Vroom, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Vroom operates an ecommerce used-car platform, a Houston retail operation (Texas Direct Auto, or TDA), and a wholesale vehicle business. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $323.0 | $340.3 | $951.9 | $836.2 |
| Gross profit | $25.4 | $15.7 | $51.4 | $41.5 |
| Gross margin | 7.9% | 4.6% | 5.4% | 5.0% |
| Loss from operations | $(36.9) | $(36.8) | $(119.2) | $(94.2) |
| Net loss | $(37.9) | $(39.8) | $(142.1) | $(100.2) |
| Net cash used in operating activities | Not presented for quarter | $(182.9) | $(180.0) |
Q3 revenue fell 5.1% year over year, while gross profit rose 62.4%; operating loss was nearly unchanged. Nine-month revenue grew 13.8%, but net loss widened 41.8%. The nine-month 2020 net loss included a $20.5 million noncash preferred-stock warrant revaluation charge. Adjusted EBITDA, a non-GAAP measure, was a loss of $35.7 million for Q3 and $114.6 million for the first nine months.
- Ecommerce: Q3 revenue increased 24.5% to $221.8 million; units sold rose 58.6% to 8,823. Ecommerce gross profit increased to $19.3 million. Gross profit per unit was $2,188, up 38.7% year over year, and average days to sale improved to 52 from 71.
- TDA: Q3 revenue fell 63.9% to $37.3 million and units sold declined 55.4% to 1,463, reflecting reduced Houston-area foot traffic and pandemic disruption.
- Wholesale: Q3 revenue rose 8.3% to $64.0 million; gross profit increased to $3.3 million from $0.2 million, with management citing favorable used-car prices.
SG&A rose 20.0% in Q3 to $61.1 million, including higher stock compensation and outbound logistics costs. Nine-month SG&A increased 27.6% to $167.4 million, driven by compensation, marketing, logistics, and public-company-related costs.
Liquidity, financing, and balance sheet
- At September 30, cash and cash equivalents were $1,161.4 million; restricted cash was $28.0 million. Current assets were $1,538.8 million and current liabilities $364.5 million.
- Cash and restricted cash increased by $969.7 million over the first nine months, primarily from financing. Operating activities used $182.9 million and investing activities used $5.1 million.
- Vroom raised approximately $504.0 million net of underwriting discounts in its June IPO and $569.5 million net in its September follow-on offering, before offering expenses. Preferred stock converted into common stock at the IPO; 130.2 million common shares were outstanding at quarter-end.
- Vehicle floorplan borrowings were $249.0 million. The facility had a $450 million stated commitment, but calculated borrowing capacity at September 30 was $261.1 million, with only $12.1 million unused. It is secured by inventory and bears interest at one-month LIBOR plus 4.25%.
- In October, the floorplan facility maturity was extended to September 30, 2022; the amendment reduced the cash liquidity covenant to 7.5% of the credit line and eliminated the minimum tangible adjusted net worth covenant. The company said existing cash and the facility should fund working capital and capital expenditures for at least 12 months from the filing date.
- Accumulated deficit was $717.2 million. Management said the company had never been profitable and expected additional losses.
Outlook, risks, and notable matters
- No quantitative earnings or revenue guidance is provided. Management expects continued investment in growth, customer experience, marketing, and proprietary logistics, and expects SG&A and logistics-related spending to increase.
- Management expected COVID-19 to adversely affect operations through the end of 2020 and into 2021, with uncertain duration and severity. Disruptions included lower TDA traffic, reduced carrier availability, higher transportation prices, and DMV titling and registration backlogs. The company also cited risks to consumer spending, staffing, reconditioning, auctions, and third-party service capacity.
- Management reported strong ecommerce demand and said Q3 ecommerce units sold increased 31.4% from Q2, supported by higher inventory and marketing. It also noted a strategic shift toward lower-priced vehicles, which reduced average selling prices.
- The Rocket Auto agreement provides for a platform launch expected in Q1 2021. Rocket received 183,870 shares upfront and may earn up to 8.6 million additional shares over four years based on sales volume.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2020 because of material weaknesses in financial reporting controls, including account reconciliation and journal-entry review, segregation of duties, and IT general controls. Remediation efforts were underway; management said additional procedures supported the fair presentation of the interim financial statements.
- The filing reports no legal proceedings expected to have a material adverse effect and no material off-balance-sheet arrangements. The company identified no material changes to contractual commitments outside the ordinary course.
Important facts for investors to verify
- Whether ecommerce growth and stronger Q3 gross profit per unit can persist, particularly as nine-month vehicle gross profit per unit declined year over year.
- How quickly TDA sales and Houston-area vehicle supply recover, and whether carrier capacity, freight costs, and DMV processing improve.
- Actual cash burn and the pace of future losses relative to the stated 12-month liquidity expectation; also monitor floorplan availability, covenants, and October amendment costs.
- The dilution and compensation impact of outstanding equity awards and the potential Rocket Auto share issuance.
- Progress in remediating material weaknesses and whether disclosure controls become effective.
- The impact of COVID-19, used-car pricing, seasonal demand, inventory mix, and increased spending on future margins and cash flow.