vrm-10q_20200630.htm

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.

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

Part I - Financial Information

5

Item 1.

Financial Statements (unaudited)

5

 

Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2020 (unaudited)

5

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2020 (unaudited)

6

 

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity for the Three and Six Months Ended June 30, 2019 and 2020 (unaudited)

7

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2020 (unaudited)

8

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

53

Item 4.

Controls and Procedures

53

 

Part II - Other Information

56

Item 1.

Legal Proceedings

56

Item 1A.

Risk Factors

56

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

84

Item 3.

Defaults Upon Senior Securities

85

Item 4.

Mine Safety Disclosures

85

Item 5.

Other Information

85

Item 6.

Exhibits

86

 

Signatures

88

 

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;

 

we face a variety of risks associated with the operation of our proprietary vehicle reconditioning centers by us and our third-party service providers, any of which could materially and adversely affect our business, financial condition and results of operations;

 

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

Item 1. Financial Statements

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)

 

 

 

 

 

 

 

 

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

)

 

 

(11,304

)

Property and equipment, net

 

$

7,828

 

 

$

9,783

 

 

Depreciation and amortization expense was $0.6 million and $1.0 million for the three months ended June 30, 2019 and 2020, respectively, and $1.3 million and $1.8 million for the six months ended June 30, 2019 and 2020, respectively. Depreciation and amortization expense of $0.1 million was included within “Cost of sales” in the condensed consolidated statements of operations for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2020, depreciation and amortization expense included within “Cost of sales” was immaterial.

 

 

6. Accrued Expenses and Other Current Liabilities

The Company’s accrued expenses consisted of the following (in thousands):

 

 

 

December 31,

 

 

June 30,

 

 

 

2019

 

 

2020

 

Accrued marketing expenses

 

$

3,158

 

 

$

6,488

 

Vehicle related expenses

 

 

8,923