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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, 2023

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 No.)

3600 W Sam Houston Pkwy S, Floor 4

Houston, Texas 77042

(Address of principal executive offices) (Zip code)

 

(518) 535-9125

(Registrant's telephone number, including area code)

 

 

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 Act). Yes No

 

 

As of May 5, 2023, 138,830,093 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, 2023 and December 31, 2022 (unaudited)

6

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited)

7

 

Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)

8

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)

9

 

Notes to Condensed Consolidated Financial Statements (unaudited)

11

Item 2.

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

44

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

71

Item 4.

Controls and Procedures

71

 

 

 

Part II - Other information

72

Item 1.

Legal Proceedings

72

Item 1A.

Risk Factors

74

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

 

Signatures

82

 

2


Table of Contents

 

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 general economic and market conditions, 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:

despite the cost saving measures, reduced growth rates and increased focus on liquidity and profitability contemplated by our Business Realignment Plan and long-term roadmap, 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;
general business and economic conditions and risks related to the larger automotive ecosystem, including consumer demand;
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 failure to meet the continued listing requirements of the Nasdaq Global Select Market could result in a delisting of our common stock;
our prior rapid growth is not indicative of our near term growth under our long-term roadmap and, if and when we return to rapid growth, we may not be able to manage our growth effectively;
we may be unable to successfully complete the integration of the United Auto Credit Corporation ("UACC") business into our business and support UACC as a captive lending operation for Vroom, or realize the anticipated benefits of the UACC Acquisition or those benefits could take longer than anticipated;
UACC may be unable to sell automotive finance receivables and generate gains on sales of those finance receivables, which 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 difficulties experienced in and our transition away from these arrangements have and could continue to 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 provider, 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 optimizing 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
March 31,

 

 

As of
December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

316,714

 

 

$

398,915

 

Restricted cash (including restricted cash of consolidated VIEs of $48.0 million and $24.7 million, respectively)

 

 

71,994

 

 

 

73,095

 

Accounts receivable, net of allowance of $10.0 million and $21.5 million, respectively

 

 

10,077

 

 

 

13,967

 

Finance receivables at fair value (including finance receivables of consolidated VIEs of $12.1 million and $11.5 million, respectively)

 

 

13,091

 

 

 

12,939

 

Finance receivables held for sale, net (including finance receivables of consolidated VIEs of $163.7 million and $305.9 million, respectively)

 

 

186,777

 

 

 

321,626

 

Inventory

 

 

212,982

 

 

 

320,648

 

Beneficial interests in securitizations

 

 

7,976

 

 

 

20,592

 

Prepaid expenses and other current assets

 

 

59,357

 

 

 

58,327

 

Total current assets

 

 

878,968

 

 

 

1,220,109

 

Finance receivables at fair value (including finance receivables of consolidated VIEs of $508.3 million and $119.6 million, respectively)

 

 

523,179

 

 

 

140,235

 

Property and equipment, net

 

 

51,427

 

 

 

50,201

 

Intangible assets, net

 

 

152,155

 

 

 

158,910

 

Operating lease right-of-use assets

 

 

21,741

 

 

 

23,568

 

Other assets

 

 

24,166

 

 

 

26,004

 

Total assets

 

$

1,651,636

 

 

$

1,619,027

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

28,861

 

 

$

34,702

 

Accrued expenses

 

 

58,492

 

 

 

76,795

 

Vehicle floorplan

 

 

147,428

 

 

 

276,988

 

Warehouse credit facilities of consolidated VIEs

 

 

124,247

 

 

 

229,518

 

Current portion of securitization debt of consolidated VIEs at fair value

 

 

261,746

 

 

 

47,239

 

Deferred revenue

 

 

13,037

 

 

 

10,655

 

Operating lease liabilities, current

 

 

9,021

 

 

 

9,730

 

Other current liabilities

 

 

15,251

 

 

 

17,693

 

Total current liabilities

 

 

658,083

 

 

 

703,320

 

Long term debt, net of current portion (including securitization debt of consolidated VIEs of $199.2 million and $32.6 million at fair value, respectively)

 

 

554,655

 

 

 

402,154

 

Operating lease liabilities, excluding current portion

 

 

18,278

 

 

 

20,129

 

Other long-term liabilities

 

 

18,382

 

 

 

18,183

 

Total liabilities

 

 

1,249,398

 

 

 

1,143,786

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 500,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 138,802,011 and 138,201,903 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

 

 

135

 

 

 

135

 

Additional paid-in-capital

 

 

2,077,839

 

 

 

2,075,798

 

Accumulated deficit

 

 

(1,675,736

)

 

 

(1,600,692

)

Total stockholders’ equity

 

 

402,238

 

 

 

475,241

 

Total liabilities and stockholders’ equity

 

$

1,651,636

 

 

$

1,619,027

 

 

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,

 

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Retail vehicle, net

 

$

135,270

 

 

$

707,186

 

Wholesale vehicle

 

 

13,895

 

 

 

139,984

 

Product, net

 

 

11,500

 

 

 

24,449

 

Finance

 

 

31,988

 

 

 

47,687

 

Other

 

 

3,814

 

 

 

4,469

 

Total revenue

 

 

196,467

 

 

 

923,775

 

Cost of sales:

 

 

 

 

 

 

Retail vehicle

 

 

135,724

 

 

 

695,509

 

Wholesale vehicle

 

 

13,833

 

 

 

142,737

 

Product

 

 

897

 

 

 

 

Finance

 

 

6,214

 

 

 

2,724

 

Other

 

 

994

 

 

 

1,165

 

Total cost of sales

 

 

157,662

 

 

 

842,135

 

Total gross profit

 

 

38,805

 

 

 

81,640

 

Selling, general and administrative expenses

 

 

96,537

 

 

 

187,994

 

Depreciation and amortization

 

 

10,531

 

 

 

7,856

 

Impairment charges

 

 

 

 

 

201,703

 

Loss from operations

 

 

(68,263

)

 

 

(315,913

)

Gain on debt extinguishment

 

 

(8,709

)

 

 

 

Interest expense

 

 

9,919

 

 

 

9,380

 

Interest income

 

 

(5,942

)

 

 

(3,952

)

Other loss, net

 

 

11,240

 

 

 

12,358

 

Loss before provision (benefit) for income taxes

 

 

(74,771

)

 

 

(333,699

)

Provision (benefit) for income taxes

 

 

273

 

 

 

(23,240

)

Net loss

 

$

(75,044

)

 

$

(310,459

)

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

 

$

(0.54

)

 

$

(2.26

)

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

 

 

138,530,884

 

 

 

137,259,629

 

 

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, 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

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

138,201,903

 

 

$

135

 

 

$

2,075,798

 

 

$

(1,600,692

)

 

$

475,241

 

Stock-based compensation

 

 

 

 

$

 

 

$

2,041

 

 

$

 

 

$

2,041

 

Vesting of restricted stock units

 

 

600,108

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

$

(75,044

)

 

 

(75,044

)

Balance at March 31, 2023

 

 

138,802,011

 

 

$

135

 

 

$

2,077,839

 

 

$

(1,675,736

)

 

$

402,238

 

 

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,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(75,044

)

 

$

(310,459

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Impairment charges

 

 

 

 

 

201,703

 

Gain on debt extinguishment

 

 

(8,709

)

 

 

 

Depreciation and amortization

 

 

10,637

 

 

 

7,895

 

Amortization of debt issuance costs

 

 

1,115

 

 

 

1,254

 

Realized gains on securitization transactions

 

 

 

 

 

(29,617

)

Deferred taxes

 

 

 

 

 

(23,855

)

Losses on finance receivables and securitization debt, net

 

 

16,603

 

 

 

15,725

 

Stock-based compensation expense

 

 

2,041

 

 

 

3,629

 

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

 

 

(7,315

)

 

 

469

 

Provision for bad debt

 

 

(422

)

 

 

5,853

 

Provision to record finance receivables held for sale at lower of cost or fair value

 

 

(1,251

)

 

 

158

 

Amortization of unearned discounts on finance receivables at fair value

 

 

(5,320

)

 

 

(3,942

)

Other, net

 

 

(5,067

)

 

 

(274

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Finance receivables, held for sale

 

 

 

 

 

 

Originations of finance receivables held for sale

 

 

(143,174

)

 

 

(118,861

)

Principal payments received on finance receivables held for sale

 

 

20,731

 

 

 

2,659

 

Proceeds from sale of finance receivables held for sale, net

 

 

 

 

 

272,309

 

Other

 

 

1,850

 

 

 

(1,705

)

Accounts receivable

 

 

4,312

 

 

 

(4,331

)

Inventory

 

 

114,981

 

 

 

(15,453

)

Prepaid expenses and other current assets

 

 

13,006

 

 

 

6,928

 

Other assets

 

 

1,838

 

 

 

(2,763

)

Accounts payable

 

 

(5,841

)

 

 

(6,824

)

Accrued expenses

 

 

(18,915

)

 

 

8,036

 

Deferred revenue

 

 

2,382

 

 

 

(2,449

)

Other liabilities

 

 

(3,459

)

 

 

(21,163

)

Net cash used in operating activities

 

 

(85,021

)

 

 

(15,078

)

Investing activities

 

 

 

 

 

 

Finance receivables at fair value

 

 

 

 

 

 

Purchases of finance receivables at fair value

 

 

(3,392

)

 

 

 

Principal payments received on finance receivables at fair value

 

 

41,850

 

 

 

33,570

 

Proceeds from sale of finance receivables at fair value, net

 

 

 

 

 

29,043

 

Consolidation of VIEs

 

 

11,409

 

 

 

 

Principal payments received on beneficial interests

 

 

2,144

 

 

 

714

 

Purchase of property and equipment

 

 

(5,193

)

 

 

(7,096

)

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

 

 

 

 

 

(268,194

)

Net cash provided by (used in) investing activities

 

 

46,818

 

 

 

(211,963

)

Financing activities

 

 

 

 

 

 

Proceeds from borrowings under secured financing agreements

 

 

238,735

 

 

 

 

Principal repayment under secured financing agreements

 

 

(42,784

)

 

 

(68,402

)

Proceeds from vehicle floorplan

 

 

41,180

 

 

 

801,971

 

Repayments of vehicle floorplan

 

 

(170,740

)

 

 

(744,831

)

Proceeds from warehouse credit facilities

 

 

135,900

 

 

 

49,000

 

Repayments of warehouse credit facilities

 

 

(241,351

)

 

 

(227,067

)

Repurchases of convertible senior notes

 

 

(5,883

)

 

 

 

Other financing activities

 

 

(156

)

 

 

(875

)

Net cash used in financing activities

 

 

(45,099

)

 

 

(190,204

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(83,302

)

 

 

(417,245

)

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

 

 

472,010

 

 

 

1,214,775

 

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

 

$

388,708

 

 

$

797,530

 

 

(Continued on following page)

 

 

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VROOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(unaudited)

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

12,335

 

 

$

5,991

 

Cash paid for income taxes

 

$

1,189

 

 

$

40

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Finance receivables from consolidation of 2022-2 securitization transaction

 

$

180,706

 

 

$

 

Elimination of beneficial interest from the consolidation of 2022-2 securitization transaction

 

$

9,811

 

 

$

 

Securitization debt from consolidation of 2022-2 securitization transaction

 

$

186,386