Vroom, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the filing also reports selected fourth-quarter results. Filed March 2, 2023. Vroom operates an online used-vehicle business and, following its February 2022 acquisition of United Auto Credit Corporation (UACC), an auto-finance business.
Financial and operating results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $1,948.9 million | $3,184.3 million |
| Gross profit | $244.8 million | $202.1 million |
| Gross margin | 12.6% | 6.3% |
| Operating loss | $571.8 million | $358.6 million |
| Net loss | $451.9 million | $370.9 million |
| Adjusted EBITDA | $(337.2) million | $(340.2) million |
| Cash used in operating activities | $109.1 million | $568.7 million |
Revenue fell 38.8%, reflecting a deliberate reduction in sales volume and operational constraints. Ecommerce units sold declined 47.4% to 39,278. Ecommerce total gross profit per unit rose 15.4% to $2,545, mainly due to higher product gross profit per unit after UACC financing income was included; vehicle gross profit per unit declined 6.8% to $1,033. Wholesale gross profit shifted from $18.1 million profit to a $10.6 million loss.
Fourth-quarter revenue was $209.3 million and gross profit was $29.5 million. Ecommerce sold 4,144 units; vehicle gross profit per unit was a loss of $1,346 and total gross profit per unit was $1,233. The quarter reported net income of $24.8 million, while Adjusted EBITDA was a loss of $70.9 million. The quarter included a $126.8 million gain on debt extinguishment, so reported net income should not be viewed as evidence of operating profitability.
Cash, debt and liquidity
- At year-end, cash and cash equivalents were $398.9 million and restricted cash was $73.1 million. Inventory was $320.6 million, down from $726.4 million a year earlier.
- Cash used in investing activities was $164.2 million, including the UACC acquisition; financing activities used $469.5 million. Cash, cash equivalents and restricted cash together ended the year at $472.0 million, versus $1,214.8 million at year-end 2021.
- Management stated that existing cash, the vehicle floorplan facility and UACC warehouse facilities were expected to support operations for at least 12 months from the filing date. It also cautioned that additional financing might be needed and may not be available on acceptable terms.
- Reported year-end debt included $277.0 million outstanding on the vehicle floorplan facility, $229.5 million on UACC warehouse facilities, and $359.3 million net carrying value of convertible notes (approximately $365.8 million principal). The filing separately reports approximately $955.9 million of consolidated indebtedness; debt figures differ by measure and inclusion of facilities.
- Vroom repurchased $254.3 million principal amount of 0.75% convertible notes for $90.2 million, recognizing a $164.7 million extinguishment gain. The amended $500 million floorplan facility matures March 31, 2024; UACC warehouse facilities mature between May and December 2024. The notes mature in 2026.
Material changes and management plans
- In February 2022, Vroom acquired UACC for approximately $315.4 million in cash. UACC added third-party dealer financing and a developing captive lending channel; its contribution is included for most of 2022, so year-over-year results are not fully comparable.
- The May 2022 Realignment Plan prioritized unit economics, lower costs and liquidity over sales growth. Vroom reported approximately $187 million in cost reductions and operating improvements versus a first-quarter annualized baseline, and recorded $15.0 million in restructuring and related charges.
- On January 18, 2023, Vroom reduced its workforce by approximately 275 employees. It estimated $4 million of severance expense and approximately $27 million in annualized cost reductions; these are estimates, not guaranteed savings.
- Management’s roadmap focuses on improving unit economics and cost per unit, building regional operations, streamlining sales and title processes, and developing UACC as a captive finance operation. Management expected short-term revenue declines and anticipated aged inventory and falling used-car prices would pressure sales margins and gross profit per unit into the first half of 2023.
Risks, contingencies and unusual items
- UACC reported higher credit losses and loss severity, particularly in its subprime portfolio. Weaker securitization-market pricing may limit loan sales, reduce liquidity or require securitizations to remain on balance sheet. The January 2023 securitization was accounted for as secured borrowing pending sale of retained interests.
- Vehicle title and registration delays, aged inventory, reduced outsourced sales support and customer-service issues affected sales, margins and customer experience. The primary third-party sales-support provider’s staffing reduction affected second-half 2022 volume and was expected to affect first-quarter 2023 volume during the transition to internal sales support.
- Legal and regulatory matters include a Texas Attorney General consumer-protection lawsuit concerning marketing and order fulfillment, putative class actions alleging titling and registration deficiencies, and securities and shareholder derivative litigation. The company says it intends to contest the securities claims; it could not determine the potential materiality of the Texas and vehicle-titling cases.
- Goodwill was fully impaired: Vroom recorded a $201.7 million goodwill impairment charge in 2022. It also recorded $6.5 million of lease impairment and $3.7 million of other long-lived-asset impairment.
- Other key risks include dependence on a single floorplan lender, third-party reconditioning and logistics providers, used-vehicle price volatility, rising rates and inflation, regulatory compliance, and the possibility of needing additional capital.
Most important facts for investors to verify
- Cash burn, unrestricted liquidity and the timing of any need for new capital, especially as vehicle and UACC funding facilities approach maturity.
- Whether operating cost reductions are realized without further damage to sales, customer experience or vehicle gross profit per unit.
- UACC’s delinquency and loss trends, securitization execution, retained interests and the treatment of future loan sales on the balance sheet.
- Progress in resolving title and registration backlogs, aged inventory and the disclosed legal and regulatory matters.
- Reconciliation of reported debt measures and the distinction between GAAP net income, debt-extinguishment gains and recurring operating performance.
Audit note: The auditor issued an unqualified opinion on the consolidated financial statements and stated that internal control over financial reporting was effective as of December 31, 2022. UACC was excluded from the internal-control assessment because it had been acquired during 2022.