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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 September 30, 2020

☐ 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 November 12, 2020, 130,241,341 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 September 30, 2020 (unaudited)	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity for the Three and Nine Months Ended September 30, 2019 and 2020 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51
Item 4.	Controls and Procedures	51
Part II - Other Information		53
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
	Signatures	58

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 primarily 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;

•

we are expanding our proprietary logistics operations, which will further expose us to increased risks related to ownership of infrastructure and the transportation of vehicles;

•

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;

•

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; and

•

our actual operating results may differ significantly from our guidance.

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.

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 or incorporate by 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.

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			As of
	December 31,			September 30,
	2019			2020
ASSETS
Current Assets:
Cash and cash equivalents	$	217,734		$	1,161,362
Restricted cash		1,853			27,961
Accounts receivable, net of allowance of $789 and $1,809, respectively		30,848			33,799
Inventory		205,746			299,411
Prepaid expenses and other current assets		9,149			16,257
Total current assets		465,330			1,538,790
Property and equipment, net		7,828			10,051
Intangible assets, net		572			160
Goodwill		78,172			78,172
Operating lease right-of-use assets		—			14,337
Other assets		11,485			13,433
Total assets	$	563,387		$	1,654,943
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current Liabilities:
Accounts payable	$	18,987		$	29,630
Accrued expenses		38,491			47,641
Vehicle floorplan		173,461			248,967
Deferred revenue		17,323			17,299
Operating lease liabilities, current		—			4,621
Other current liabilities		11,572			16,375
Total current liabilities		259,834			364,533
Operating lease liabilities, excluding current portion		—			10,674
Other long-term liabilities		3,073			1,886
Total liabilities		262,907			377,093
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 September 30, 2020, respectively; 83,568,628 and zero shares issued and outstanding as of December 31, 2019 and September 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 September 30, 2020, respectively; 8,650,922 and 130,230,591 shares issued and outstanding as of December 31, 2019 and September 30, 2020, respectively		8			130
Additional paid-in-capital		—			1,994,929
Accumulated deficit		(573,860	)		(717,209	)
Total stockholders’ (deficit) equity		(573,852	)		1,277,850
Total liabilities, redeemable convertible preferred stock and stockholders’ (deficit) equity	$	563,387		$	1,654,943

See accompanying notes to these unaudited condensed consolidated financial statements.

VROOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2020			2019			2020
Revenue:
Retail vehicle, net	$	273,743		$	249,518		$	652,895		$	754,380
Wholesale vehicle		59,054			63,972			165,705			170,469
Product, net		7,029			9,198			16,265			25,979
Other		447			317			1,364			1,043
Total revenue		340,273			323,005			836,229			951,871
Cost of sales		324,602			297,560			794,701			900,432
Total gross profit		15,671			25,445			41,528			51,439
Selling, general and administrative expenses		50,934			61,127			131,209			167,418
Depreciation and amortization		1,517			1,191			4,551			3,239
Loss from operations		(36,780	)		(36,873	)		(94,232	)		(119,218	)
Interest expense		3,797			2,259			9,903			6,382
Interest income		(1,190	)		(1,289	)		(4,454	)		(3,960	)
Revaluation of preferred stock warrant		373			—			515			20,470
Other income, net		(44	)		(26	)		(75	)		(111	)
Loss before provision for income taxes		(39,716	)		(37,817	)		(100,121	)		(141,999	)
Provision for income taxes		48			33			122			138
Net loss	$	(39,764	)	$	(37,850	)	$	(100,243	)	$	(142,137	)
Accretion of redeemable convertible preferred stock		(65,686	)		—			(109,529	)		—
Net loss attributable to common stockholders	$	(105,450	)	$	(37,850	)	$	(209,772	)	$	(142,137	)
Net loss per share attributable to common stockholders, basic and diluted	$	(12.24	)	$	(0.31	)	$	(24.42	)	$	(2.65	)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted		8,615,682			121,123,472			8,591,554			53,731,475

See accompanying notes to these unaudited condensed consolidated financial statements.

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
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	)
Stock-based compensation		—	$	—		—		$	—	$	619		$	—		$	619
Exercise of stock options		—		—		4,000			—		18			—			18
Vesting of restricted stock awards		—		—		36,772			—		—			—			—
Repurchase of common stock		—		—		—			—		(637	)		637			—
Accretion of redeemable convertible preferred stock		—		65,686		—			—		—			(65,686	)		(65,686	)
Net loss		—		—		—			—		—			(39,764	)		(39,764	)
Balance at September 30, 2019		66,825,300	$	628,629		8,620,922		$	8	$	—		$	(504,668	)	$	(504,660	)

	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
Issuance of common stock in follow-on public offering, net of offering costs		—		$	—			10,800,000		$	11		567,941		$	—		$	567,952
Stock-based compensation		—			—			—			—		4,230			—			4,230
Exercise of stock options		—			—			31,100			—		120			—			120
Vesting of restricted stock units		—			—			104,000			—		—			—			—
Common stock shares withheld to satisfy employee tax withholding obligations		—			—			(41,097	)		—		(2,037	)		—			(2,037	)
Net loss		—			—			—			—		—			(37,850	)		(37,850	)
Balance at September 30, 2020		—		$	—			130,230,591		$	130	$	1,994,929		$	(717,209	)	$	1,277,850

See accompanying notes to these unaudited condensed consolidated financial statements.

VROOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2019			2020
Operating activities
Net loss	$	(100,243	)	$	(142,137	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		4,683			3,255
Amortization of debt issuance costs		269			656
Stock-based compensation expense		2,155			8,930
Loss on disposal of property and equipment		824			46
Provision for inventory obsolescence		3,872			2,917
Revaluation of preferred stock warrant		515			20,470
Other		226			1,285
Changes in operating assets and liabilities:
Accounts receivable		(15,029	)		(4,297	)
Inventory		(97,524	)		(96,582	)
Prepaid expenses and other current assets		(3,168	)		(6,639	)
Other assets		(2,389	)		(2,246	)
Accounts payable		8,769			10,478
Accrued expenses		9,995			15,679
Deferred revenue		2,530			(24	)
Other liabilities		4,487			5,335
Net cash used in operating activities		(180,028	)		(182,874	)
Investing activities
Purchase of property and equipment		(2,024	)		(5,057	)
Net cash used in investing activities		(2,024	)		(5,057	)
Financing activities
Repayments of long-term debt		(5,835	)		—
Proceeds from vehicle floorplan		705,281			842,865
Repayments of vehicle floorplan		(611,838	)		(767,359	)
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		—			(2,915	)
Proceeds from the issuance of common stock in connection with IPO, net of underwriting discount		—			504,023
Payments of costs related to IPO		—			(6,791	)
Proceeds from the issuance of common stock in connection with follow-on public offering, net of underwriting discount