Vroom, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited; comparisons are with the corresponding 2022 periods unless noted. Dollar amounts are in millions unless stated otherwise.
Business context
Vroom operates an online used-vehicle business, wholesale vehicle sales, and UACC’s auto-finance business. Management’s roadmap emphasizes unit economics, lower costs, liquidity, and development of UACC as a captive financing operation. During 2023, Vroom reduced vehicle-sales volume and cut headcount as part of that effort.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $225.2 | $475.4 | $421.6 | $1,399.2 |
| Gross profit | $46.0 | $66.4 | $84.8 | $148.0 |
| Gross margin | 20.4% | 14.0% | 20.1% | 10.6% |
| Operating loss | $(52.6) | $(100.1) | $(120.9) | $(416.0) |
| Net loss | $(66.3) | $(115.1) | $(141.4) | $(425.5) |
| Adjusted EBITDA (non-GAAP) | $(56.3) | $(87.5) | $(121.1) | $(200.5) |
Q2 revenue declined 52.6%; retail vehicle revenue fell 60.0%, wholesale revenue 62.8%, and Ecommerce units sold 55.3% to 4,127. For the first half, revenue fell 69.9% and Ecommerce units sold fell 71.9% to 8,060. Management attributed lower volume to its decision to prioritize unit economics, transition sales support in-house, and macroeconomic conditions.
Q2 Ecommerce gross profit per unit was $2,954, down 18.6% year over year: vehicle gross profit per unit fell to $290 from $2,166, while product gross profit per unit rose to $2,664 from $1,463. Aged inventory, lower vehicle margins, and higher reconditioning costs weighed on vehicle economics. Wholesale reported a $4.0 million gross loss in Q2; Retail Financing gross profit increased 18.6% to $34.1 million. Q2 SG&A declined 43.2% to $87.0 million, largely reflecting lower compensation, marketing, logistics, and other costs.
Six-month net loss improved substantially from 2022, when Vroom recorded $201.7 million of impairment charges, principally goodwill impairment. In 2023, the company also recognized gains on repurchases of convertible notes: $10.9 million in Q2 and $19.6 million for the first half. These gains reduced reported losses but are not operating revenue.
Cash, liquidity, and debt
- At June 30, 2023, cash and cash equivalents were $237.9 million and restricted cash was $66.3 million, versus $398.9 million and $73.1 million, respectively, at year-end 2022.
- For the first half, operating cash flow was negative $232.1 million; investing activities provided $94.7 million and financing activities used $30.3 million. Cash, cash equivalents, and restricted cash decreased $167.8 million to $304.2 million.
- Reported current assets were $889.6 million and current liabilities $667.4 million. The current-asset total includes restricted cash and finance receivables, which may not be freely available for general obligations.
- Reported debt carrying value was $776.4 million, excluding vehicle floorplan and warehouse facilities. This included $327.4 million of convertible notes, $416.975 million of securitization debt at fair value, and $21.7 million of financing related to retained securitization interests. Separately, vehicle floorplan borrowings were $132.5 million and UACC warehouse borrowings were $177.9 million. The risk-factor disclosure cites approximately $1,086.7 million of consolidated indebtedness by principal amount; this is a different measure from the balance-sheet carrying value.
- The $500 million vehicle floorplan facility had borrowing capacity of $171.6 million at quarter-end, of which $39.1 million was unused; it matures March 31, 2024. UACC’s warehouse facilities had $93.0 million of excess capacity. Vroom reported compliance with applicable facility covenants at June 30.
Management stated existing cash, the floorplan facility, and UACC warehouse facilities should support operations for at least 12 months from issuance of the financial statements. It also warned that additional debt or equity financing may be needed, may not be available on acceptable terms, and that inability to raise capital or reduce costs could materially harm liquidity.
Material changes, outlook, and risks
- Cost reductions: Vroom cut approximately 275 employees in January and approximately 120 in April 2023. It estimated annualized savings of $27 million and $15 million, respectively; savings are estimates and may not be fully realized. The company reported the reductions represented an approximately 55% cut in employees and contractors, excluding UACC, since January 2022.
- Operations: Ecommerce average days to sale rose to 327 in Q2 from 128 a year earlier, reflecting delayed listings and aged inventory. Management expected improvement in the second half of 2023, while aged inventory would continue to weigh on margins to a lesser extent through year-end. It expected sales operations to be fully in-house by Q3 2023; the transition had negatively affected first-half sales volume.
- UACC credit and securitization risk: Higher credit losses and loss severity, inflation, rising rates, and vehicle depreciation pressured finance-receivable values. The 2022-2 securitization was consolidated after UACC waived servicing fees; the 2023-1 securitization also remained on balance sheet after UACC retained residual interests amid unfavorable pricing. Further losses, reduced warehouse advance rates, or limited securitization access could impair liquidity and results.
- Unusual items: Hail damage to vehicles in Florida and Colorado resulted in a $2.4 million loss, net of insurance recoveries, in the first half. Fair-value losses on finance receivables and securitization-related instruments contributed to other loss, net of $20.2 million in Q2 and $31.5 million in the first half.
- Legal and regulatory matters: The filing describes securities class and derivative actions, Texas Attorney General litigation over alleged sales, fulfillment, and titling issues, and putative class actions concerning titling and registration. Regulatory inquiries and state fines could lead to additional penalties, restitution, business-practice changes, costs, or reputational harm. Management could not determine whether potential liability in the Texas matter would be material.
- Capital and listing risks: Vroom regained Nasdaq’s $1.00 minimum-bid-price compliance in June, but warned it could lose compliance again. Delisting could trigger a fundamental-change provision making convertible notes redeemable at par. The 2022 vehicle floorplan facility was amended in August 2023, after quarter-end.
Management’s forward-looking statements are subject to substantial uncertainty, including consumer demand, economic conditions, financing availability, execution of cost and operating changes, UACC credit performance, and the ability to realize planned savings. The company reported disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2023.
Important facts for investors to verify
- Cash burn and liquidity runway against the stated 12-month sufficiency expectation; availability and terms of floorplan and UACC warehouse financing.
- Whether Ecommerce unit volume, vehicle gross profit per unit, and days to sale improve as aged inventory is cleared and in-house sales operations scale.
- UACC delinquency and loss trends, finance-receivable fair values, warehouse advance rates, and ability to securitize loans or sell retained interests.
- Actual realization and timing of the estimated $42 million in annualized savings from the January and April reductions.
- Developments in the Texas regulatory matter and other litigation, and any related fines, settlements, or operating restrictions.
- Debt obligations and refinancing or repayment implications, including the floorplan facility’s March 2024 maturity and the convertible notes’ 2026 maturity; distinguish principal amounts from GAAP carrying values.