Vroom, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar figures are in millions unless stated otherwise. Vroom operates an ecommerce used-vehicle platform alongside wholesale sales and its Texas Direct Auto (TDA) retail business.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $761.9 | $253.1 | $1,353.0 | $628.9 |
| Gross profit / margin | $63.1 / 8.3% | $7.6 / 3.0% | $99.3 / 7.3% | $26.0 / 4.1% |
| Operating loss | $(63.8) | $(41.4) | $(139.4) | $(82.3) |
| Net loss | $(65.8) | $(63.2) | $(143.0) | $(104.3) |
| Adjusted EBITDA | $(60.7) | $(39.0) | $(133.3) | $(78.9) |
- Q2 revenue grew 201%, led by ecommerce vehicle sales and increased units sold. Ecommerce units sold rose 172% to 18,268; total gross profit per ecommerce unit increased to $2,718 from $1,075.
- Revenue growth outpaced cost of sales, lifting gross margin, but SG&A rose 159% to $123.9 million. Compensation, marketing, outbound logistics and other scaling costs increased. Operating loss widened.
- For the first half, operating cash used was $151.9 million, versus approximately break-even cash flow in the prior-year period; management attributed the change primarily to higher inventory. Investing used $85.1 million, including $76.1 million for CarStory. Financing provided $647.6 million, including proceeds from convertible notes and floorplan financing.
- At June 30, cash and cash equivalents were $1,463.6 million; restricted cash was $37.1 million. Inventory was $520.0 million, up from $423.6 million at year-end 2020.
- Vehicle floorplan borrowings were $363.6 million, with $86.4 million of stated capacity unused under the $450 million facility, which matures September 2022. The facility is secured by vehicle inventory and subject to covenants; Vroom reported compliance.
- In June, Vroom issued $625 million of 0.75% convertible senior notes due 2026, receiving approximately $608.8 million net. The initial conversion price was approximately $56.01 per share. The balance sheet reported a $609.0 million net carrying value.
Changes, outlook and risks
- Comparability: The prior-year quarter included a $21.3 million non-cash loss from revaluation of a preferred-stock warrant related to the IPO. Q2 2020 also reflected deliberate price reductions to clear pre-pandemic inventory. These items and the unusual used-car market affect comparisons.
- Market and operating trends: Management cited strong demand and record retail pricing during the first half of 2021, supported partly by constrained vehicle supply and delayed new-car manufacturing related to microchip shortages. It expected wholesale prices to have peaked in June and retail prices to peak in Q3, with market conditions and depreciation gradually normalizing in the second half. Normalization could pressure margins.
- Management outlook: Vroom expected ecommerce to continue outgrowing other segments and planned to expand inventory, marketing, customer support, reconditioning capacity and proprietary logistics. It also expected SG&A, capital spending and logistics-related operating costs to rise. Management stated cash and the floorplan facility should support working capital and capital expenditure needs for at least the next 12 months; no specific numerical revenue or earnings guidance is provided in the filing text.
- Execution and liquidity risks: Carrier shortages, higher shipping costs and delays, reconditioning capacity, inventory sourcing, customer conversion and rapidly scaling operations could affect unit economics and service. The company remained loss-making and cautioned that it may require additional financing in the future.
- Legal and control matters: Shareholder securities class actions alleging misleading statements were consolidated in August 2021; the company said it believed the claims were without merit and intended to contest them. Disclosure controls were deemed ineffective as of June 30 because of continuing material weaknesses in financial reporting controls and IT general controls. Remediation was ongoing; management said additional procedures supported the fairness of the reported financial statements.
- Acquisition: Vroom acquired AI analytics and digital services business CarStory in January for approximately $117.1 million, including $77.0 million cash and $39.0 million in stock. Its reported results were not material for the period; purchase accounting remained preliminary.
Key facts for investors to verify
- Whether vehicle gross profit per unit and margins hold up as used-car prices and supply normalize.
- Whether ecommerce growth translates into lower operating losses, given rapid SG&A growth and first-half operating cash use.
- Inventory levels, aging and valuation reserves, along with available floorplan capacity and covenant compliance.
- Cash requirements for logistics, reconditioning, marketing and other expansion plans, and the stated 12-month liquidity outlook.
- Potential dilution or cash settlement obligations under the convertible notes, and developments in the securities litigation.
- Progress and testing of remediation for the disclosed material weaknesses in internal controls.