Vroom, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; it does not provide a complete standalone fourth-quarter income statement. Vroom operates an online used-vehicle platform and reports Ecommerce, Wholesale and Texas Direct Auto (TDA) segments.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.358 billion | $1.192 billion |
| Gross profit | $71.5 million | $57.9 million |
| Gross margin | 5.3% | 4.9% |
| Operating loss | $178.6 million | $133.1 million |
| Net loss | $202.8 million | $143.0 million |
| Operating cash flow | $(355.3) million | $(215.6) million |
| Investing cash flow | $(11.3) million | $(3.5) million |
| Cash and cash equivalents at year-end | $1.056 billion | $217.7 million |
| Vehicle floorplan borrowings at year-end | $329.2 million | $173.5 million |
Revenue rose 13.9%, while net loss widened 41.8%. Gross margin improved, but operating margin declined to approximately negative 13.2% from negative 11.2%, reflecting operating expenses growing faster than gross profit. The 2020 net loss included a $20.5 million noncash preferred-stock-warrant revaluation charge.
- Ecommerce: Revenue increased 55.7% to $915.5 million; units sold rose 82.0% to 34,488. Ecommerce gross profit grew 89.4% to $60.9 million. Total gross profit per unit increased 4.1% to $1,765, as product gross profit per unit rose to $896 while vehicle gross profit per unit fell 21.6% to $869.
- Wholesale: Revenue increased 15.0% to $245.6 million, but the segment recorded a $1.4 million gross loss, versus $0.3 million gross profit in 2019.
- TDA: Revenue declined 49.6% to $196.7 million and gross profit fell 52.3% to $12.1 million. The filing attributes the reduction largely to lower foot traffic during COVID-19 and less inventory at the location.
Cash provided by financing activities was $1.237 billion, principally reflecting the IPO and follow-on offering. Operating cash use increased by $139.7 million, primarily because higher inventory consumed cash. Inventory was $423.6 million at year-end, compared with $205.7 million a year earlier. The floorplan facility with Ally had a $450 million stated commitment; the filing reports $27.7 million available under its calculated borrowing capacity at year-end. It matures September 30, 2022 and is secured by vehicle inventory and certain other assets.
Material changes, outlook and risks
- Vroom raised approximately $504 million net of underwriting discounts in its June 2020 IPO, before offering expenses, and approximately $569.5 million in its September follow-on offering, before offering expenses. Cash and equity improved substantially, while floorplan borrowings also increased with inventory.
- COVID-19 initially disrupted operations; management reported that consumer demand for used vehicles had subsequently exceeded pre-pandemic levels. Carrier shortages, higher shipping prices, reconditioning and DMV delays, and backlogs remained concerns. The company expected operations to continue to be adversely affected into 2021; the filing gives no clear numerical revenue or earnings guidance.
- Management expected existing cash and the floorplan facility to support working capital and capital expenditures for at least 12 months from the filing date, while also expecting further losses and increased spending on marketing, technology, customer support and proprietary logistics.
- In February 2021, severe Texas winter weather temporarily disrupted Houston-area operations; Vroom said full operations had resumed and it was addressing backlogs.
- On January 7, 2021, Vroom acquired CarStory for approximately $120 million in cash and stock, including $77.5 million cash and 1,072,117 shares. Purchase-price allocation was incomplete at filing.
- Risks include persistent losses and cash burn, inventory valuation and sales velocity, reliance on a single floorplan lender and third-party logistics/reconditioning/customer-service providers, competition, regulatory and licensing requirements, cybersecurity and privacy exposure, and COVID-related uncertainty.
- Management reported ineffective disclosure controls and material weaknesses in internal control over financial reporting as of December 31, 2020. The weaknesses did not result in a reported financial-statement misstatement; remediation was underway. The auditor issued an unqualified opinion on the financial statements and identified revenue recognition as a critical audit matter.
Important facts for investors to verify
- Whether unit growth can improve vehicle gross profit per unit and overall profitability, given lower vehicle GPPU and substantially higher SG&A.
- Inventory aging, markdowns and cash conversion, including the relationship between operating cash burn, inventory growth and floorplan availability.
- Progress and cost of proprietary logistics expansion, and whether carrier and reconditioning constraints are easing.
- Whether TDA’s decline stabilizes and Ecommerce growth offsets reduced TDA contribution and wholesale losses.
- Remediation of material weaknesses and effectiveness of financial reporting controls, particularly revenue recognition.
- CarStory integration, final purchase accounting and realized benefits; and ongoing COVID-19 and weather-related operational effects.