Vroom, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 9, 2021. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. Vroom operates an ecommerce used-vehicle platform, wholesale vehicle sales, and the Texas Direct Auto (TDA) dealership. The statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $896.8 | $323.0 | $2,249.8 | $951.9 |
| Gross profit | $58.1 | $25.4 | $157.4 | $51.4 |
| Gross margin | 6.5% | 7.9% | 7.0% | 5.4% |
| SG&A | $148.7 | $61.1 | $381.5 | $167.4 |
| Operating loss | $(94.0) | $(36.9) | $(233.4) | $(119.2) |
| Net loss | $(98.1) | $(37.9) | $(241.1) | $(142.1) |
| Net loss per share | $(0.72) | $(0.31) | $(1.77) | $(2.65) |
| Cash used in operating activities | — | $(325.5) | $(182.9) |
- Revenue increased 177.6% year over year in Q3 and 136.4% for the nine-month period. Ecommerce drove growth: Q3 ecommerce units sold rose 123.1% to 19,683; nine-month units increased 127.8% to 53,455.
- Q3 ecommerce gross profit per unit was $2,560, up 17.0%; vehicle gross profit per unit was $1,315 and product gross profit per unit was $1,245. Q3 average ecommerce days to sale increased to 68 from 52.
- Q3 wholesale gross profit per unit fell to $215 from $542, reflecting margin compression as wholesale prices declined during the first half of the quarter. For the nine months, wholesale gross profit per unit increased to $364 from $107.
- SG&A grew faster than Q3 revenue, up 143.3%, principally due to increased staffing, marketing, logistics, and professional and other costs. Management reported lower SG&A per ecommerce transaction as the business scaled.
- At September 30, cash and cash equivalents were $1,326.5; restricted cash was $69.6. Inventory was $601.8, up from $423.6 at year-end 2020. Current assets were $2,150.2 and current liabilities $743.6.
- Debt included $441.5 of vehicle floorplan borrowings and $609.8 net carrying value of convertible notes; principal indebtedness was approximately $1,051.3. Floorplan availability was only $8.5 of its $450.0 commitment. The facility matures September 2022 and Vroom reported covenant compliance.
- Operating cash outflow was $325.5 for the first nine months. Investing outflow was $94.7, including $75.9 net cash paid for CarStory. Financing provided $726.2, including $608.9 net proceeds from convertible notes and a net increase in floorplan financing.
Material changes and business developments
- Q3 revenue growth reflected more units sold and market-driven higher selling prices. Ecommerce average selling price increased 41.9% to $34,404; management said short-term ASP may fluctuate and its long-term strategy targets lower-priced inventory.
- For the nine months, gross margin improved from 5.4% to 7.0%, and total ecommerce gross profit per unit rose 41.9%. Management attributed gains in part to stronger retail pricing, consumer-sourced inventory, and improved reconditioning and pricing methods. Q3 consolidated gross margin, however, declined year over year.
- Vroom acquired CarStory in January 2021 for approximately $116.6 million, including cash, stock, and assumed awards. The acquisition added $80.6 million of goodwill and $34.3 million of identifiable intangible assets.
- In June 2021, Vroom issued $625 million of 0.75% convertible senior notes due 2026, with an initial conversion price of approximately $56.01 per share.
Outlook, risks, contingencies, and controls
- Management said available cash and the floorplan facility were expected to support working capital and capital expenditures for at least twelve months from the filing date, while warning that additional losses are expected and future financing may be needed. The filing provides no quantified earnings or revenue guidance.
- On October 11, 2021, Vroom agreed to acquire UACC for approximately $300 million in cash, subject to customary adjustments and regulatory and other closing conditions. Closing was expected in late Q4 2021 or early Q1 2022. Expected benefits include captive financing and improved unit economics; integration, execution, regulatory, and funding risks remain.
- Management cited used-vehicle demand and market conditions, including chip shortages, as supportive, but warned of carrier shortages, higher shipping costs and delays, reconditioning constraints and labor shortages. Expanding proprietary logistics and reconditioning capacity is expected to increase operating expenses and capital expenditures.
- COVID-19 effects remain uncertain, including possible operational, workforce, supply-chain, and cost impacts. Used-vehicle price changes can affect acquisition costs, margins, inventory values, and sales velocity. Inventory included an $18.5 million adjustment to lower cost or net realizable value.
- Vroom disclosed securities class-action litigation and related shareholder derivative suits. The company said it believes the claims are without merit and intends to contest them; outcomes are uncertain. Management did not expect a material adverse financial effect based on information then available.
- Disclosure controls and procedures were deemed ineffective at quarter-end because of previously identified material weaknesses in accounting review and IT general controls. Remediation was ongoing and had not yet been validated over sustained reporting cycles. Management said additional procedures were performed and the financial statements fairly state the results.
- The company has a history of losses and negative operating cash flow. Other stated risks include leverage, dilution or repayment obligations under the notes, dependence on floorplan financing, third-party vendors and carriers, and the possibility that UACC fails to close or deliver anticipated benefits.
Investor verification priorities
- Track whether ecommerce growth translates into durable gross profit per unit and improved consolidated margins, particularly after used-vehicle price appreciation reverses or moderates.
- Monitor operating cash burn, inventory growth, floorplan utilization and renewal or replacement of the facility maturing in September 2022.
- Verify UACC closing terms, cash funding, integration costs, regulatory approvals, and actual financing economics versus management’s stated expectations.
- Assess whether logistics and reconditioning capacity constraints ease, and whether higher proprietary-network investment improves delivery performance and unit economics.
- Review progress in remediating internal-control material weaknesses and developments in the securities and derivative litigation.