Vroom, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted. The company operates an ecommerce used-vehicle business, wholesale vehicle sales, and UACC retail financing.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $235.6 | $340.8 | $657.3 | $1,739.6 |
| Gross profit | $48.1 | $67.3 | $132.9 | $215.3 |
| Gross margin | 20.4% | 19.8% | 20.2% | 12.4% |
| Loss from operations | $(42.5) | $(78.2) | $(163.4) | $(494.2) |
| Net loss | $(82.9) | $(51.1) | $(224.2) | $(476.7) |
| Net loss per share | $(0.59) | $(0.37) | $(1.61) | $(3.46) |
- Q3 revenue fell 30.9% year over year, mainly reflecting lower vehicle sales. The Q3 net loss widened, principally as other loss, net rose to $33.5 million from $5.4 million, reflecting higher losses on a larger finance-receivables portfolio and higher portfolio loss rates.
- Q3 gross margin improved slightly year over year, but gross profit declined 28.6%. SG&A fell 40.9% to $79.6 million, mainly from workforce reductions and lower logistics, marketing and other costs.
- Q3 ecommerce units sold declined 29% to 4,561. Total gross profit per ecommerce unit was $3,144 versus $4,206; vehicle gross profit per unit fell to $516 from $2,267, while product gross profit per unit rose to $2,628 from $1,939.
- For the nine months, ecommerce units sold fell 64.1% to 12,621. Total gross profit per ecommerce unit increased to $2,897 from $2,700, despite vehicle gross profit per unit dropping to $234; product gross profit per unit rose to $2,663.
- Cash and cash equivalents were $208.6 million at September 30, 2023; restricted cash was $80.5 million. Cash, cash equivalents and restricted cash together were $289.1 million, down from $472.0 million at December 31, 2022.
- Nine-month operating cash use was $425.6 million, compared with $23.1 million in the prior-year period. Investing activities provided $137.4 million and financing activities provided $105.3 million. The company cited prior-year finance-receivable sale proceeds and working-capital changes, including inventory, as significant drivers of the operating cash-flow comparison.
- Reported debt included $212.5 million of vehicle floorplan borrowings, $294.7 million of UACC warehouse borrowings, and $718.4 million of long-term debt, including its current portion. The company disclosed approximately $1.225 billion of consolidated indebtedness on a principal-amount basis. These balances include financing tied to specific inventory or receivables.
Material changes and management commentary
- Retail vehicle revenue fell 37.0% in Q3; wholesale vehicle revenue fell 35.1%. Ecommerce vehicle revenue was down 35.7%, reflecting fewer units sold and lower average selling prices. Q3 retail financing revenue was broadly flat, but segment gross profit declined 10.0%.
- Management said the company prioritized unit economics over sales volume. Operational work on title and registration processes delayed listing vehicles and increased aged inventory; the company said it had sold through the substantial majority of that inventory by September 30.
- Average ecommerce days to sale were 202 in Q3 versus 186 a year earlier, and 266 for the nine-month period versus 118. Management expected this measure to decline sequentially in Q4 2023 and into 2024, and expected aged inventory to weigh less on Q4 sales margin and gross profit per unit.
- The company continued restructuring and cost reductions, including workforce reductions of approximately 275 employees in January and 120 in April 2023. Nine-month restructuring charges were $6.7 million.
- UACC’s 2023-1 securitization remained accounted for as secured borrowings after the company retained residual interests; the related receivables and debt remained on the balance sheet. UACC also consolidated the 2022-2 securitization after waiving servicing fees amid higher-than-expected losses.
Outlook, risks and contingencies
- The company expected sequential growth in ecommerce units and lower average days to sale, but provided no quantified earnings or revenue guidance in the supplied filing text. Management stated it expected existing cash, the floorplan facility and UACC warehouse facilities to support operations for at least 12 months from issuance of the financial statements; this outlook depends on assumptions and market conditions.
- The Ally vehicle floorplan facility was committed through March 31, 2024, with $212.5 million outstanding and stated borrowing capacity of $228.1 million at quarter end. Ally indicated that an extension beyond June 2024 would depend on Vroom raising additional capital. Failure to obtain replacement or extended financing could materially impair inventory financing and core operations.
- Management intended to seek additional equity or debt financing. Availability and terms were uncertain; equity financing could dilute shareholders, while debt could increase obligations and impose restrictive covenants. UACC also had $72.5 million of excess warehouse borrowing capacity, and the company warned that lower advance rates could further constrain liquidity.
- UACC faced higher credit losses and loss severity amid rising interest rates, inflation and vehicle depreciation, particularly given its subprime borrower exposure. Weaker securitization markets may limit receivable sales, gains, and off-balance-sheet treatment, and may cause further securitization consolidations or reduced servicing income.
- Legal matters include a Texas Attorney General action alleging consumer-protection violations relating to vehicle marketing, fulfillment, titling and registration. The parties were in discovery; potential material impact could not be determined. The company also reported securities and derivative litigation, regulatory inquiries and possible fines or changes to business practices.
- Other risks include used-car demand and pricing, customer experience and conversion, execution of the regional operating model and internal sales transition, competition, interest rates, and Nasdaq listing compliance. The company said it regained compliance with Nasdaq’s minimum bid-price rule in June 2023. Management reported disclosure controls were effective as of September 30, 2023.
Important facts for investors to verify
- Progress, conditions and required capital for extending or replacing the Ally floorplan facility before its March 31, 2024 maturity.
- Cash burn, unrestricted liquidity, warehouse capacity and the assumptions behind management’s 12-month liquidity statement.
- Whether ecommerce volume, vehicle gross profit per unit and days to sale improve as management expects after aged inventory clearance.
- UACC credit performance, securitization pricing and sales, retained residual interests, warehouse advance rates and any further consolidation of securitizations.
- Potential financing dilution or added debt, and developments in the Texas Attorney General matter and other regulatory or legal proceedings.