10-Q
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Table of Contents

 

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 March 31, 2022

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

 

90-1112566

(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 5, 2022, 138,068,774 shares of the registrants’ common stock were outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

Part I - Financial Information

6

Item 1.

Financial Statements (unaudited)

6

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited)

6

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited)

7

 

Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)

8

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)

9

 

Notes to Condensed Consolidated Financial Statements (unaudited)

10

Item 2.

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

39

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

65

Item 4.

Controls and Procedures

65

 

Part II - Other Information

66

Item 1.

Legal Proceedings

66

Item 1A.

Risk Factors

68

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

104

Item 3.

Defaults Upon Senior Securities

104

Item 4.

Mine Safety Disclosures

104

Item 5.

Other Information

104

Item 6.

Exhibits

106

 

Signatures

108

 

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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.

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.

 

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SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include, but are not limited to, the following:

we may not successfully execute or achieve the expected benefits of our Realignment Plan and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations;
despite the cost saving measures, reduced growth rates and increased focus on profitability contemplated by the Realignment Plan, we may need to raise additional capital through debt or equity financings to achieve our business objectives and there can be no assurance that such financings will be available in amounts or on terms acceptable to us, if at all;
the impact of the COVID-19 pandemic;
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;
our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our debt obligations;
we have a limited operating history and are still building out our foundational systems;
our recent, rapid growth is not indicative of our near term growth under our Realignment Plan and, when we return to rapid growth, we may not be able to manage our growth effectively;
we may be unable to successfully integrate the United Auto Credit Corporation ("UACC") business into our business and develop UACC into a captive lending operation for Vroom, or realize the anticipated benefits of the UACC Acquisition or those benefits could take longer than anticipated;
UACC's ability to sell automotive finance receivables and generate gains on sales of these finance receivables may decline in the future; any material reduction could harm our business, results of operations, and financial condition;
we rely on third-party vendors for key components of our business, which exposes us to increased risks;
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;
our business, sales and results of operations are materially affected by our customer experience, our reputation and our brand;
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;

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we currently rely heavily 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, 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;
the current geographic concentration where we provide reconditioning services and store inventory and where UACC has a high concentration of borrowers 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 or our third-party providers 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 operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations and failure to comply with these laws and regulations could have a material adverse effect on our business, financial condition and results of operations;
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
our actual operating results may differ significantly from our guidance.

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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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

600,721

 

 

$

1,132,325

 

Restricted cash (including restricted cash of consolidated VIEs of $25.5 million and $0 million, respectively)

 

 

196,809

 

 

 

82,450

 

Accounts receivable, net of allowance of $14.8 million and $8.9 million, respectively

 

 

103,911

 

 

 

105,433

 

Finance receivables at fair value (including finance receivables of consolidated VIEs of $12.1 million and $0 million, respectively)

 

 

14,900

 

 

 

 

Finance receivables held for sale, net

 

 

117,658

 

 

 

 

Inventory

 

 

741,368

 

 

 

726,384

 

Beneficial interests in securitizations

 

 

15,603

 

 

 

 

Prepaid expenses and other current assets

 

 

68,457

 

 

 

55,700

 

Total current assets

 

 

1,859,427

 

 

 

2,102,292

 

Finance receivables at fair value (including finance receivables of consolidated VIEs
of $
177.4 million and $0 million, respectively)

 

 

210,523

 

 

 

 

Property and equipment, net

 

 

44,657

 

 

 

37,042

 

Intangible assets, net

 

 

179,183

 

 

 

28,207

 

Goodwill

 

 

 

 

 

158,817

 

Operating lease right-of-use assets

 

 

15,321

 

 

 

15,359

 

Other assets

 

 

29,624

 

 

 

25,033

 

Total assets

 

$

2,338,735

 

 

$

2,366,750

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

52,172

 

 

$

52,651

 

Accrued expenses

 

 

139,156

 

 

 

121,508

 

Vehicle floorplan

 

 

569,941

 

 

 

512,801

 

Current portion of securitization debt of consolidated VIEs at fair value

 

 

138,935

 

 

 

 

Deferred revenue

 

 

73,354

 

 

 

75,803

 

Operating lease liabilities, current

 

 

7,412

 

 

 

6,889

 

Other current liabilities

 

 

36,359

 

 

 

57,604

 

Total current liabilities

 

 

1,017,329

 

 

 

827,256

 

Long term debt, net of current portion (including securitization debt of consolidated VIEs of $65.7 million and $0 million at fair value, respectively)

 

 

687,426

 

 

 

610,618

 

Operating lease liabilities, excluding current portion

 

 

8,937

 

 

 

9,592

 

Other long-term liabilities

 

 

16,679

 

 

 

4,090

 

Total liabilities

 

 

1,730,371

 

 

 

1,451,556

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 500,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 137,695,521 and 137,092,891 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

135

 

 

 

135

 

Additional paid-in-capital

 

 

2,067,470

 

 

 

2,063,841

 

Accumulated deficit

 

 

(1,459,241

)

 

 

(1,148,782

)

Total stockholders’ equity

 

 

608,364

 

 

 

915,194

 

Total liabilities and stockholders’ equity

 

$

2,338,735

 

 

$

2,366,750

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

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VROOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

Retail vehicle, net

 

$

707,186

 

 

$

454,323

 

Wholesale vehicle

 

 

139,984

 

 

 

118,024

 

Product, net

 

 

24,449

 

 

 

15,572

 

Finance

 

 

47,687

 

 

 

 

Other

 

 

4,469

 

 

 

3,199

 

Total revenue

 

 

923,775

 

 

 

591,118

 

Cost of sales:

 

 

 

 

 

 

Retail vehicle

 

 

695,509

 

 

 

435,267

 

Wholesale vehicle

 

 

142,737

 

 

 

118,306

 

Finance

 

 

2,724

 

 

 

 

Other

 

 

1,165

 

 

 

1,369

 

Total cost of sales

 

 

842,135

 

 

 

554,942

 

Total gross profit

 

 

81,640

 

 

 

36,176

 

Selling, general and administrative expenses

 

 

187,994

 

 

 

109,114

 

Depreciation and amortization

 

 

7,856

 

 

 

2,594

 

Goodwill impairment charge

 

 

201,703

 

 

 

 

Loss from operations

 

 

(315,913

)

 

 

(75,532

)

Interest expense

 

 

9,380

 

 

 

3,812

 

Interest income

 

 

(3,952

)

 

 

(2,296

)

Other loss (income), net

 

 

12,358

 

 

 

(15

)

Loss before provision for income taxes

 

 

(333,699

)

 

 

(77,033

)

(Benefit) provision for income taxes

 

 

(23,240

)

 

 

156

 

Net loss

 

$

(310,459

)

 

$

(77,189

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(2.26

)

 

$

(0.57

)

Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted

 

 

137,259,629

 

 

 

135,497,511

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

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VROOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

Balance at December 31, 2021

 

 

137,092,891

 

 

$

135

 

 

$

2,063,841

 

 

$

(1,148,782

)

 

$

915,194

 

 

Stock-based compensation

 

 

 

 

$

 

 

$

3,629

 

 

$

 

 

$

3,629

 

 

Vesting of restricted stock units

 

 

602,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(310,459

)

 

 

(310,459

)

 

Balance at March 31, 2022

 

 

137,695,521

 

 

$

135

 

 

$

2,067,470

 

 

$

(1,459,241

)

 

$

608,364

 

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

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VROOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(310,459

)

 

$

(77,189

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Goodwill impairment charge

 

 

201,703

 

 

 

 

Depreciation and amortization

 

 

7,895

 

 

 

2,906

 

Amortization of debt issuance costs

 

 

1,254

 

 

 

281

 

Realized gain on the 2022-1 securitization transaction

 

 

(29,617

)

 

 

 

Deferred taxes

 

 

(23,855

)

 

 

 

Losses on finance receivables and securitization debt, net

 

 

15,725

 

 

 

 

Stock-based compensation expense

 

 

3,629

 

 

 

2,820

 

Provision to record inventory at lower of cost or net realizable value

 

 

469

 

 

 

(2,551

)

Other

 

 

1,795

 

 

 

1,813

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Finance receivables, held for sale

 

 

 

 

 

 

Originations of finance receivables held for sale

 

 

(118,861

)

 

 

 

Principal payments received on finance receivables held for sale

 

 

2,659

 

 

 

 

Proceeds from sale of finance receivables held for sale, net

 

 

272,309

 

 

 

 

Other

 

 

(1,705

)

 

 

 

Accounts receivable

 

 

(4,331

)

 

 

(33,140

)

Inventory

 

 

(15,453

)

 

 

88,502

 

Prepaid expenses and other current assets

 

 

6,928

 

 

 

(1,127

)

Other assets

 

 

(2,763

)

 

 

(650

)

Accounts payable

 

 

(6,824

)

 

 

9,568

 

Accrued expenses

 

 

8,036

 

 

 

12,194

 

Deferred revenue

 

 

(2,449

)

 

 

23,376

 

Other liabilities

 

 

(21,163

)

 

 

2,751

 

Net cash (used in) provided by operating activities

 

 

(15,078

)

 

 

29,554

 

Investing activities

 

 

 

 

 

 

Finance receivables at fair value

 

 

 

 

 

 

Principal payments received on finance receivables at fair value

 

 

33,570

 

 

 

 

Proceeds from sale of finance receivables at fair value, net

 

 

29,043

 

 

 

 

Principal payments received on beneficial interests

 

 

714

 

 

 

 

Purchase of property and equipment

 

 

(7,096

)

 

 

(3,239

)

Acquisition of business, net of cash acquired of $47.9 million

 

 

(268,194

)

 

 

(76,145

)

Net cash used in investing activities

 

 

(211,963

)

 

 

(79,384

)

Financing activities

 

 

 

 

 

 

Principal repayment under secured financing agreements

 

 

(68,402

)

 

 

 

Proceeds from vehicle floorplan

 

 

801,971

 

 

 

396,849

 

Repayments of vehicle floorplan

 

 

(744,831

)

 

 

(473,042

)

Proceeds from warehouse credit facilities

 

 

49,000

 

 

 

 

Repayments of warehouse credit facilities

 

 

(227,067

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

2,821

 

Other financing activities

 

 

(875

)

 

 

 

Net cash used in financing activities

 

 

(190,204

)

 

 

(73,372

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(417,245

)

 

 

(123,202

)

Cash, cash equivalents and restricted cash at the beginning of period

 

 

1,214,775

 

 

 

1,090,039

 

Cash, cash equivalents and restricted cash at the end of period

 

$

797,530

 

 

$

966,837

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

5,991

 

 

$

3,525

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Fair value of beneficial interests received in securitization transactions

 

$

16,473

 

 

$

 

Issuance of common stock for CarStory acquisition

 

$

 

 

$

39,030

 

Fair value of unvested stock options assumed for acquisition of business

 

$

 

 

$

1,017

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

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VROOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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). On February 1, 2022, the ("Acquisition Date"), the Company completed the acquisition of Unitas Holdings Corp. (now known as Vroom Finance Corporation).

 

As of March 31, 2022, the Company is organized into four reportable segments: Ecommerce, Wholesale, TDA, and Retail Financing. The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform, fees earned on sales of value-added products associated with those vehicles sales, as well as financing those sales through UACC. 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 Retail Financing reportable segment represents UACC’s operations with its network of third-party dealership customers, which primarily consists of the purchases and servicing of vehicle installment contracts, but excluding financing of vehicle sales to Vroom customers.

 

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.

 

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, 2021, 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, 2021.

 

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, 2022 and its results of operations for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 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.

 

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VROOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 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 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 the three months ended March 31, 2022 and 2021. Accordingly, net loss and comprehensive loss are the same for the periods presented.

 

Restricted Cash

 

Restricted cash includes cash deposits required under the Company’s 2020 Vehicle Floorplan Facility as explained in Note 10 – Vehicle Floorplan Facilities, and cash deposits of $113.7 million required under cash collateral agreements with certain of the Company's lenders. Additionally, as of March 31, 2022, restricted cash also includes restricted cash for UACC. UACC collects and services all receivables under the securitizations and warehouse credit facilities. These collections are restricted for use until properly remitted each month under the terms of the servicing agreement. Refer to Note 11 — Warehouse Credit Facilities of Consolidated VIEs and Note 12 — Long Term Debt for further detail.


Finance Receivables

 

Finance receivables consist of installment contracts the Company originates through UACC to finance the vehicles it sells, as well as installment contracts acquired by UACC from its existing network of third-party dealership customers.

 

The Company's finance receivables are generally secured by the vehicles being financed.

 

Finance receivables over 90 days delinquent are considered nonaccrual finance receivables. Interest income is subsequently recognized only to the extent cash payments are received. Finance receivables may be restored to accrual status when a customer settles all delinquency balances and future interest and principal payments are reasonably assured.

Finance Receivables Held for Sale, Net

 

Finance receivables which the Company intends to sell and not hold to maturity are classified as held-for-sale. The Company intends to sell finance receivables either through securitization transactions or whole loan sales under

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forward flow arrangements. Finance receivables classified as held for sale are recorded at the lower of cost or fair value. Deferred acquisition costs and any discounts or premiums are deferred until the finance receivables are sold and are then recognized as part of the total gain or loss on sale and recorded in “Finance Revenue” in the condensed consolidated statements of operations.

 

The Company records an allowance to report finance receivables at the lower of amortized cost basis or fair value. For purposes of determining the allowance, finance receivables are evaluated collectively to determine the allowance as they represent a large group of smaller-balance homogeneous loans. To the extent that actual experience differs from estimates, there could be significant adjustments to our allowance. Fair value adjustments are recorded in "Other loss (income), net" in the condensed consolidated statements of operations. Principal balances of finance receivables are charged-off when we are unable to sell the finance receivable and the related vehicle has been repossessed and liquidated or the receivable has otherwise been deemed uncollectible. As of March 31, 2022, the allowance for finance receivables classified as held for sale was not material. Refer to Note 16 – Financial Instruments and Fair Value Measurements.


Finance Receivables at Fair Value

 

Finance receivables at fair value represent finance receivables for which the Company elected the fair value option on February 1, 2022 and primarily consists of the finance receivables held in consolidated variable interest entities ("VIEs") related to securitization transactions consummated prior to the Acquisition Date. Fair value adjustments are recorded in "Other loss (income), net" in the condensed consolidated statements of operations. Refer to Note 16 – Financial Instruments and Fair Value Measurements.

 

Consolidated CFEs

 

The Company elected the fair value option for the initial recognition of the assets and liabilities of its consolidated VIEs related to the 2020 and 2021 historical securitizations acquired from UACC. These VIEs are consolidated collateralized financing entities (CFEs) and are accounted for using the measurement alternative included in ASU 2014-13, Measuring the Financial Assets and Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13"). Interest income, interest expense and other loss or income associated with these CFEs are presented separately on the condensed consolidated statements of operations, within the “Finance revenue”, “Finance cost of sales” and “Other loss (income), net” line items, respectively. The assets and liabilities of the CFEs are presented as part of the current and noncurrent “Finance receivables at fair value” and “Securitization debt of consolidated VIEs at fair value,” respectively, on the condensed consolidated balance sheets.

 

During the quarter ended March 31, 2022, the Company recognized interest income of $10.9 million, interest expense of $0.8 million, and other net losses due to changes in fair value of $12.0 million. Refer to Note 16 – Financial Instruments and Fair Value Measurements for further details.

 

Goodwill

 

Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of October 1 or whenever events or changes in circumstances indicate that an impairment may exist.

 

The Company has four reporting units: Ecommerce, Wholesale, TDA and Retail Financing. In performing its goodwill impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing qualitative factors, the Company determines that it is more likely than not that the fair value of a reporting unit is more than its carrying amount, then performing the quantitative test is unnecessary and the Company’s goodwill is not considered to be impaired. However, if based on the qualitative assessment the Company concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the optional qualitative assessment as provided for under U.S. GAAP, the Company proceeds with performing the quantitative impairment test.

 

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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 consolidated statement of operations.

 

Advertising

 

Advertising costs are expensed as incurred and are included within “Selling, general and administrative expenses” in the consolidated statements of operations. Advertising expenses were $33.7 million and $29.6 million for the three months ended March 31, 2022 and 2021, respectively.

 

Shipping and Handling

 

Logistics costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility are 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 fulfill contracts with customers and are included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations and were $26.7 million and $15.4 million for the three months ended March 31, 2022 and 2021, 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, reputable 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 U.S. treasury securities and commercial paper investments. Concentration of credit risk with respect to accounts receivable is generally mitigated by a large customer base.

 

For the three months ended March 31, 2022 and 2021, 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, 2022 and December 31, 2021.

 

Liquidity

 

The Company has had negative cash flows and losses from operations since inception and expects to incur additional losses in the future.

 

In June 2021, the Company issued $625.0 million aggregate principal amount of 0.75% unsecured Convertible Senior Notes due 2026. Refer to Note 12 – Long Term Debt for further discussion.

 

The Company has a Vehicle Floorplan Facility with a borrowing capacity of $700.0 million as of December 31, 2021. Refer to Note 10 – Vehicle Floorplan Facilities for further discussion.

 

In February 2022, UACC sold $281.4 million of rated asset-backed securities and $32.3 million of residual certificates in an auto loan securitization offering from a securitization trust, established and sponsored by UACC, for proceeds of $317.3 million. The trust is collateralized by finance receivables with an aggregate principal balance of $318.5 million and had a carrying value of $287.7 million at the time of sale. These finance receivables are serviced by UACC.

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UACC retained 5% of the notes and residual certificates sold. Refer to Note 4 – Variable Interest Entities and Securitizations for further discussion.

 

UACC has three warehouse credit facilities from a diverse bank group with a borrowing capacity of $350.0 million as of March 31, 2022. Refer to Note 11 – Warehouse Credit Facilities of Consolidated VIEs for further discussion.

 

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 lists its used vehicle inventory for sale on the Rocket Auto platform, but all sales of the Company’s inventory are conducted through the Company’s platform. 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. We have been engaged in discussions with Rocket regarding a potential restructuring of our relationship with regard to the Rocket Auto platform and have agreed to suspend the RA Agreement as of April 26, 2022 pending the outcome if further discussions.

 

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 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.

 

Accounting Standards Issued But Not Yet Adopted

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. The guidance will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, 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.

 

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 consolidated statements of operations and is generated from customers throughout the United States.

 

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

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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 and document fees 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 at the TDA retail location of used vehicles are recorded as “Deferred revenue” within the 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 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 straight-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.

 

Product Revenue

 

The Company’s product revenue consists of fees earned on selling third-party financing and value-added products, such as vehicle service contracts, guaranteed asset protection (“GAP”) and tire and wheel coverage.

 

The Company sells third-party financing and value-added 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, 2022 and December 31, 2021, the Company’s reserve for chargebacks was $10.2 million and $9.6 million, respectively, of which $5.7 million and $5.5 million, respectively, are included within “Accrued expenses” and $4.5 million and $4.1 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS