UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-39315
VROOM, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
901112566 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
1375 Broadway, Floor 11
New York, New York 10018
(Address of principal executive offices) (Zip code)
(855) 524-1300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
Common Stock, $0.001 par value |
|
VRM |
|
Nasdaq Global Select |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
Non-accelerated filer |
☒ |
Smaller reporting company |
☐ |
|
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 12, 2020, 119,336,588 shares of the registrants’ common stock were outstanding.
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Page |
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5 |
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Item 1. |
5 |
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Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2020 (unaudited) |
5 |
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6 |
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7 |
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8 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
9 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
53 |
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Item 4. |
53 |
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56 |
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Item 1. |
56 |
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Item 1A. |
56 |
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Item 2. |
84 |
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Item 3. |
85 |
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Item 4. |
85 |
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Item 5. |
85 |
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Item 6. |
86 |
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88 |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," “contemplate,” "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," “target,” "will," “would,” or the negative of these terms or other similar terms or expressions, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:
|
|
• |
the impact of the COVID-19 pandemic caused by the novel coronavirus; |
|
|
• |
we have a history of losses and we may not achieve or maintain profitability in the future; |
|
|
• |
we may not be able to generate sufficient revenue to generate positive cash flow on a sustained basis, and our revenue growth rate may decline; |
|
|
• |
we have a limited operating history and are still building out our foundational systems; |
|
|
• |
our recent, rapid growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth effectively; |
|
|
• |
our business is subject to certain risks related to the operation of, and concentration of our revenues and gross profit from, Texas Direct Auto; |
|
|
• |
we have entered into outsourcing arrangements with a third party related to our customer experience team, and any difficulties experienced in these arrangements could result in an interruption of our ability to sell our vehicles and value-added products; |
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|
• |
we rely on third-party carriers to transport our vehicle inventory throughout the United States. Thus, we are subject to business risks and costs associated with such carriers and with the transportation industry, many of which are out of our control; |
|
|
• |
the current geographic concentration where we provide reconditioning services and store inventory creates an exposure to local and regional downturns or severe weather or catastrophic occurrences that may materially and adversely affect our business, financial condition and results of operations; and |
|
|
• |
if we sustain cyber-attacks or other privacy or data security incidents that result in security breaches, we could suffer a loss of sales and increased costs, exposure to significant liability, reputational harm and other negative consequences. |
We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Other sections of this Quarterly Report on Form 10-Q include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
3
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
4
PART I - FINANCIAL INFORMATION
VROOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
|
|
|
As of December 31, |
|
|
As of June 30, |
|
||
|
|
|
2019 |
|
|
2020 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
217,734 |
|
|
$ |
651,035 |
|
|
Restricted cash |
|
|
1,853 |
|
|
|
21,853 |
|
|
Accounts receivable, net of allowance of $789 and $1,135, respectively |
|
|
30,848 |
|
|
|
15,287 |
|
|
Inventory |
|
|
205,746 |
|
|
|
141,063 |
|
|
Prepaid expenses and other current assets |
|
|
9,149 |
|
|
|
17,808 |
|
|
Total current assets |
|
|
465,330 |
|
|
|
847,046 |
|
|
Property and equipment, net |
|
|
7,828 |
|
|
|
9,783 |
|
|
Intangible assets, net |
|
|
572 |
|
|
|
297 |
|
|
Goodwill |
|
|
78,172 |
|
|
|
78,172 |
|
|
Operating lease right-of-use assets |
|
|
— |
|
|
|
15,437 |
|
|
Other assets |
|
|
11,485 |
|
|
|
12,472 |
|
|
Total assets |
|
$ |
563,387 |
|
|
$ |
963,207 |
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
18,987 |
|
|
$ |
20,133 |
|
|
Accrued expenses |
|
|
38,491 |
|
|
|
40,898 |
|
|
Vehicle floorplan |
|
|
173,461 |
|
|
|
109,783 |
|
|
Deferred revenue |
|
|
17,323 |
|
|
|
15,488 |
|
|
Operating lease liabilities, current |
|
|
— |
|
|
|
4,640 |
|
|
Other current liabilities |
|
|
11,572 |
|
|
|
13,115 |
|
|
Total current liabilities |
|
|
259,834 |
|
|
|
204,057 |
|
|
Operating lease liabilities, excluding current portion |
|
|
— |
|
|
|
11,750 |
|
|
Other long-term liabilities |
|
|
3,073 |
|
|
|
1,965 |
|
|
Total liabilities |
|
|
262,907 |
|
|
|
217,772 |
|
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
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|
Redeemable convertible preferred stock, $0.001 par value; 86,123,364 and 10,000,000 shares authorized as of December 31, 2019 and June 30, 2020, respectively; 83,568,628 and zero shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively |
|
|
874,332 |
|
|
|
— |
|
|
Stockholders’ (deficit) equity: |
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 113,443,854 and 500,000,000 shares authorized as of December 31, 2019 and June 30, 2020, respectively; 8,650,922 and 119,336,588 shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively |
|
|
8 |
|
|
|
119 |
|
|
Additional paid-in-capital |
|
|
— |
|
|
|
1,424,675 |
|
|
Accumulated deficit |
|
|
(573,860 |
) |
|
|
(679,359 |
) |
|
Total stockholders’ (deficit) equity |
|
|
(573,852 |
) |
|
|
745,435 |
|
|
Total liabilities, redeemable convertible preferred stock and stockholders’ (deficit) equity |
|
$ |
563,387 |
|
|
$ |
963,207 |
|
See accompanying notes to these unaudited condensed consolidated financial statements.
5
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle, net |
$ |
200,402 |
|
|
$ |
196,150 |
|
|
$ |
379,152 |
|
|
$ |
504,862 |
|
|
Wholesale vehicle |
|
54,531 |
|
|
|
50,921 |
|
|
|
106,651 |
|
|
|
106,497 |
|
|
Product, net |
|
5,491 |
|
|
|
5,736 |
|
|
|
9,236 |
|
|
|
16,780 |
|
|
Other |
|
473 |
|
|
|
286 |
|
|
|
917 |
|
|
|
726 |
|
|
Total revenue |
|
260,897 |
|
|
|
253,093 |
|
|
|
495,956 |
|
|
|
628,865 |
|
|
Cost of sales |
|
247,052 |
|
|
|
245,486 |
|
|
|
470,099 |
|
|
|
602,871 |
|
|
Total gross profit |
|
13,845 |
|
|
|
7,607 |
|
|
|
25,857 |
|
|
|
25,994 |
|
|
Selling, general and administrative expenses |
|
43,692 |
|
|
|
47,911 |
|
|
|
80,275 |
|
|
|
106,291 |
|
|
Depreciation and amortization |
|
1,501 |
|
|
|
1,083 |
|
|
|
3,034 |
|
|
|
2,049 |
|
|
Loss from operations |
|
(31,348 |
) |
|
|
(41,387 |
) |
|
|
(57,452 |
) |
|
|
(82,346 |
) |
|
Interest expense |
|
3,388 |
|
|
|
1,297 |
|
|
|
6,106 |
|
|
|
4,123 |
|
|
Interest income |
|
(1,415 |
) |
|
|
(715 |
) |
|
|
(3,264 |
) |
|
|
(2,671 |
) |
|
Revaluation of preferred stock warrant |
|
60 |
|
|
|
21,260 |
|
|
|
142 |
|
|
|
20,470 |
|
|
Other income, net |
|
(12 |
) |
|
|
(53 |
) |
|
|
(31 |
) |
|
|
(86 |
) |
|
Loss before provision (benefit) for income taxes |
|
(33,369 |
) |
|
|
(63,176 |
) |
|
|
(60,405 |
) |
|
|
(104,182 |
) |
|
Provision (benefit) for income taxes |
|
(29 |
) |
|
|
52 |
|
|
|
74 |
|
|
|
105 |
|
|
Net loss |
$ |
(33,340 |
) |
|
$ |
(63,228 |
) |
|
$ |
(60,479 |
) |
|
$ |
(104,287 |
) |
|
Accretion of redeemable convertible preferred stock |
|
(25,879 |
) |
|
|
— |
|
|
|
(43,843 |
) |
|
|
— |
|
|
Net loss attributable to common stockholders |
$ |
(59,219 |
) |
|
$ |
(63,228 |
) |
|
$ |
(104,322 |
) |
|
$ |
(104,287 |
) |
|
Net loss per share attributable to common stockholders, basic and diluted |
$ |
(6.90 |
) |
|
$ |
(2.00 |
) |
|
$ |
(12.16 |
) |
|
$ |
(5.21 |
) |
|
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted |
|
8,580,150 |
|
|
|
31,599,497 |
|
|
|
8,579,539 |
|
|
|
20,035,476 |
|
See accompanying notes to these unaudited condensed consolidated financial statements.
6
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands, except share amounts)
(unaudited)
|
|
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
(Deficit) Equity |
|
|||||||
|
Balance at December 31, 2018 |
|
|
66,825,300 |
|
|
$ |
519,100 |
|
|
|
|
8,571,386 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
(296,874 |
) |
|
$ |
(296,866 |
) |
|
Stock-based compensation |
|
|
— |
|
|
$ |
— |
|
|
|
|
— |
|
|
$ |
— |
|
|
$ |
869 |
|
|
$ |
— |
|
|
$ |
869 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
101,950 |
|
|
|
— |
|
|
|
347 |
|
|
|
— |
|
|
|
347 |
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
(93,186 |
) |
|
|
— |
|
|
|
(1,216 |
) |
|
|
674 |
|
|
|
(542 |
) |
|
Accretion of redeemable convertible preferred stock |
|
|
— |
|
|
|
17,964 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,964 |
) |
|
|
(17,964 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,139 |
) |
|
|
(27,139 |
) |
|
Balance at March 31, 2019 |
|
|
66,825,300 |
|
|
$ |
537,064 |
|
|
|
|
8,580,150 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
(341,303 |
) |
|
$ |
(341,295 |
) |
|
Stock-based compensation |
|
|
— |
|
|
$ |
— |
|
|
|
|
— |
|
|
$ |
— |
|
|
$ |
667 |
|
|
$ |
— |
|
|
$ |
667 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
(667 |
) |
|
|
667 |
|
|
|
— |
|
|
Accretion of redeemable convertible preferred stock |
|
|
— |
|
|
|
25,879 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,879 |
) |
|
|
(25,879 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33,340 |
) |
|
|
(33,340 |
) |
|
Balance at June 30, 2019 |
|
|
66,825,300 |
|
|
$ |
562,943 |
|
|
|
|
8,580,150 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
(399,855 |
) |
|
$ |
(399,847 |
) |
|
|
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
(Deficit) Equity |
|
|||||||
|
Balance at December 31, 2019 |
|
|
83,568,628 |
|
|
$ |
874,332 |
|
|
|
|
8,650,922 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
(573,860 |
) |
|
$ |
(573,852 |
) |
|
Stock-based compensation |
|
|
— |
|
|
$ |
— |
|
|
|
|
— |
|
|
$ |
— |
|
|
$ |
600 |
|
|
$ |
— |
|
|
$ |
600 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
2,774 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
(200,000 |
) |
|
|
— |
|
|
|
(606 |
) |
|
|
(1,212 |
) |
|
|
(1,818 |
) |
|
Issuance of Series H redeemable convertible preferred stock, net of issuance costs |
|
|
1,964,766 |
|
|
|
26,714 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,059 |
) |
|
|
(41,059 |
) |
|
Balance at March 31, 2020 |
|
|
85,533,394 |
|
|
$ |
901,046 |
|
|
|
|
8,453,696 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
(616,131 |
) |
|
$ |
(616,123 |
) |
|
Issuance of common stock |
|
|
— |
|
|
$ |
— |
|
|
|
|
183,870 |
|
|
$ |
— |
|
|
$ |
2,127 |
|
|
$ |
— |
|
|
$ |
2,127 |
|
|
Conversion of redeemable convertible preferred stock to common stock |
|
|
(85,533,394 |
) |
|
|
(901,046 |
) |
|
|
|
85,533,394 |
|
|
|
86 |
|
|
|
900,960 |
|
|
|
— |
|
|
|
901,046 |
|
|
Conversion of redeemable convertible preferred stock warrant to common stock warrant |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
21,873 |
|
|
|
— |
|
|
|
21,873 |
|
|
Issuance of common stock in IPO, net of offering costs |
|
|
— |
|
|
|
— |
|
|
|
|
24,437,500 |
|
|
|
24 |
|
|
|
496,486 |
|
|
|
— |
|
|
|
496,510 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
4,100 |
|
|
|
— |
|
|
|
4,100 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
500 |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
|
Exercise of common stock warrants |
|
|
— |
|
|
|
— |
|
|
|
|
636,112 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
133,334 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common stock shares withheld to satisfy employee tax withholding obligations |
|
|
— |
|
|
|
— |
|
|
|
|
(41,818 |
) |
|
|
— |
|
|
|
(878 |
) |
|
|
— |
|
|
|
(878 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(63,228 |
) |
|
|
(63,228 |
) |
|
Balance at June 30, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
|
119,336,588 |
|
|
$ |
119 |
|
|
$ |
1,424,675 |
|
|
$ |
(679,359 |
) |
|
$ |
745,435 |
|
See accompanying notes to these unaudited condensed consolidated financial statements.
7
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2020 |
|
||
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(60,479 |
) |
|
$ |
(104,287 |
) |
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,146 |
|
|
|
2,059 |
|
|
Amortization of debt issuance costs |
|
|
179 |
|
|
|
375 |
|
|
Stock-based compensation expense |
|
|
1,536 |
|
|
|
4,700 |
|
|
Loss on disposal of property and equipment |
|
|
764 |
|
|
|
— |
|
|
Provision for inventory obsolescence |
|
|
1,889 |
|
|
|
(1,564 |
) |
|
Revaluation of preferred stock warrant |
|
|
142 |
|
|
|
20,470 |
|
|
Other |
|
|
— |
|
|
|
632 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(14,544 |
) |
|
|
14,863 |
|
|
Inventory |
|
|
(76,209 |
) |
|
|
66,247 |
|
|
Prepaid expenses and other current assets |
|
|
(1,814 |
) |
|
|
(7,909 |
) |
|
Other assets |
|
|
(1,488 |
) |
|
|
(1,285 |
) |
|
Accounts payable |
|
|
6,501 |
|
|
|
919 |
|
|
Accrued expenses |
|
|
7,224 |
|
|
|
4,714 |
|
|
Deferred revenue |
|
|
2,664 |
|
|
|
(1,835 |
) |
|
Other liabilities |
|
|
2,592 |
|
|
|
1,905 |
|
|
Net cash (used in) provided by operating activities |
|
|
(127,897 |
) |
|
|
4 |
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(794 |
) |
|
|
(3,128 |
) |
|
Net cash used in investing activities |
|
|
(794 |
) |
|
|
(3,128 |
) |
|
Financing activities |
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(3,340 |
) |
|
|
— |
|
|
Proceeds from vehicle floorplan |
|
|
420,518 |
|
|
|
465,663 |
|
|
Repayments of vehicle floorplan |
|
|
(349,545 |
) |
|
|
(529,341 |
) |
|
Payment of vehicle floorplan upfront commitment fees |
|
|
— |
|
|
|
(1,125 |
) |
|
Proceeds from the issuance of redeemable convertible preferred stock, net |
|
|
— |
|
|
|
21,694 |
|
|
Repurchase of common stock |
|
|
(542 |
) |
|
|
(1,818 |
) |
|
Common stock shares withheld to satisfy employee tax withholding obligations |
|
|
— |
|
|
|
(878 |
) |
|
Proceeds from the issuance of common stock in connection with IPO, net of underwriting discount |
|
|
— |
|
|
|
504,023 |
|
|
Payments of costs related to IPO |
|
|
— |
|
|
|
(1,740 |
) |
|
Proceeds from exercise of stock options |
|
|
347 |
|
|
|
13 |
|
|
Other financing activities |
|
|
268 |
|
|
|
(66 |
) |
|
Net cash provided by financing activities |
|
|
67,706 |
|
|
|
456,425 |
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
(60,985 |
) |
|
|
453,301 |
|
|
Cash, cash equivalents and restricted cash at the beginning of period |
|
|
163,509 |
|
|
|
219,587 |
|
|
Cash, cash equivalents and restricted cash at the end of period |
|
$ |
102,524 |
|
|
$ |
672,888 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
5,176 |
|
|
$ |
2,743 |
|
|
Cash paid for income taxes |
|
$ |
209 |
|
|
$ |
— |
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock |
|
$ |
43,843 |
|
|
$ |
— |
|
|
Costs related to IPO included in accrued expenses and accounts payable |
|
$ |
— |
|
|
$ |
5,051 |
|
|
Conversion of redeemable convertible preferred stock warrant to common stock warrant |
|
$ |
— |
|
|
$ |
21,873 |
|
|
Issuance of common stock as upfront payment to nonemployee |
|
$ |
— |
|
|
$ |
2,127 |
|
|
Accrued property and equipment expenditures |
|
$ |
101 |
|
|
$ |
611 |
|
See accompanying notes to these unaudited condensed consolidated financial statements.
8
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business and Basis of Presentation
Description of Business and Organization
Vroom, Inc., and its wholly owned subsidiaries (collectively “the Company”) is an innovative, end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles.
In December 2015, the Company acquired Houston-based Left Gate Property Holding, LLC (d/b/a Texas Direct Auto and herein referred to as “TDA”) which is the Company’s sole physical retail location.
The Company currently is organized into three reportable segments: Ecommerce, TDA, and Wholesale. The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicles sales. The TDA reportable segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicles sales. The Wholesale reportable segment represents sales of used vehicles through wholesale auctions.
The Company was incorporated in Delaware on January 31, 2012 under the name BCM Partners III, Corp. On June 25, 2013, the Company changed its name to Auto America, Inc. and on July 9, 2015, the Company changed its name to Vroom, Inc.
Stock Split
In connection with the closing of the Company’s initial public offering (“IPO”) on June 11, 2020, the Company effected a 2-for-1 forward stock split of the Company’s common stock, which became effective immediately prior to the consummation of the IPO. All shares of the Company’s common stock, stock-based instruments, and per-share data included in these condensed consolidated financial statements have been retroactively adjusted as though the stock split has been effected prior to all periods presented.
Initial Public Offering
The Company closed its IPO on June 11, 2020 in which it sold 24,437,500 shares of common stock at the public offering price of $22.00 per share, including 3,187,500 shares sold pursuant to exercise by the underwriters of their option to purchase additional shares. The Company received proceeds of $504.0 million from the IPO, net of the underwriting discount and before deducting offering expenses of $7.5 million. In addition, in accordance with their terms and consistent with the conversion rates discussed in Note 10 - Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity, all shares of the Company’s outstanding redeemable convertible preferred stock were automatically converted into common stock upon the closing of the IPO.
Basis of Presentation
The interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the final prospectus dated June 8, 2020 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, (the "Securities Act"), on June 9, 2020 (the "Prospectus").
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, include all adjustments, which consist of only normal recurring adjustments necessary for the fair statement of the Company’s condensed consolidated balance sheet as of June 30, 2020 and its results of operations for the three and six months ended June 30, 2019 and 2020. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the current fiscal year or any other future periods. Certain prior year amounts have been reclassified to conform to the current year presentation.
9
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Except as described elsewhere in Note 2 to the condensed consolidated financial statements, there have been no material changes to the Company's significant accounting policies as described in the Prospectus.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, contingencies, revenue-related reserves, fair value measurements, goodwill, and useful lives of property and equipment and intangible assets. The Company bases its estimates on historical experience, market conditions, and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.
Beginning in the first quarter of 2020, the COVID-19 pandemic caused by the novel coronavirus has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the United States and globally, as well as the Company’s business, financial condition and results of operations. Due to the evolving and uncertain nature of COVID-19, it is reasonably possible that it could materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions the Company may face.
Comprehensive Loss
The Company did not have any other comprehensive income or loss for three and six months ended June 30, 2019 and 2020. Accordingly, net loss and comprehensive loss are the same for the periods presented.
Restricted Cash
Restricted cash as of December 31, 2019 and June 30, 2020 includes cash deposits required under letter of credit agreements as explained in Note 8 – Commitments and Contingencies. Restricted cash as of June 30, 2020 also includes a $20.0 million cash deposit required under the Company’s 2020 Vehicle Floorplan Facility as explained in Note 7 – Vehicle Floorplan Facilities.
Advertising
Advertising costs are expensed as incurred and are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations. Advertising expenses were $12.7 million and $11.6 million for the three months ended June 30, 2019 and 2020, respectively, and $19.8 million and $29.5 million for the six months ended June 30, 2019 and 2020, respectively.
Shipping and Handling
The Company’s logistics costs related to transporting its used vehicle inventory primarily include third-party transportation fees. The portion of these costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility is included in cost of sales when the related used vehicle is sold. Logistics costs not included in cost of sales are accounted for as costs to fulfil contracts with customers and are included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations and were $2.7 million and $5.5 million for the three months ended June 30, 2019 and 2020, respectively, and $4.9 million and $11.3 million for the six months ended June 30, 2019 and 2020, respectively.
10
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Concentration of Credit Risk and Significant Customers
The Company’s principal financial instruments subject to potential concentration of credit risk are cash and cash equivalents and accounts receivable, which are unsecured. The Company’s cash and cash equivalents are maintained at various large financial institutions. Deposits held with financial institutions may at times exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management believes they bear minimal risk. Concentration of credit risk with respect to accounts receivable is generally mitigated by a large customer base.
For the three and six months ended June 30, 2019 and 2020, no customer represented 10% or more of the Company’s revenues and no customer represented more than 10% of the Company’s accounts receivable as of December 31, 2019 and June 30, 2020.
Liquidity
The Company has had negative cash flows and losses from operations since inception which it has funded primarily through issuances of common and preferred stock. The Company has historically funded vehicle inventory purchases through its vehicle floorplan facility (refer to Note 7 – Vehicle Floorplan Facilities). As further discussed in Note 7, the Company entered into a new vehicle floorplan facility in March 2020 which increased the borrowing capacity up to $450.0 million and extended the term through March 2021.
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 is substantial doubt about the Company’s ability to meet its obligations within one year from the financial statement issuance date. In connection with the previous issuance of the consolidated financial statements as of and for the year ended December 31, 2019, uncertainties relating to the COVID-19 pandemic, combined with the Company’s losses and negative cash flows from operations since inception, and the fact that management’s plan to obtain additional capital had not yet been completed, raised substantial doubt about the Company’s ability to continue as a going concern. However, following the successful completion of the Company’s IPO in June 2020, in which it raised proceeds of $504.0 million from the IPO, net of the underwriting discount and before deducting offering expenses of $7.5 million as described above, management completed an updated evaluation of the Company’s ability to continue as going concern and has concluded the factors that previously raised substantial doubt about the Company’s ability to continue as going concern no longer exist as of the issuance date of these condensed consolidated financial statements.
Nonemployee Share-Based Payments
On May 15, 2020, the Company entered into an agreement with Rocket Auto LLC and certain of its affiliates (collectively, “Rocket”) providing for the launch of an ecommerce platform under the “Rocket Auto” brand for the marketing and sale of vehicles directly to consumers (the “RA Agreement”). The Company will list its used vehicle inventory for sale on the Rocket Auto platform, but all sales of the Company’s inventory will be conducted through the Company’s platform. Rocket Auto is expected to launch publicly during the second half of the year ending December 31, 2020 and, during the term of the RA Agreement, Rocket has agreed to ensure that not less than a minimum percentage of all used vehicles sold or leased through the platform on a monthly basis will be Vroom inventory. The Company has agreed to pay Rocket a combination of cash and stock for vehicle sales made through the platform, including upfront equity consisting of 183,870 shares of the Company’s common stock that were issued upon execution of the RA Agreement, and the potential issuance to Rocket of up to an additional 8,641,914 shares of common stock, over a four-year period based upon sales volume of Vroom inventory through the Rocket Auto platform.
The Company accounts for the issuance of its common stock under the RA agreement in accordance with ASC 718, Compensation – Stock Compensation, including the provisions that apply to share-based payments issued to nonemployees for goods or services. The Company determined that the grant date was May 15, 2020 for both the upfront shares issued and the additional shares that potentially are to be issued based on sales volume through the Rocket Auto platform. The fair value of the Company’s common stock on the grant date was determined to be $11.57 per share. The grant date fair value of the upfront shares issued was initially recognized as an asset within “Other assets” in the condensed consolidated balance sheet, which will subsequently be amortized within “Selling, general and administrative expenses” over the term of the RA agreement commencing on the launch date. The grant date fair value of the potential shares to be issued will be recognized within “Selling, general and administrative expenses” as sales of Vroom’s inventory associated with the Rocket Auto platform occur and such shares are earned.
11
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Accounting Standards Adopted
In February 2016, the FASB issued, ASU 2016-02, Leases (Topic 842), which amends the accounting guidance on leases. The new standard requires a lessee to recognize right-of-use assets and lease obligations on the balance sheet for most lease agreements. Leases are classified as either operating or finance, with classification affecting the pattern of expense recognition in the statement of operations. The FASB also subsequently issued amendments to the standard to provide additional practical expedients and an additional transition method option.
The Company adopted Topic 842 as of January 1, 2020 using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings (accumulated deficit) with no restatement of comparative periods. Upon adoption, the Company recognized $18.4 million of operating lease liabilities and $17.4 million of operating lease right-of-use assets. The adoption of Topic 842 did not result in a cumulative effect adjustment to accumulated deficit.
Topic 842 provides various optional practical expedients for transition. The Company elected to utilize the package of practical expedients for transition which permitted the Company to not reassess its prior conclusions regarding whether a contract is or contains a lease, lease classification and initial direct costs. The Company did not elect the hindsight practical expedient to determine lease terms.
Topic 842 also provides optional practical expedients for an entity’s ongoing lease accounting. The Company elected the short-term lease recognition exemption for all leases that qualify and the practical expedient to not separate lease and non-lease components of leases.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, related to updated requirements over the disclosures of fair value measurements. Under ASU 2018-13, certain disclosure requirements for fair value measurements were eliminated, modified or added to facilitate better disclosure regarding recurring and non-recurring fair value measurements. The Company adopted the guidance on January 1, 2020 which did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial instruments, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for most financial assets, including trade receivables, and other instruments that are not measured at fair value through net income. The Company adopted the guidance on January 1, 2020 which did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Accounting Standards Issued But Not Yet Adopted
The Company previously qualified as an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and it had elected to delay adoption of new or revised accounting standards until those standards apply to private companies. The Company ceased to qualify as an EGC because its annual revenue for the fiscal year ended December 31, 2019 exceeded $1.07 billion. The Company continued to be treated as an EGC through June 11, 2020, which was the date the Company consummated the IPO. Accordingly, since the Company can no longer be treated as an EGC, effective dates included in these condensed consolidated financial statements reflect the effective dates that apply to public companies.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance will be effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.
12
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Revenue Recognition
The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company may collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale as required. These taxes are accounted for on a net basis and are not included in revenues or cost of sales.
The Company’s revenue is disaggregated within the condensed consolidated statements of operations and is generated from customers throughout the United States. The Company recognizes revenue at a point in time as described below.
Retail Vehicle Revenue
The Company sells used vehicles to its retail customers through its ecommerce platform and TDA retail location. The transaction price for used vehicles is a fixed amount as set forth within the customer contract at the time of sale. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent non-cash consideration which the Company measures at fair value based on external and internal market data for each specific vehicle. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales generally at a point in time when the vehicles are delivered to the customer for ecommerce sales or picked up by the customer for TDA sales. The revenue recognized by the Company includes the agreed upon transaction price, including any delivery charges stated within the customer contract. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing. Payments received prior to delivery or pick-up of used vehicles are recorded as “Deferred revenue” within the condensed consolidated balance sheets.
The Company offers a return policy for used vehicle sales and establishes a provision for estimated returns based on historical information and current trends. The reserve for estimated returns is presented gross on the condensed consolidated balance sheets, with an asset recorded in “Prepaid expenses and other current assets” and a refund liability recorded in “Other current liabilities.”
Wholesale Vehicle Revenue
The Company sells vehicles that do not meet its retail sales criteria through third-party wholesale auctions. Vehicles sold at auction are acquired from customers who trade-in their vehicles when making a purchase from the Company and also from customers who sell their vehicles to the Company in direct-buy transactions. The transaction price for wholesale vehicles is a fixed amount that is determined at the auction. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold at auction. The transaction price is typically due and collected within a short period of time following the vehicle sales.
Product Revenue
The Company’s product revenue consists of fees earned on selling extended warranty contracts, guaranteed asset protection (“GAP”) and wheel and tire coverage. The Company sells these products pursuant to arrangements with the third parties that provide these products and are responsible for their fulfillment. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. The Company recognizes product revenues on a net basis when the customer enters into an arrangement for the products, which is typically at the time of a used vehicle sale.
Customers may enter into a retail installment sales contract to finance the purchase of used vehicles. The Company sells these contracts on a non-recourse basis to various financial institutions. The Company receives a fee from the financial institution based on the difference between the interest rate charged to the customer that purchased the used vehicle and the interest rate set by the financial institution. These fees are recognized upon sale and assignment of the installment sales contract to the financial institution, which occurs concurrently at the time of a used vehicle sale.
13
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A portion of the fees earned on these products is subject to chargebacks in the event of early termination, default, or prepayment of the contracts by end-customers. The Company’s exposure for these events is limited to the fees that it receives. An estimated refund liability for chargebacks against the revenue recognized from sales of these products is recorded in the period in which the related revenue is recognized and is based primarily on the Company’s historical chargeback experience. The Company updates its estimates at each reporting date. As of December 31, 2019 and June 30, 2020, the Company’s reserve for chargebacks was $3.3 million and $4.1 million, respectively, of which $1.8 million and $2.2 million, respectively, are included within “Accrued expenses” and $1.5 million and $1.9 million, respectively, are included in “Other long-term liabilities.”
The Company also is contractually entitled to receive profit-sharing revenues based on the performance of the extended warranty policies once a required claims period has passed. The Company recognizes profit-sharing revenues to the extent it is probable that it will not result in a significant revenue reversal. The Company estimates the revenue based on historical claims and cancellation data from its customers, as well as other qualitative assumptions. The Company reassesses the estimate at each reporting period with any changes reflected as an adjustment to revenues in the period identified. As of December 31, 2019 and June 30, 2020, the Company recognized $6.9 million and $8.5 million, respectively, related to cumulative profit-sharing payments to which it expects to be entitled, of which $0.3 million and $0.8 million, respectively, are included within “Prepaid expenses and other current assets” and $6.6 million and $7.7 million, respectively, are included within “Other assets.”
Other Revenue
Other revenue primarily consists of labor and parts revenue earned by the Company for vehicle repair services at TDA.
Contract Costs
The Company has elected, as a practical expedient, to expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within “Selling, general and administrative expenses” in the condensed consolidated statements of operations.
4. Inventory
Inventory consisted of the following (in thousands):
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2019 |
|
|
2020 |
|
||
|
Vehicles |
|
$ |
203,290 |
|
|
$ |
140,111 |
|
|
Parts and accessories |
|
|
2,456 |
|
|
|
952 |
|
|
Total inventory |
|
$ |
205,746 |
|
|
$ |
141,063 |
|
As of December 31, 2019 and June 30, 2020, “Inventory” includes an adjustment of $6.3 million, and $4.8 million, respectively, to record the balances at the lower of cost or net realizable value.
14
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2019 |
|
|
2020 |
|
||
|
Equipment |
|
$ |
930 |
|
|
$ |
991 |
|
|
Furniture and fixtures |
|
|
1,725 |
|
|
|
1,725 |
|
|
Company vehicles |
|
|
1,151 |
|
|
|
1,151 |
|
|
Leasehold improvements |
|
|
6,556 |
|
|
|
6,584 |
|
|
Internal-use software |
|
|
4,406 |
|
|
|
8,012 |
|
|
Other |
|
|
2,580 |
|
|
|
2,624 |
|
|
|
|
|
17,348 |
|
|
|
21,087 |
|
|
Accumulated depreciation and amortization |
|
|
(9,520 |
) |
|
|||