Vroom, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Vroom operates an online used-vehicle business and, following its February 2022 acquisition of UACC, a retail-financing business. Unless noted otherwise, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $340.8 million | $896.8 million | $1,739.6 million | $2,249.8 million |
| Gross profit | $67.3 million | $58.1 million | $215.3 million | $157.4 million |
| Gross margin | 19.8% | 6.5% | 12.4% | 7.0% |
| Operating loss | $78.2 million | $94.0 million | $494.2 million | $233.4 million |
| Net loss | $51.1 million | $98.1 million | $476.7 million | $241.1 million |
| Net loss per share | $0.37 | $0.72 | $3.46 | $1.77 |
- Q3 gross profit per ecommerce unit rose 64% year over year to $4,206. Ecommerce units sold fell 67% to 6,428; average days to sale rose to 186 from 68.
- Q3 gross profit improvement did not translate to operating profitability: SG&A was $134.6 million, versus $148.7 million a year earlier. Nine-month operating loss included $201.7 million of goodwill impairment charges.
- Q3 net loss included a $37.9 million gain from repurchasing $56.4 million principal amount of convertible notes for $18.5 million. UACC securitization gains were $16.0 million in Q3 and $45.6 million for the nine months. Adjusted EBITDA excluding securitization gains was a loss of $89.3 million in Q3 and $311.9 million for the nine months.
- Operating cash use was $23.1 million for the nine months, compared with $325.5 million in 2021. Cash use benefited from finance-receivable sales and lower inventory; investing activities used $181.3 million and financing activities used $406.4 million.
- At September 30, cash and cash equivalents were $509.7 million, restricted cash was $94.3 million, inventory was $437.8 million, and stockholders’ equity was $445.1 million. Cash, cash equivalents and restricted cash totaled $604.0 million, down $610.8 million from year-end 2021.
- Debt and secured financing included $345.3 million outstanding on the vehicle floorplan, $135.5 million on UACC warehouse facilities, $567.5 million principal on convertible notes, and securitization and other debt. The filing cites approximately $1.143 billion of consolidated indebtedness; its balance-sheet long-term-debt line of $662.4 million excludes vehicle floorplan and warehouse facilities.
Material changes and management commentary
- Revenue fell 62% in Q3 and 23% for the nine months. Management attributed lower ecommerce volume to its plan to prioritize unit economics over sales growth, reduced outsourced sales-support staffing, and macroeconomic conditions. Q3 wholesale revenue also declined, and wholesale gross profit turned into a loss.
- Management approved a Realignment Plan in May to reduce expenses, focus on unit economics and preserve liquidity. It reduced headcount, closed locations, streamlined TDA and logistics operations, and restructured logistics hubs. Actions were substantially completed in Q2 and Q3. Management estimated $135–$165 million of 2022 cost reductions and operating improvements versus the annualized Q1 run rate; realization is uncertain.
- Management expects the transition away from its primary outsourced telephone sales provider to affect Q4 unit sales. The provider’s contract was scheduled to end December 31, 2022; Vroom planned to expand its internal sales team and use other partners.
- Management said it expects 2022 revenue to decline versus 2021. It anticipates lower SG&A over time, but savings may be partly offset by UACC integration and investments in customer experience, logistics and reconditioning. No specific full-year revenue or profitability target is provided in the supplied filing text.
- UACC, acquired for approximately $315.4 million, contributed $47.7 million of revenue and $17.7 million of net income in Q3 after acquisition. The company completed securitizations in February and July and is developing UACC as a captive financing operation.
Debt, liquidity and key risks
- Management stated existing cash and the amended vehicle floorplan facility were expected to support working capital and capital expenditure needs for at least 12 months from the filing date, while also warning that future capital needs may require additional debt or equity financing.
- After quarter-end, on November 4, the vehicle floorplan facility was amended: its maximum line fell from $700 million to $500 million and maturity extended to March 31, 2024. The rate increased to Prime plus 175 basis points from Prime plus 105 basis points, with revised cash-balance and other covenants. The facility is secured by substantially all company assets.
- Key business risks include continued losses and cash use; uncertain cost savings and ability to raise capital; higher interest rates, inflation, and falling used-vehicle prices; inventory depreciation and slower turnover; dependence on lenders, securitization markets and service providers; and integration and credit-loss risks at UACC.
- Legal and regulatory matters include securities and derivative litigation, putative consumer class actions concerning vehicle titling and registration, and a Texas Attorney General action alleging consumer-protection violations. Vroom agreed to a temporary injunction regarding title possession and said it could not yet assess potential material liability in the Texas matter. Regulatory inquiries and possible fines or operating restrictions remain risks.
- Management reported disclosure controls were effective at the reasonable-assurance level as of September 30, 2022, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ecommerce unit volume, days to sale, and inventory aging improve as title and registration processes are addressed.
- Whether gross profit per unit can be sustained as used-vehicle prices decline, and whether wholesale losses and aged-inventory markdowns persist.
- Actual cash burn, available unrestricted liquidity, floorplan borrowing capacity and compliance with the amended facility’s tighter covenants.
- Whether the Realignment Plan delivers its estimated savings without further impairing sales, customer experience or operating capacity.
- UACC’s future securitization access, gain-on-sale economics, credit losses and contribution to Vroom customer financing.
- Developments and potential financial or operating effects of the Texas enforcement matter, titling-related claims and securities litigation.