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 March 31, 2021
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 May 10, 2021, 136,456,295 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 March 31, 2021 and December 31, 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 |
24 |
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Item 3. |
43 |
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Item 4. |
44 |
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46 |
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Item 1. |
46 |
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Item 1A. |
46 |
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Item 2. |
47 |
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Item 3. |
47 |
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Item 4. |
47 |
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Item 5. |
47 |
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Item 6. |
48 |
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49 |
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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:
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• |
the impact of the COVID-19 pandemic; |
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• |
we have a history of losses and we may not achieve or maintain profitability in the future; |
|
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• |
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; |
|
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• |
our recent, rapid growth may not be indicative of our future growth; |
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|
• |
if we continue to grow rapidly, we may not be able to manage our growth effectively; |
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• |
our business is subject to certain risks related to the operation of Texas Direct Auto; |
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• |
we rely on third-party vendors for key components of our business, which exposes us to increased risks; |
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• |
we have entered into outsourcing arrangements with third parties 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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• |
if the quality of our customer experience, our reputation or our brand were negatively affected, our business, sales and results of operations could be materially and adversely affected; |
|
|
• |
we face a variety of risks associated with the operation of our 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; |
|
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• |
we are expanding our proprietary logistics operations, including vehicle pick-ups and delivery from our last mile hubs and line haul transportation of vehicles between our last mile hubs, which will further expose us to increased risks related to ownership of infrastructure and the transportation of vehicles; |
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|
• |
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; |
3
|
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• |
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; |
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• |
our common stock price may be volatile and the value of our common stock may decline regardless of our operating performance, and you may not be able to resell your shares at or above the price which you paid for them; |
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•we are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, financial condition and results of operations; and |
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• |
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.
4
PART I – FINANCIAL INFORMATION
VROOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
|
|
|
As of |
|
|
As of |
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||
|
|
|
March 31, |
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December 31, |
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2021 |
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2020 |
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|
ASSETS |
|
|
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Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
940,287 |
|
|
$ |
1,056,213 |
|
|
Restricted cash |
|
|
26,550 |
|
|
|
33,826 |
|
|
Accounts receivable, net of allowance of $4,380 and $2,803, respectively |
|
|
93,215 |
|
|
|
60,576 |
|
|
Inventory |
|
|
337,696 |
|
|
|
423,647 |
|
|
Prepaid expenses and other current assets |
|
|
24,724 |
|
|
|
23,617 |
|
|
Total current assets |
|
|
1,422,472 |
|
|
|
1,597,879 |
|
|
Property and equipment, net |
|
|
16,937 |
|
|
|
15,092 |
|
|
Intangible assets, net |
|
|
32,912 |
|
|
|
34 |
|
|
Goodwill |
|
|
159,306 |
|
|
|
78,172 |
|
|
Operating lease right-of-use assets |
|
|
18,569 |
|
|
|
17,137 |
|
|
Other assets |
|
|
16,511 |
|
|
|
15,742 |
|
|
Total assets |
|
$ |
1,666,707 |
|
|
$ |
1,724,056 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
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Current Liabilities: |
|
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|
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|
Accounts payable |
|
$ |
42,840 |
|
|
$ |
32,925 |
|
|
Accrued expenses |
|
|
71,966 |
|
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|
59,405 |
|
|
Vehicle floorplan |
|
|
253,038 |
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|
329,231 |
|
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Deferred revenue |
|
|
48,236 |
|
|
|
24,822 |
|
|
Operating lease liabilities, current |
|
|
6,365 |
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|
6,052 |
|
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Other current liabilities |
|
|
32,700 |
|
|
|
30,275 |
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Total current liabilities |
|
|
455,145 |
|
|
|
482,710 |
|
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Operating lease liabilities, excluding current portion |
|
|
13,457 |
|
|
|
12,093 |
|
|
Other long-term liabilities |
|
|
2,504 |
|
|
|
2,151 |
|
|
Total liabilities |
|
|
471,106 |
|
|
|
496,954 |
|
|
Commitments and contingencies (Note 10) |
|
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Stockholders’ equity: |
|
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|
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Common stock, $0.001 par value; 500,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 136,303,301 and 134,043,969 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
|
134 |
|
|
|
132 |
|
|
Additional paid-in-capital |
|
|
2,050,527 |
|
|
|
2,004,841 |
|
|
Accumulated deficit |
|
|
(855,060 |
) |
|
|
(777,871 |
) |
|
Total stockholders’ equity |
|
|
1,195,601 |
|
|
|
1,227,102 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
1,666,707 |
|
|
$ |
1,724,056 |
|
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 March 31, |
|
|||||
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2021 |
|
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2020 |
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||
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Revenue: |
|
|
|
|
|
|
|
|
|
Retail vehicle, net |
|
$ |
454,323 |
|
|
$ |
308,710 |
|
|
Wholesale vehicle |
|
|
118,024 |
|
|
|
55,578 |
|
|
Product, net |
|
|
15,572 |
|
|
|
11,044 |
|
|
Other |
|
|
3,199 |
|
|
|
440 |
|
|
Total revenue |
|
|
591,118 |
|
|
|
375,772 |
|
|
Cost of sales |
|
|
554,942 |
|
|
|
357,385 |
|
|
Total gross profit |
|
|
36,176 |
|
|
|
18,387 |
|
|
Selling, general and administrative expenses |
|
|
109,114 |
|
|
|
58,380 |
|
|
Depreciation and amortization |
|
|
2,594 |
|
|
|
966 |
|
|
Loss from operations |
|
|
(75,532 |
) |
|
|
(40,959 |
) |
|
Interest expense |
|
|
3,812 |
|
|
|
2,826 |
|
|
Interest income |
|
|
(2,296 |
) |
|
|
(1,956 |
) |
|
Revaluation of preferred stock warrant |
|
|
— |
|
|
|
(790 |
) |
|
Other income, net |
|
|
(15 |
) |
|
|
(33 |
) |
|
Loss before provision for income taxes |
|
|
(77,033 |
) |
|
|
(41,006 |
) |
|
Provision for income taxes |
|
|
156 |
|
|
|
53 |
|
|
Net loss |
|
$ |
(77,189 |
) |
|
$ |
(41,059 |
) |
|
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
(0.57 |
) |
|
$ |
(4.85 |
) |
|
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted |
|
|
135,497,511 |
|
|
|
8,471,456 |
|
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’ EQUITY (DEFICIT)
(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 |
|
|||||||
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||||
|
Balance at December 31, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
|
134,043,969 |
|
|
$ |
132 |
|
|
$ |
2,004,841 |
|
|
$ |
(777,871 |
) |
|
$ |
1,227,102 |
|
|
Issuance of common stock for acquisition of business |
|
|
— |
|
|
$ |
— |
|
|
|
|
1,072,117 |
|
|
$ |
1 |
|
|
$ |
39,029 |
|
|
$ |
— |
|
|
$ |
39,030 |
|
|
Fair value of unvested stock options assumed in acquisition of business |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
1,017 |
|
|
|
— |
|
|
|
1,017 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
2,820 |
|
|
|
— |
|
|
|
2,820 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
687,336 |
|
|
|
1 |
|
|
|
2,820 |
|
|
|
— |
|
|
|
2,821 |
|
|
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
499,879 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(77,189 |
) |
|
|
(77,189 |
) |
|
Balance at March 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
|
136,303,301 |
|
|
$ |
134 |
|
|
$ |
2,050,527 |
|
|
$ |
(855,060 |
) |
|
$ |
1,195,601 |
|
See accompanying notes to these unaudited condensed consolidated financial statements.
7
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(77,189 |
) |
|
$ |
(41,059 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,906 |
|
|
|
970 |
|
|
Amortization of debt issuance costs |
|
|
281 |
|
|
|
94 |
|
|
Stock-based compensation expense |
|
|
2,820 |
|
|
|
600 |
|
|
Provision for inventory obsolescence |
|
|
(2,551 |
) |
|
|
4,427 |
|
|
Revaluation of preferred stock warrant |
|
|
— |
|
|
|
(790 |
) |
|
Other |
|
|
1,813 |
|
|
|
306 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(33,140 |
) |
|
|
(4,530 |
) |
|
Inventory |
|
|
88,502 |
|
|
|
21,702 |
|
|
Prepaid expenses and other current assets |
|
|
(1,127 |
) |
|
|
(2,084 |
) |
|
Other assets |
|
|
(650 |
) |
|
|
(807 |
) |
|
Accounts payable |
|
|
9,568 |
|
|
|
(2,937 |
) |
|
Accrued expenses |
|
|
12,194 |
|
|
|
(847 |
) |
|
Deferred revenue |
|
|
23,376 |
|
|
|
(4,499 |
) |
|
Other liabilities |
|
|
2,751 |
|
|
|
4,309 |
|
|
Net cash provided by (used in) operating activities |
|
|
29,554 |
|
|
|
(25,145 |
) |
|
Investing activities |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(3,239 |
) |
|
|
(1,699 |
) |
|
Acquisition of business, net of cash acquired |
|
|
(76,145 |
) |
|
|
— |
|
|
Net cash used in investing activities |
|
|
(79,384 |
) |
|
|
(1,699 |
) |
|
Financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from vehicle floorplan |
|
|
396,849 |
|
|
|
293,854 |
|
|
Repayments of vehicle floorplan |
|
|
(473,042 |
) |
|
|
(302,149 |
) |
|
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 |
|
|
— |
|
|
|
(1,818 |
) |
|
Payments of costs related to IPO |
|
|
— |
|
|
|
(828 |
) |
|
Proceeds from exercise of stock options |
|
|
2,821 |
|
|
|
6 |
|
|
Other financing activities |
|
|
— |
|
|
|
(34 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(73,372 |
) |
|
|
9,600 |
|
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(123,202 |
) |
|
|
(17,244 |
) |
|
Cash, cash equivalents and restricted cash at the beginning of period |
|
|
1,090,039 |
|
|
|
219,587 |
|
|
Cash, cash equivalents and restricted cash at the end of period |
|
$ |
966,837 |
|
|
$ |
202,343 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
3,525 |
|
|
$ |
2,743 |
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Costs related to IPO included in accrued expenses and accounts payable |
|
$ |
— |
|
|
$ |
2,162 |
|
|
Issuance of common stock for acquisition of business |
|
$ |
39,030 |
|
|
$ |
— |
|
|
Fair value of unvested stock options assumed for acquisition of business |
|
$ |
1,017 |
|
|
$ |
— |
|
|
Accrued property and equipment expenditures |
|
$ |
136 |
|
|
$ |
289 |
|
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 Vroom). The acquisition included the Company's proprietary vehicle reconditioning center, the Texas Direct Auto ("TDA") dealership, and Sell Us Your Car® centers. Left Gate Property Holding, LLC was renamed Vroom Automotive, LLC in March 2021, and is the primary operating entity for the Company's purchases and sales of used vehicles. In January 2021, the Company acquired Vast Holdings, Inc.(d/b/a CarStory).
The Company currently is organized into three reportable segments: Ecommerce, Wholesale, and TDA. 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 Wholesale reportable segment represents sales of used vehicles through wholesale channels. 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 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, all shares of the Company’s outstanding redeemable convertible preferred stock were automatically converted into common stock upon the closing of the IPO.
Follow-on Public Offering
The Company closed its follow-on public offering on September 15, 2020 in which it sold 10,800,000 shares of common stock at the public offering price of $54.50 per share. The Company received proceeds of $569.5 million from the offering, net of the underwriting discount and before deducting offering expenses of $1.5 million.
Basis of Presentation
The 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, 2020, 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2020.
9
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The unaudited 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 March 31, 2021 and its results of operations for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 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.
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.
Due to the evolving and uncertain nature of the COVID-19 pandemic, 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 the three months ended March 31, 2021 and 2020. Accordingly, net loss and comprehensive loss are the same for the periods presented.
Restricted Cash
Restricted cash includes cash deposits required under letter of credit agreements as explained in Note 10 – Commitments and Contingencies. As of March 31, 2021 and December 31, 2020, restricted cash also includes $24.7 million and $31.6 million, respectively, of cash deposits required under the Company’s 2020 Vehicle Floorplan Facility as explained in Note 9 – Vehicle Floorplan Facilities.
Business Combinations
The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company will continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the Company’s condensed consolidated statement of operations.
10
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 $29.6 million and $17.9 million for the three months ended March 31, 2021 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 $15.4 million and $5.8 million for the three months ended March 31, 2021 and 2020, respectively.
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 balances 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. The Company’s cash equivalents primarily consist of money market funds that hold investments in highly liquid US treasury securities. Concentration of credit risk with respect to accounts receivable is generally mitigated by a large customer base.
For the three months ended March 31, 2021 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 March 31, 2021 and December 31, 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 a vehicle floorplan facility. As further discussed in Note 9 – Vehicle Floorplan Facilities, the Company entered into a new facility in March 2020 which increased the borrowing capacity to $450.0 million. In October 2020, the Vehicle Floorplan Facility was amended to extend the maturity date to September 2022.
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 2021 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 issued Rocket 183,870 shares of the Company’s common stock upon execution of the RA Agreement. The Company will pay Rocket a combination of cash and stock for vehicle sales made through the platform. Rocket may earn up to 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
11
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
Accounting Standards Adopted
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 Company adopted the guidance on January 1, 2021 which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
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 program 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 wholesale channels. Vehicles sold through wholesale channels are acquired from customers who trade-in their vehicles when making a purchase from the Company, from customers who sell their vehicles to the Company in direct-buy transactions, and from liquidation of vehicles previously listed for retail sale. The transaction price for wholesale vehicles is a fixed amount. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold. The transaction price is typically due and collected within a short period of time following the vehicle sales.
12
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Product Revenue
The Company’s product revenue consists of fees earned on selling vehicle service contracts, guaranteed asset protection (“GAP”) and tire and wheel 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.
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 March 31, 2021 and December 31, 2020, the Company’s reserve for chargebacks was $4.7 million and $3.8 million, respectively, of which $2.2 million and $1.7 million, respectively, are included within “Accrued expenses” and $2.5 million and $2.1 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 vehicle service 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 March 31, 2021 and December 31, 2020, the Company recognized $12.1 million and $11.5 million, respectively, related to cumulative profit-sharing payments to which it expects to be entitled, of which $0.9 million and $0.8 million, respectively, are included within “Prepaid expenses and other current assets” and $11.2 million and $10.7 million, respectively, are included within “Other assets.”
Other Revenue
Other revenue consists of labor and parts revenue earned by the Company for vehicle repair services at TDA and, commencing in the first quarter of 2021, revenue from CarStory.
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. Acquisition
On January 7, 2021, the Company completed the acquisition of 100% of Vast Holdings, Inc. (d/b/a CarStory), a leader in AI-powered analytics and digital services for automotive retail. Leveraging its machine learning, CarStory brings predictive market data to the Company’s national ecommerce and vehicle operations platform. The Company expects CarStory to continue to offer its digital retailing services to dealers, automotive financial services companies and others in the automotive industry. The financial results of CarStory were included in the condensed consolidated financial statements from the date of acquisition and were not material for the three months ended March 31, 2021. The transaction costs associated with its acquisition were not material for the three months ended March 31, 2021. Pro forma results of operations have not been presented as the effect of this acquisition was not material to the condensed consolidated financial statements.
13
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The fair value of the consideration transferred to acquire Vast Holdings, Inc. was approximately $117.1 million at the acquisition date and consisted of the following (in thousands):
|
|
|
Fair Value |
|
|
|
Cash |
|
$ |
77,010 |
|
|
Common stock issued (1) |
|
|
39,030 |
|
|
Fair value of unvested stock options assumed (2) |
|
|
1,017 |
|
|
Total |
|
$ |
117,057 |
|
|
|
(1) |
The Company issued 1,072,117 shares of common stock. The fair value of common stock was determined based on the closing market price on the date of acquisition discounted for a lack of marketability of 10.0% to account for the 180 day lock up period. |
|
|
(2) |
The fair value of the unvested stock options assumed by the Company was determined using the Black-Scholes option pricing model. The share conversion ratio of 0.0392 was applied to convert CarStory’s outstanding equity awards for CarStory's common stock into equity awards for shares of the Company's common stock. |
The following table summarizes the fair value of the identified assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
|
|
Fair Value |
|
|
|
Cash and cash equivalents |
|
$ |
865 |
|
|
Accounts receivable, prepaid expenses and other current assets |
|
|
1,330 |
|
|
Property and equipment and other assets |
|
|
371 |
|
|
Intangible Assets |
|
|
34,300 |
|
|
Goodwill |
|
|
81,134 |
|
|
Current liabilities |
|
|
(943 |
) |
|
Net assets acquired |
|
$ |
117,057 |
|
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. Goodwill is primarily attributable to the workforce of the acquired business and benefits related to expanded market opportunities from integrating CarStory's technology with the Company's ecommerce offerings. All of the goodwill was assigned to the ecommerce reportable segment.
The following table summarizes the preliminary identifiable intangible assets acquired and their estimated weighted average useful life at the date of acquisition (in thousands):
|
|
|
Fair Value |
|
|
Weighted Average Useful Life |
|
|
Developed technology |
|
$ |
25,700 |
|
|
5 |
|
Trademarks |
|
|
5,200 |
|
|
8 |
|
Customer relationships |
|
|
3,400 |
|
|
8 |
|
Total intangible assets subject to amortization |
|
$ |
34,300 |
|
|
|
Developed technology, most of which is protected by a patent portfolio, represents the fair value of CarStory’s industry-specific AI powered analytics software. Trademarks represent the CarStory trademarks, trade names and domain names.
The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The estimated fair value of the intangible assets acquired was determined using a discounted cash flow (DCF) method under the income approach. Under this approach, the Company estimates future cash flows and discounts these cash flows at a rate of return that reflects the Company’s relative risk. The allocation of the total consideration transferred to the assets
14
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
acquired, including intangible assets and goodwill, as well as the liabilities assumed is preliminary, pending the receipt of the final third-party valuation report.
5. Inventory
Inventory consisted of the following (in thousands):
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Vehicles |
|
$ |
335,703 |
|
|
$ |
421,458 |
|
|
Parts and accessories |
|
|
1,993 |
|
|
|
2,189 |
|
|
Total inventory |
|
$ |
337,696 |
|
|
$ |
423,647 |
|
As of March 31, 2021 and December 31, 2020, “Inventory” includes an adjustment of $10.4 million and $12.9 million, respectively, to record the balances at the lower of cost or net realizable value.
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Equipment |
|
$ |
1,009 |
|
|
$ |
1,061 |
|
|
Furniture and fixtures |
|
|
1,778 |
|
|
|
1,746 |
|
|
Company vehicles |
|
|
6,174 |
|
|
|
5,002 |
|
|
Leasehold improvements |
|
|
7,094 |
|
|
|
7,068 |
|
|
Internal-use software |
|
|
12,057 |
|
|
|
10,552 |
|
|
Other |
|
|
3,634 |
|
|
|
2,997 |
|
|
|
|
|
31,746 |
|
|
|
28,426 |
|
|
Accumulated depreciation and amortization |
|
|
(14,809 |
) |
|
|
(13,334 |
) |
|
Property and equipment, net |
|
$ |
16,937 |
|
|
$ |
15,092 |
|
Depreciation and amortization expense was $1.5 million and $0.9 million for the three months ended March 31, 2021 and 2020, respectively. Depreciation and amortization expense included within “Cost of sales” in the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 was not material.
Implementation costs capitalized and accumulated amortization related to the Company’s cloud computing arrangements were $3.9 million and $1.2 million as of March 31, 2021, respectively, and $3.6 million and $1.0 million as of December 31, 2020, respectively, and were included within “Other assets” in the condensed consolidated balance sheets. Amortization expense of $0.3 million and $0.2 million was included within “Selling, general and administrative expenses” in the condensed statements of operations for the three months ended March 31, 2021 and 2020, respectively.
15
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in the carrying value of goodwill by reportable segment for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
Ecommerce |
|
|
Wholesale |
|
|
TDA |
|
|
Total |
|
||||
|
Balance as of December 31, 2019 |
|
$ |
72,231 |
|
|
$ |
1,720 |
|
|
$ |
4,221 |
|
|
$ |
78,172 |
|
|
Change in carrying amount |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance as of March 31, 2020 |
|
$ |
72,231 |
|
|
$ |
1,720 |
|
|
$ |
4,221 |
|
|
$ |
78,172 |
|
|
Balance as of December 31, 2020 |
|
$ |
72,231 |
|
|
$ |
1,720 |
|
|
$ |
4,221 |
|
|
$ |
78,172 |
|
|
Acquisition |
|
|
81,134 |
|
|
|
— |
|
|
|
— |
|
|
|
81,134 |
|
|
Balance as of March 31, 2021 |
|
$ |
153,365 |
|
|
$ |
1,720 |
|
|
$ |
4,221 |
|
|
$ |
159,306 |
|
Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the three months ended March 31, 2021.
Intangible Assets
Intangibles assets, net consisted of the following (in thousands):
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Developed Technology |
|
$ |
25,700 |
|
|
$ |
— |
|
|
Trademarks |
|
|
5,240 |
|
|
|
40 |
|
|
Customer Relationships |
|
|
3,400 |
|
|
|
— |
|
|
Other |
|
|
252 |
|
|
|
252 |
|
|
|
|
|
34,592 |
|
|
|
292 |
|
|
Accumulated Amortization |
|
|
(1,680 |
) |
|
|
(258 |
) |
|
Intangible assets, net |
|
$ |
32,912 |
|
|
$ |
34 |
|
Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the three months ended March 31, 2021.
Amortization expense for intangible assets was $1.4 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively.
The estimated amortization expense for intangible assets subsequent to March 31, 2021 consists of the following (in thousands):
|
Year Ending December 31: |
|
|
|
|
|
For remainder of 2021 |
|
$ |
4,705 |
|
|
2022 |
|
|
6,220 |
|
|
2023 |
|
|
6,215 |
|
|
2024 |
|
|
6,215 |
|
|
2025 |
|
|
6,215 |
|
|
Thereafter |
|
|
3,342 |
|
|
|
|
$ |
32,912 |
|
16
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8. Accrued Expenses and Other Current Liabilities
The Company’s accrued expenses consisted of the following (in thousands):
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Accrued marketing expenses |
|
$ |
12,696 |
|
|
$ |
9,106 |
|
|
Vehicle related expenses |
|
|
14,555 |
|
|
|
13,062 |
|
|
Sales taxes |
|
|
22,789 |
|
|
|
15,443 |
|
|
Accrued compensation and benefits |
|
|
8,151 |
|
|
|
5,749 |
|
|
Accrued professional services |
|
|
3,174 |
|
|
|
4,890 |
|
|
Other |
|
|
10,601 |
|
|
|
11,155 |
|
|
Total accrued expenses |
|
$ |
71,966 |
|
|
$ |
59,405 |
|
The Company’s other current liabilities consisted of the following (in thousands):
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Vehicle payable |
|
$ |
23,289 |
|
|
$ |
25,086 |
|
|
Other |
|
|
9,411 |
|
|
|
5,189 |
|
|
Total other current liabilities |
|
$ |
32,700 |
|
|
$ |
30,275 |
|
9. Vehicle Floorplan Facilities
In 2020, the Company entered into a new vehicle floorplan facility with Ally Bank and Ally Financial (the “2020 Vehicle Floorplan Facility”). The 2020 Vehicle Floorplan Facility provides a committed credit line of up to $450.0 million which is scheduled to expire in September 30, 2022.The amount of credit available is determined on a monthly basis based on a calculation that considers average outstanding borrowings and vehicle units paid off by the Company within the immediately preceding three-month period. As of March 31, 2021, the borrowing capacity of the 2020 Vehicle Floorplan Facility was $415.2 million, of which $162.2 million was unutilized.
Outstanding borrowings related to the 2020 Vehicle Floorplan Facility are due as the vehicles financed are sold, or in any event, on the maturity date. The 2020 Vehicle Floorplan Facility bears interest at a rate equal to the 1-Month LIBOR rate applicable in the immediately preceding month plus a spread of 425 basis points. The 2020 Vehicle Floorplan Facility is collateralized by the Company’s vehicle inventory and certain other assets and the Company is subject to covenants that require it to maintain a certain level of equity in the vehicles that are financed, to maintain at least 7.5% of the outstanding borrowings in cash and cash equivalents, and to maintain 10% of the daily floorplan principal balance outstanding on deposit with Ally Bank. The Company is required to pay an availability fee each quarter on the average unused capacity from the prior quarter if it was greater than 50% of the calculated floorplan allowance, as defined.
As of March 31, 2021 and December 31, 2020, outstanding borrowings on the 2020 Vehicle Floorplan Facility were $253.0 million and $329.2 million, respectively.
Interest expense incurred by the Company for the 2020 Vehicle Floorplan Facility was $3.8 million and $2.7 million for the three months ended March 31, 2021 and 2020, respectively, which are recorded within “Interest expense” in the condensed consolidated statements of operations. The weighted average interest rate on the vehicle floorplan borrowings was 4.37% and 4.39% as of March 31, 2021 and December 31, 2020, respectively.
As of March 31, 2021 and December 31, 2020, the Company was in compliance with all covenants related to the 2020 Vehicle Floorplan Facility.
17
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In connection with the 2020 Vehicle Floorplan Facility, the Company entered into credit balance agreements with Ally Bank and Ally Financial that permit the Company to deposit cash with the bank for the purpose of reducing the amount of interest payable for borrowings. Interest credits earned by the Company were $2.2 million and $1.7 million for the three months ended March 31, 2021 and 2020, respectively, which are recorded within “Interest income” in the condensed consolidated statements of operations.
10. Commitments and Contingencies
Litigation
From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business and an unfavorable resolution of any of these matters could materially affect the Company’s future results of operations, cash flows or financial position. The Company is also party to various disputes that the Company considers routine and incidental to its business. The Company does not expect the results of any of these routine actions to have a material effect on the Company’s business, results of operations, financial condition, or cash flows. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred.
Beginning in March 2021, multiple putative class actions were filed in the U.S. District Court for the Southern District of New York by certain of the Company’s stockholders against the Company and certain of the Company’s officers alleging violations of federal securities laws. The lawsuits are captioned Zawatsky et al. v. Vroom, Inc. et al., Case No. 21-cv-2477; Holbrook v. Vroom, Inc. et al., Case No. 21-cv-2551; and Hudda v. Vroom, Inc. et al., Case No. 21-cv-3296. All three of the lawsuits assert similar claims under Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5. The complaints seek damages purportedly caused by alleged materially misleading statements and/or omissions by the Company and the named individual officers. In each case, the named plaintiff(s) seek to represent a proposed class of all persons who purchased or otherwise acquired the Company’s securities during a period from June 9, 2020 to March 3, 2021 (in the case of Holbrook and Hudda), or November 11, 2020 to March 3, 2021 (in the case of Zawatsky). These cases are in preliminary stages, and the Company has not yet responded to the complaints. The Company believes these lawsuits are without merit and intends to vigorously contest these claims. While the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties, based upon information presently known to management, the Company believes that the potential liability, if any, will not have a material adverse effect on the Company’s financial condition, cash flows, or results of operations.
Letters of Credit
The Company obtained stand-by letters of credit to satisfy conditions under three lease agreements. The Company was required to maintain a cash deposit of $1.8 million and $2.2 million with the financial institution that issued the stand-by letters of credit, which is classified as “Restricted cash” within the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.
Other Matters
The Company enters into agreements with third parties in the ordinary course of business that may contain indemnification provisions. In the event that an indemnification claim is asserted, the Company’s liability, if any, would be limited by the terms of the applicable agreement. Historically, the Company has not incurred material costs to defend lawsuits or settle claims related to indemnification provisions.
11. Redeemable Convertible Preferred Stock and Stockholders’ Equity
Redeemable Convertible Preferred Stock
On January 8, 2020, the Company completed an additional closing of its Series H Preferred Stock whereby it sold and issued an aggregate of 1,964,766 shares of Series H Preferred Stock in exchange for gross proceeds of $26.7 million. The proceeds were used for general corporate purposes and business development.
18
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Immediately upon closing of the IPO, the Company’s outstanding preferred stock was automatically converted into an aggregate of 85,533,394 shares of the Company’s common stock. On June 11, 2020, the Company amended its certificate of incorporation to authorize the issuance of up to 10,000,000 shares of Preferred Stock. As of March 31, 2021, there was no preferred stock issued or outstanding.
Common Stock
On June 11, 2020, the Company amended its certificate of incorporation to effect a 2-for-1 forward stock split of shares of the Company’s outstanding common stock, such that each share of common stock, $0.001 par value became two shares of common stock, $0.001 par value per share. The shares of common stock authorized for issuance was increased to 500,000,000. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.
Warrants
In connection with the offering of shares of Series B Preferred Stock, the Company issued warrants to an investor in return for providing ongoing advisory services (“Series B Warrants”). The Series B Warrants allowed the investor to purchase up to 161,136 shares of common stock with an exercise price of $0.72 per share. The Series B Warrants vested in equal monthly installments through October 1, 2017. Upon the closing of the IPO, all of the Series B Warrants were exercised on a cashless basis by the holder which resulted in the net issuance of 155,862 shares of the Company’s common stock.
In August 2017, the Company issued a warrant (the “Series F Preferred Stock Warrant”) which allowed the holders to purchase up to 589,970 shares of the Company’s Series F Preferred Stock, or common stock upon conversion of the Company’s preferred stock into common stock, with an exercise price of $8.53 per share. The holders exercised the warrant on June 23, 2020 on a cashless basis, which resulted in the net issuance of 480,250 shares of the Company’s common stock. Prior to the conversion of the Company’s preferred stock into common stock, the Series F Preferred Stock Warrant was classified as a liability due to the contingent redemption features of the Series F Preferred Stock and was measured at fair value at each reporting date.
12. Stock-based Compensation
On May 28, 2020, the Company adopted the 2020 Incentive Award Plan (“the 2020 Plan”), which authorized the issuance of (i) up to 3,019,108 shares of the Company’s common stock, (ii) up to the number of shares representing a 4% annual increase on the first day of each year beginning on January 1, 2022 and ending on January 1, 2030, and (iii) any shares of the Company’s common stock subject to awards under the 2014 Plan which are forfeited or lapse unexercised and which following the effective date are not issued under the 2014 Plan. Awards may be issued in the form of restricted stock units, restricted stock, stock appreciation rights, and stock options. As of March 31, 2021, there were 2,788,577 shares available for future issuance under the 2020 Plan.
Stock Options
The Company recognized $0.6 million of stock-based compensation expense related to stock options for each of the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company had $4.6 million and $3.5 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.3 years and 2.2 years, respectively.
RSUs
The Company recognized $2.2 million and $0.0 million of stock-based compensation expense related to RSUs for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company had $22.0 million and $15.4 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 1.9 years and 1.8 years, respectively.
19
VROOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
13. Financial Instruments and Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes the following three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Items Measured at Fair Value on a Recurring Basis
The following tables present the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
` |
|
As of March 31, 2021 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
734,652 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|||