Vroom, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; compared with the three months ended March 31, 2022, unless otherwise noted. Dollar amounts are in U.S. dollars.
Business context
Vroom operates an online used-vehicle marketplace, wholesale vehicle sales, and UACC’s retail auto-financing business. Management’s roadmap prioritizes unit economics, cost reduction, and liquidity over near-term sales growth. Results reflect a substantial pullback in ecommerce volume, continuing operational changes, and a more prominent role for UACC financing.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $196.5 million | $923.8 million | Down 78.7% |
| Gross profit | $38.8 million | $81.6 million | Down 52.5% |
| Gross margin | 19.8% | 8.8% | Up 11.0 percentage points |
| Loss from operations | $68.3 million | $315.9 million | Loss narrowed |
| Net loss | $75.0 million | $310.5 million | Loss narrowed |
| Net loss per share | $0.54 | $2.26 | Loss per share narrowed |
| Net cash used in operating activities | $85.0 million | $15.1 million | Use of cash increased |
| Adjusted EBITDA (non-GAAP) | $(64.8) million | $(113.0) million | Loss narrowed |
Revenue fell across major categories: retail vehicle revenue was $135.3 million, down 80.9%; wholesale vehicle revenue was $13.9 million, down 90.1%; product revenue was $11.5 million, down 53.0%; and finance revenue was $32.0 million, down 32.9%. The prior-year period included a $29.6 million gain on the 2022-1 finance-receivables securitization.
Ecommerce units sold declined 79.8% to 3,933. Ecommerce gross profit was $10.0 million; vehicle gross profit was negative $0.6 million, while product gross profit was $10.6 million. Total ecommerce gross profit per unit rose to $2,552 from $1,763, but vehicle gross profit per unit fell to negative $151 from $595. Average ecommerce days to sale increased to 279 from 91. Management cited aged inventory, titling-related listing delays, higher reconditioning costs, and a transition away from a third-party sales-support provider.
SG&A declined 48.6% to $96.5 million, reflecting lower marketing, compensation, and logistics costs. The 2022 comparison included a $201.7 million goodwill impairment; there was no impairment charge in Q1 2023. Q1 2023 also included $4.1 million of severance costs and an $8.7 million gain from repurchasing convertible notes.
Liquidity, debt, and capital resources
At March 31, 2023, cash and cash equivalents were $316.7 million and restricted cash was $72.0 million, versus $398.9 million and $73.1 million, respectively, at December 31, 2022. Cash, cash equivalents, and restricted cash together declined $83.3 million during the quarter to $388.7 million. Operating activities used $85.0 million of cash; investing activities provided $46.8 million and financing activities used $45.1 million.
Reported total debt, excluding vehicle floorplan and warehouse facilities, was $816.4 million, including $345.1 million of convertible notes and $460.9 million of securitization debt at fair value. The filing separately describes approximately $1.088 billion of consolidated indebtedness on a principal-amount basis, including additional financing obligations. Vehicle floorplan borrowings were $147.4 million; UACC warehouse borrowings were $124.2 million. The floorplan facility had $67.3 million of unused capacity, while UACC warehouse facilities had $57.9 million of excess capacity. The floorplan facility is scheduled to mature March 31, 2024; warehouse facilities mature between May and December 2024. Vroom reported covenant compliance at quarter-end.
Management stated that cash, the vehicle floorplan facility, and UACC credit facilities were expected to support operations for at least 12 months from the filing date. The company nevertheless warned that it may need additional debt or equity financing and that availability on acceptable terms is uncertain. Q1 included repurchase of $14.6 million principal amount of convertible notes for $5.9 million; $345.1 million remained outstanding at quarter-end.
Outlook, commentary, and material risks
- Cost actions: The January 2023 reduction in force affected approximately 275 employees and management estimated $27 million in annualized savings. A further April 2023 reduction affected approximately 120 employees; management estimated $15 million in annualized savings and approximately $2 million of second-quarter charges. Savings estimates are not assured.
- Vehicle operations: Management expected to sell through most aged inventory in the first half of 2023, while acknowledging it would continue to pressure sales margins and gross profit per unit. It expects days to sale to improve as title and transaction processes improve.
- UACC credit and securitization: Higher credit losses and loss severity, inflation, higher interest rates, and vehicle depreciation may weigh on results and liquidity. Market conditions led UACC to retain interests in the 2023-1 securitization and account for it as secured borrowing; it sold the non-investment-grade securities for $23.1 million in April, but retained residual interests. Waiving servicing fees on the 2022-2 transaction resulted in consolidation of that trust.
- Subsequent financing: On May 3, 2023, UACC entered a risk-retention financing facility and received $24.1 million against $24.5 million of pledged retained interests, subject to future repurchase obligations.
- Listing risk: Nasdaq notified Vroom on April 14, 2023 that its share price had been below $1 for 30 consecutive business days. The deadline to regain compliance was October 11, 2023; possible actions included a market-tier transfer or reverse stock split. Delisting could trigger a fundamental-change provision making the notes redeemable at par.
- Legal and regulatory matters: The filing describes securities and derivative litigation, Texas regulatory litigation concerning vehicle marketing and order fulfillment, and class actions alleging titling and registration deficiencies. The company also reported regulatory inquiries and fines; outcomes and potential exposure in certain matters could not be determined clearly.
- Economic and execution risks: Management cited uncertain consumer demand, recession risk, interest rates, inflation, regional-bank disruption, vehicle-market conditions, reliance on third parties, and the risk that cost reductions or the long-term roadmap may not deliver expected results.
Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2023; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether operating cash outflow and cash balances stabilize, and whether management’s stated 12-month liquidity expectation remains supportable.
- Whether ecommerce unit volume, days to sale, vehicle gross profit per unit, and inventory turnover improve as aged inventory is cleared.
- UACC’s credit losses, delinquencies, collateral values, warehouse borrowing capacity, and access to securitization or other receivables-sale markets.
- Whether the estimated annualized savings from the January and April workforce reductions are achieved without undermining sales or customer service.
- Nasdaq listing compliance, any resulting action on the convertible notes, and developments in the Texas, titling, and securities-related proceedings.
- The basis and comparability of reported debt measures: balance-sheet debt at fair value versus the filing’s approximately $1.088 billion principal-amount indebtedness disclosure.