecommerce vehicle gross profit is expected to improve through a more
balanced sales mix of older and newer vehicles as well as through the return of
normal depreciation and seasonality cycles.

Other Gross Profit

Other gross profit increased by $8.8 million, or 97.2%, to $17.9 million during
the six months ended June 30, 2022, from $9.1 million in the comparable period
in 2021. The increase was primarily driven by an increase in ecommerce units
sold, as described in "Ecommerce Vehicle Revenue, Net" above. The increase in
other gross profit was also partly due to the increase in other gross profit per
unit to 1,320 during the six months ended June 30, 2022, from $881 per unit in
the comparable period in 2021. Other revenue consists of 100% gross margin
products for which gross profit equals revenue. Therefore, changes in other
gross profit and the associated drivers are identical to changes in other
revenue and the associated drivers.

Wholesale Vehicle Gross Profit

Wholesale vehicle gross profit decreased by $1.2 million, or 259.7%, to $(0.8)
million during the six months ended June 30, 2022, from $0.5 million in the
comparable period in 2021. The decrease was partly due to the decrease in
wholesale gross profit per unit, which shrank to $(57) per unit for the six
months ended June 30, 2022, from $47 in the comparable period in 2021. The
decrease was primarily due to a combination of unusually low seasonally adjusted
prices in the wholesale market and a reduction in our direct-to-wholesale
vehicle acquisitions, which are typically significantly more profitable.

Components of SG&A

                                                                                      Six Months Ended June 30,
                                                                           2022                    2021               Change
                                                                                           ($ in thousands)
Compensation and benefits(1)                                         $     56,499               $ 47,140                  19.9  %
as a % of revenue                                                            12.7   %               18.1  %
Marketing expenses                                                         22,366                 26,240                 (14.8) %
as a % of revenue                                                             5.0   %               10.1  %
Other costs(2)                                                             43,416                 24,998                  73.7  %
as a % of revenue                                                             9.8   %                9.6  %
Total selling, general and administrative expenses                   $    122,281               $ 98,378                  24.3  %
as a % of revenue                                                            27.6   %               37.7  %


____________

(1)Compensation and benefits includes all payroll and related costs, including
benefits, payroll taxes and equity-based compensation, except those related to
preparing vehicles for sale, which are included in cost of sales, and those
related to the development of software products for internal use, which are
capitalized to software and amortized over the estimated useful lives of the
related assets. Certain reclassifications have been made to the comparable
period to conform to the current presentation. Specifically, $2.3 million of
contractor costs were reclassified from other costs to compensation and
benefits, and $149 thousand of public relations costs were reclassified from
marketing expenses to other costs.

(2)Other costs include all other selling, general and administrative expenses
such as hub operating costs, vehicle shipping costs for internal purposes,
corporate occupancy, professional services, registration and licensing, and IT
expenses.
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Selling, general and administrative expenses increased by $23.9 million, or
24.3%, to $122.3 million during the six months ended June 30, 2022, from $98.4
million in the comparable period in 2021. The increase was partly due to the
increase in compensation costs of $9.4 million, driven by the increase in
average headcount from 874 to 1,232. The increase was offset by a decrease in
marketing expense of $3.9 million, which resulted from abnormally high marketing
spend in the comparable period caused by overlapping marketing campaigns while
the Company transitioned to it current, more efficient brand marketing strategy.
Lastly, other costs increased by $18.4 million due primarily to increased
selling costs in support of revenue growth.

Selling, general and administrative expenses have decreased as a percentage of
revenue from 37.7% to 27.6% as the Company increases in scale and begins to
achieve operating leverage. The decrease in marketing expense as percentage of
revenue is also due to investments in brand marketing increasing the efficiency
of our marketing spend and the transition-related expense in the comparable
period discussed above.

Liquidity and Capital Resources

Sources of liquidity

Our main source of liquidity is cash generated from financing activities. Cash
generated from financing activities through June 30, 2022 primarily includes
proceeds from the Merger and PIPE financing completed in October 2020, issuance
of convertible notes and senior unsecured notes, and proceeds from the Flooring
Line of Credit facility with Ally ("Ally FLOC"). Refer to Note 7 - Borrowings
and Note 10 - Related Party Transactions in our "Notes to Condensed Consolidated
Financial Statements" for additional information.

On May 27, 2021, the Company completed a private offering of its 4.75%
Convertible Senior Notes due 2026 (the "Notes"). The aggregate principal amount
of the Notes sold in the offering was $150.0 million. The Notes accrue interest
payable semi-annually in arrears at a rate of 4.75% per year. The Notes will
mature on May 15, 2026, unless earlier converted, redeemed or repurchased by the
Company. See Note 7 - Borrowings in the "Notes to Condensed Consolidated
Financial Statements" for additional details regarding the Notes. The Company
used approximately $28.4 million of the net proceeds from the sale of the Notes
to pay the cost of the Capped Call Transactions (see Note 8 - Stockholders'
Equity (Deficit)), and is using the remaining proceeds for working capital and
general corporate purposes.

On May 11, 2022, in conjunction with the acquisition of Fair (See Note 2 -
Business Combinations), the Company entered into an agreement with SB LL Holdco,
Inc. ("SB LL Holdco") to a sale of $20.0 million aggregate principal amount of
6.00% Senior Unsecured Notes due May 11, 2025 ("Senior Unsecured Notes").

Since inception, the Company has generated recurring losses which has resulted
in an accumulated deficit of $550.0 million as of June 30, 2022. During the six
months ended June 30, 2022, the Company had negative operating cash flows of
$98.1 million. In the future, we may attempt to raise additional capital through
the sale of equity securities or through equity-linked or debt financing
arrangements. If we raise additional funds by issuing equity or equity-linked
securities, the ownership of our existing stockholders will be diluted. If we
raise additional financing by incurring indebtedness, we will be subject to
increased fixed payment obligations and could also be subject to restrictive
covenants, such as limitations on our ability to incur additional debt, and
other operating restrictions that could adversely impact our ability to conduct
our business. Any future indebtedness we incur may result in terms that could be
unfavorable to equity investors.
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Liquidity and Management's Plan

For the six months ended June 30, 2022 and 2021, the Company generated negative
cash flows from operations of approximately $98.1 million and $140.9 million,
respectively, and generated net losses of approximately $109.2 million and $74.4
million, respectively. As of June 30, 2022, the Company had unrestricted cash
and cash equivalents of $88.5 million and total working capital of $84.5
million. Since inception, the Company has had negative cash flows and losses
from operations which it has funded primarily through issuances of common and
preferred stock and through a reverse recapitalization via its merger with
Insurance Acquisition Corp. in October 2020. The Company has historically funded
vehicle inventory purchases through its vehicle floorplan facilities (see Note 7
- Borrowings to the accompanying condensed consolidated financial statements).
In addition, the Company has entered into an "At the Market" (ATM) facility that
allows it to raise capital via the sale of its Class A Common Stock ( see Note 8
- Stockholders' Equity (Deficit) to the accompanying condensed consolidated
financial statements). The Company also continually assesses other opportunities
to raise debt or equity capital.

The Company's plan is to raise capital, whether through the ATM or other
capital-raising efforts to provide net proceeds which the Company believes will
be sufficient to provide the liquidity necessary to satisfy its obligations over
the next twelve months. The Company's ability to raise capital from the ATM
facility may be constrained by the price of and demand for the Company's Class A
Common Stock. There can be no assurance that net proceeds from the ATM will be
sufficient, or that the Company will be able to complete its other planned
capital raising efforts and raise sufficient additional capital that will
provide it with sufficient liquidity to satisfy its obligations over the next
twelve months.

The Company has also begun to implement the Project Focus Restructuring Plan
("Project Focus", the "Plan"), which is designed to improve the Company's
liquidity by improving unit economics and reducing selling, general, and
administrative expenses. The Plan seeks to achieve these goals by eliminating
less profitable fulfillment channels, consolidating operations into fewer
physical locations, and reducing headcount accordingly. Please see Note 16 -
Subsequent Events to the accompanying condensed consolidated financial
statements for additional information.

In August 2022, the Company announced the Agreement and Plan of Merger between
the Company and CarLotz, Inc. (the "CarLotz Merger"). The Merger is expected to
close in the fourth quarter of 2022, contingent upon the resolution of customary
conditions to closing. The CarLotz Merger is expected to increase the liquidity
available to the combined entity by adding the cash resources of legacy CarLotz
to the combined entity and obviating the need for legacy Carlotz to invest in
technologies already developed by Shift. There can be no guarantee that the
conditions to closing will be met, or that once closed the acquisition will
provide any of the expected benefits.

In accordance with Accounting Standards Update No. 2014-15, Disclosure of
Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic
205-40), the Company has evaluated whether there are conditions and events,
considered in the aggregate, that raise substantial doubt about the Company's
ability to continue as a going concern within one year after the date that the
condensed consolidated financial statements are issued or available to be
issued. Management determined as a result of this evaluation the Company's
losses and negative cash flows from operations since inception, combined with
its current cash and working capital position, raise substantial doubt about the
Company's ability to continue as a going concern.

The condensed consolidated financial statements have been prepared on a basis
that assumes the Company will continue as a going concern which contemplates the
realization of assets and satisfaction of liabilities and commitments in the
ordinary course of business. Accordingly, the accompanying condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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Debt obligations

See Note 7 - Borrowings of the "Notes to Condensed Consolidated Financial
Statements" for information regarding the Company's debt obligations.

Cash Flows - Six Months Ended June 30, 2022 and 2021

The following table summarizes our cash flows for the periods indicated:

                                                                               Six Months Ended June 30,
                                                                               2022                    2021
                                                                                   ($ in thousands)
Cash Flow Data:
Net cash, cash equivalents, and restricted cash used in operating
activities                                                             $     (98,133)              $ (140,879)

Net cash, cash equivalents, and restricted cash used in investing
activities

                                                                   (23,430)                  (5,855)
Net cash, cash equivalents, and restricted cash provided by financing
activities                                                                    27,504                  150,903


Operating Activities

For the six months ended June 30, 2022, net cash used in operating activities
was $98.1 million, a decrease of $42.7 million from cash used in operating
activities of $140.9 million for the six months ended June 30, 2021. The change
is due to an increase in net loss of $34.8 million, an increase in cash used to
pay accrued expenses of $15.2 million, a decrease in stock-based compensation of
$4.5 million, offset by an increase in depreciation and amortization of $2.1
million, an increase in the change in fair value of financial instruments from
2021 of $5.6 million, an increase of $21.1 million in cash provided by
collections of accounts receivable, a decrease in cash used to acquire inventory
of $59.4 million, and a decrease in cash used to pay accounts payable of $7.3
million.

Investing Activities

For the six months ended June 30, 2022, net cash used in investing activities of
$23.4 million was primarily driven by the purchase of the Marketplace Assets
from Fair Financial Corp. (See Note 2 - Business Combinations of the "Notes to
Condensed Consolidated Financial Statements") as well as capitalization of
website and internal-use software costs and purchases of capital equipment.

Financing Activities

For the six months ended June 30, 2022, net cash provided by financing
activities was $27.5 million, primarily due to net proceeds from the Senior
Unsecured Notes of $20.0 million and the Flooring Line of Credit of $10.6
million (See Note 7 - Borrowings of the "Notes to Condensed Consolidated
Financial Statements").

Contractual Obligations

As of June 30, 2022 and December 31, 2021, the Company reported a liability for
vehicles acquired under OEM program of $4.4 million and $3.6 million,
respectively. The Company records inventory received under the arrangement with
the OEM equal to the amount of the liability due to the OEM to acquire such
vehicles. The liability due to the OEM provider for such acquired vehicles is
equal to the OEM's original acquisition price.

The Company has various operating leases of real estate and equipment. See Note
11 - Leases to the accompanying condensed consolidated financial statements for
further discussion of the nature and timing of cash obligations due under these
leases.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, including guarantee
contracts, retained or contingent interests, certain derivative instruments and
variable interest entities that either have, or are reasonably likely to have, a
current or future material effect on our condensed consolidated financial
statements.
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Critical Accounting Policies and Estimates

See Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual
Report on Form 10-K for the year ended December 31, 2021. There have been no
material changes to our critical accounting policies and estimates since our
Annual Report on Form 10-K for the year ended December 31, 2021 except as
described in Note 1 - Description of the Business and Accounting Policies to the
accompanying condensed consolidated financial statements under the heading
"Recently Adopted Accounting Standards."

Business Combination

We account for business combinations using the acquisition method of accounting,
which requires all assets acquired and liabilities assumed to be recorded at
their respective fair values at the date of acquisition. Any excess
consideration over the fair value of assets acquired and liabilities assumed is
recognized as goodwill. The determination of the acquisition date fair value of
the assets acquired and liabilities assumed requires significant estimates and
assumptions, such as, if applicable, forecasted revenue growth rates and
operating cash flows, royalty rates, customer attrition rates, obsolescence
rates of developed technology, and discount rates. These estimates are
inherently uncertain and subject to refinement. Depending on the nature of the
acquired assets, we use either the income approach or the cost to recreate
approach to measure the fair value of these intangible assets. Under the cost to
recreate approach, the company estimates the cost to re-create an equivalent
asset based on estimated labor hours, labor cost, other costs as applicable, and
appropriate profit margins. Under the income approach, the Company estimates
future cash flows and discounts these cash flows at a rate of return that
reflects the Company's relative risk. When estimating the significant
assumptions to be used in the valuation we include consideration of current
industry information, market and economic trends, historical results of the
acquired business and other relevant factors. These significant assumptions are
forward-looking and could be affected by future economic and market conditions.
We engage the assistance of valuation specialists in connection with determining
fair values of assets acquired and liabilities assumed in a business
combination.

Available Information

Our website is located at www.shift.com, and our investor relations website is
located at www.investors.shift.com. Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, our Proxy Statements, and any
amendments to these reports, are available through our investor relations
website, free of charge, after we file them with the SEC.

We webcast via our investor relations website our earnings calls and certain
events we participate in or host with members of the investment community. Our
investor relations website also provides notifications of news or announcements
regarding our financial performance and other items of interest to our
investors, including SEC filings, investor events, press releases, and earnings
releases. Further, corporate governance information, including our certificate
of incorporation, bylaws, governance guidelines, board committee charters, and
code of conduct, is also available on our investor relations website. The
content of our websites are not incorporated by reference into this Quarterly
Report on Form 10-Q or in any other report or document we file with the SEC, and
any references to our websites are intended to be inactive textual references
only.