CARLOTZ, INC. Introduction
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained herein and the consolidated financial statements and notes thereto for the year endedDecember 31, 2021 contained in our Annual Report on Form 10-K filed with theSEC onMarch 15, 2022 . Unless the context otherwise requires, references to "we", "us", "our" and the "Company" are intended to mean the business and operations ofCarLotz, Inc. and its consolidated subsidiaries. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company, and the consummation of the proposed Transaction (defined below). These statements are based on the beliefs and assumptions of our management team. Although we believe our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words "believes," "estimates," "expects," "projects," "forecasts," "may," "will," "should," "seeks," "plans," "scheduled," "anticipates," "intends" or similar expressions. Such statements, including statements regarding our ability to: manage our business through and following the COVID-19 pandemic and the related semi-conductor chip and labor shortages; including to achieve the anticipated benefits from the announced closure of 11 of our hub locations; achieve revenue growth and profitability in the future; innovate and expand our technological capabilities; effectively optimize our reconditioning operations; grow existing vehicle sourcing accounts and key vehicle channels; add new corporate vehicle sourcing accounts and increase consumer sourcing; have sufficient and suitable inventory for resale; increase our service offerings and price optimization; effectively promote our brand and increase brand awareness; expand our product offerings and introduce additional products and services; improve future operating and financial results; obtain financing in the future; acquire and protect intellectual property; attract, train and retain key personnel, including sales and customer service personnel; acquire and integrate other companies and technologies; remediate material weaknesses in internal control over financial reporting; comply with laws and regulations applicable to our business; successfully defend litigation; and successfully deploy the proceeds from the merger pursuant to that certain Agreement and Plan of Merger, dated as ofOctober 21, 2020 (as amended by Amendment No. 1, datedDecember 16, 2020 ), by and amongCarLotz, Inc. (f/k/aAcamar Partners Acquisition Corp. ),Acamar Partners Sub, Inc. , a wholly owned subsidiary ofCarLotz, Inc. , andCarLotz Group, Inc. (f/k/aCarLotz, Inc. ), pursuant to whichAcamar Partners Sub, Inc. merged with and into Former CarLotz, with Former CarLotz surviving as the surviving company and as a wholly owned subsidiary ofCarLotz, Inc. (the "Merger"), are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results or other outcomes to differ materially from those expressed or implied by these forward-looking statements. OnAugust 9, 2022 , we announced entry into an Agreement and Plan of Merger (the "Merger Agreement") with Shift Technologies, Inc., aDelaware corporation ("Shift"), andShift Remarketing Operations, Inc. , aDelaware corporation and direct wholly owned subsidiary of Shift ("Merger Sub"), pursuant to which, among other things and subject to the terms and conditions contained therein, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly owned subsidiary of Shift (the "Transaction"). Factors related to the Transaction that could cause actual results to differ from those projected or contemplated in any such forward-looking statements include, but are not limited to: (1) the risk that the conditions to the closing of the Transaction are not satisfied, including the risk that required approvals from the stockholders of Shift or the Company for the Transaction are not obtained; (2) litigation relating to the Transaction; (3) uncertainties as to the timing of the consummation of the Transaction and the ability of each party to consummate the Transaction; (4) risks that the proposed Transaction disrupts the current plans and operations of Shift or the Company; (5) the ability of Shift and the Company to retain and hire key personnel; (6) competitive responses to the proposed Transaction; (7) unexpected costs, charges or expenses resulting from the Transaction; (8) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Transaction; (9) the combined companies' ability to achieve the synergies expected from the Transaction, as well as delays, challenges and expenses associated with integrating the combined companies' existing businesses and (10) legislative, regulatory and economic developments. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q, those discussed in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed onMarch 15, 2022 , in the section entitled "Risk Factors" in the Quarterly Report on Form 10-Q for the three months endedMarch 31, 2022 , filed onMay 9, 2022 , and those described from time to time in our future reports filed with theSEC . Many of these risk factors are outside of our control, and as such, they 38 -------------------------------------------------------------------------------- involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made and we do not undertake to update our forward-looking statements.
Website and Social Media Disclosure
We use our website (https://www.carlotz.com/) and various social media channels as a means of disclosing information about the Company and its products to its customers, investors and the public (e.g., @CarLotz411 on Twitter,CarLotz on YouTube, andCarLotz on LinkedIn). The information on our website (or any webpages referenced in this Quarterly Report on Form 10-Q) or posted on social media channels is not part of this or any other report that the Company files with, or furnishes to, theSEC . The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases,SEC filings and public conference calls and webcasts.
Overview
CarLotz operates a consignment-to-retail used vehicle marketplace that provides our corporate vehicle sourcing partners and retail sellers of used vehicles with the ability to easily access the retail sales channel. Our mission is to create the world's greatest vehicle buying and selling experience. We operate a technology-enabled buying, sourcing and selling model that offers an omni-channel experience and diverse selection of vehicles. Our proprietary technology provides our corporate vehicle sourcing partners with real-time performance metrics and data analytics along with custom business intelligence reporting that enables vehicle triage optimization between the wholesale and retail channels. Our consignment model facilitates the sale of a vehicle by individuals and businesses alike. For our consignment partners we offer a physical location to display the vehicle, detailing, photography, marketing, a degree of separation between the seller and buyer, and the consumer confidence associated with a national dealership. Our asset-light model is designed to allow us to obtain vehicles through consignment, thereby limiting capital risk, as those vehicles consigned to us for sale (as opposed to purchased vehicles) are still owned by our corporate vehicle sourcing partners and retail sellers. We offer our products and services to (i) corporate vehicle sourcing partners, (ii) retail sellers of used vehicles and (iii) retail customers seeking to buy used vehicles. Our corporate vehicle sourcing partners include fleet leasing companies, vehicle rental companies, banks, finance companies, third-party remarketers, wholesalers, corporations managing their own fleets and OEMs. We offer our corporate vehicle sourcing partners a pioneering, Retail Remarketing™ service that is designed to fully integrate with their existing technology platforms. For individuals who are our retail sellers, our goal is to offer a hassle-free selling experience that allows them to stay fully informed by tracking the sale process through our easy to navigate online portal. Buyers can browse our inventory online through our website or at our locations as well as select from our integrated financing and insurance products with ease. Founded in 2011,CarLotz currently operates 11 retail hub locations in theU.S. , initially launched in the Mid-Atlantic region and since expanded to the Southeast, Midwest and West regions ofthe United States . Our current facilities are located inAlabama ,California ,Colorado ,Florida ,Illinois ,North Carolina , andVirginia . Generally, our hubs act as both physical showrooms with retail sales and as consignment centers where we can source, process and recondition newly acquired vehicles. With the aim of improving our operating and financial results, we paused our real estate growth efforts in 2022, except for one hub which we may open in 2023. Additionally, during the three months endedJune 30, 2022 , we ceased retail operations at 11 hub locations and decided not to commence retail operations at 3 unopened hub locations with executed lease agreements.
Business Update
During the three months endedJune 30, 2022 , the continuing semi-conductor chip shortage, COVID-related supply chain issues constraining supply of new vehicles and an elevated vehicle wholesale pricing environment relative to historic levels has continued to reduce the incremental value we may deliver to our corporate vehicle sourcing partners via Retail Remarketing™, at times making consignment less attractive to partners than quickly selling vehicles through the wholesale channel. Supply of used vehicles from our corporate vehicle sourcing partners has been severely constrained by the lack of new vehicle supply due to the semi-conductor chip shortage. Due to the continued uncertainty influencing the used vehicle market, we are unable to predict when there will be a return to a more normalized used vehicle market. We performed a strategic review of the business during the three months endedJune 30, 2022 , in order to re-prioritize our objectives. As a result, we outlined a phased approach to renew our focus on our primary objectives including cash preservation and future profitable growth. The first phase commenced onJune 21, 2022 , as we closed retail sales operations at 11 hub locations and announced that three future planned hub locations with executed leases would not open (see Note 21 - 39 -------------------------------------------------------------------------------- Restructuring Charges, Asset Impairment, and Assets Held For Sale in our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information) in order to focus our resources across a smaller footprint and support future profitability at our remaining hubs. Subsequent phases, which have commenced, include achieving improved discipline related to vehicle sourcing efforts, better vehicle processing, optimization of our pricing strategy, improving conversion rates, and investment in and implementation of technology in order to drive profit and a scalable, differentiated customer value proposition. During the six months endedJune 30, 2022 , some of our inventory was less profitable than expected and was held for sale longer than desired. As a result, our retail gross profit was negatively impacted in the three and six months endedJune 30, 2022 by lower front-end profits on owned vehicles as well as processing center inefficiencies, and we expect gross profit to be under pressure until we are able to improve the productivity and efficiency at our hubs. AtJune 30, 2022 , non-competitively sourced vehicles (i.e. vehicles sourced other than from auctions) represented approximately 80% of our vehicle inventory, as compared to 20% atJune 30, 2021 . As part of our goal to increase non-competitively sourced vehicles, our strategy is to increase our consignments from our sourcing partners and consumer acquired vehicles and reduce our reliance on sourcing via wholesale auction. Additionally, atJune 30, 2022 , we have vehicles in our inventory held for sale longer than desired. We expect that the future sale of this aged inventory, whether through our retail hubs or at wholesale auction, will negatively impact our desired gross profit. During the three months endedJune 30, 2022 , although we experienced an increase in retail unit sales and revenue compared to same period in 2021, the increase was below expectations. Hubs opened in 2021, some of which have subsequently been closed, did not ramp to expected results and consequently did not provide the expected contribution to unit sales, revenue, and gross profit. Also, we experienced a weaker retail GPU performance for the three months endedJune 30, 2022 compared to the same period in 2021, due to sourcing constraints, reconditioning inefficiency, and pricing actions taken in the quarter to sell aged inventory. We did not experience the uptick in sales that typically occurs late in the first calendar quarter and early in the second calendar quarter of each year in our industry, primarily due to market dynamics related to the continuing semi-conductor chip shortage, inventory constraints and COVID-related supply chain issues as well as a fall in consumer sentiment given rising interest rates, inflation, and the economic impact of the war inUkraine such as increased fuel prices. For the three and six months endedJune 30, 2022 , the corporate vehicle sourcing partner which accounted for 32%, 48%, and 31% of our sold vehicles in the three and six months endedJune 30, 2021 and the year endedDecember 31, 2021 , respectively, accounted for 24% of our sold vehicles. We cannot currently predict the ultimate volume and profitability of any sourced vehicles from this partner. We have decreased our purchasing of vehicles through wholesale auctions as we increased our sourcing of non-competitively sourced vehicles. AtJune 30, 2022 , consigned vehicles represented approximately 36% of our vehicle inventory, increased from 17% atJune 30, 2021 . OnJune 7, 2022 , we received a deficiency letter from theListing Qualifications Department (the "Staff") of theNasdaq Stock Market ("Nasdaq") notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the$1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1). Under Nasdaq Listing Rule 5810(c)(3)(A), we have a 180 calendar day grace period, or untilDecember 5, 2022 (the "Compliance Date"), to regain compliance by meeting the continued listing standard. To regain compliance, the closing bid price of our common stock must meet or exceed$1.00 per share for a minimum of ten consecutive business days during this grace period (the "Bid Price Requirement"). If we do not regain compliance with the Bid Price Requirement by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to transfer the listing of our common stock to the Nasdaq Capital Market, provided that it meets the continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the Bid Price Requirement. To effect such a transfer, we would also need to pay an application fee to Nasdaq and provide written notice to the Staff of our intention to cure the deficiency during the additional compliance period by effecting a reverse stock split, if necessary. As part of its review process, the Staff will make a determination of whether it believes we will be able to cure this deficiency. Should the Staff conclude that we will not be able to cure the deficiency, or should we determine not to submit an application for transfer to the Nasdaq Capital Market or notify the Staff of its intention to cure the deficiency, the Staff will provide written notification to us that our common stock will be subject to delisting. At that time, we may appeal the Staff's delisting determination to aNasdaq Listing Qualifications Panel . If we are delisted from Nasdaq and we are not able to list our common stock on another exchange, our securities could be quoted on the OTCQB, the OTC Bulletin Board or the pink sheets. 40 -------------------------------------------------------------------------------- We are monitoring the bid price of our common stock and will consider options available to us to achieve compliance. There can be no assurances that we will be successful in restoring our compliance with the Nasdaq listing requirements.
Revenue Generation
CarLotz generates a significant majority of its revenue from contracts with retail customers related to the sales of vehicles. We sell used vehicles to our retail customers from our hubs located throughout theU.S. Customers also may trade-in their existing vehicle to apply toward the transaction price of a used vehicle, for which we generate revenue on the sale of a used vehicle to the customer trading-in their vehicle and on the traded-in vehicle when it is sold to a new owner.CarLotz also generates revenue from providing retail vehicle buyers with third-party options for financing, insurance, extended warranties, and other vehicle protection products, whichCarLotz either marks up or earns commissions on based on our customers' purchases. Since we do not control these products before they are transferred to the consumer, we recognize net commission revenue at the time of sale. We also sell vehicles to wholesalers or other dealers, primarily at auctions. Generally, the vehicles sold through the wholesale channel are vehicles acquired via trade-in, acquired via consignment that do not meet our quality standards for sale to retail customers, vehicles that remain unsold at the end of the consignment period, retail vehicles that did not sell through the retail channel within a reasonable period of time, or vehicles that the Company determines offer greater financial benefit through the wholesale channel. Additionally, in the three months endedJune 30, 2022 , the Company sold vehicles at the closed hub locations through the wholesale channel that may not have been sold through the wholesale channel if the hubs had remained open. The liquidation of the vehicles from closed hubs through the wholesale channel will continue in the third quarter of 2022.
Our revenue for the six months ended
Inventory Sourcing
We source vehicles from both corporate and consumer sellers, auctions and other
wholesale channels. We source vehicles non-competitively (i.e. vehicles sourced
other than from auctions) through our consignment to retail sales model, through
purchases directly from consumers and through arrangements with corporate
vehicle sourcing partners. We also source vehicles competitively through
purchase at auction, as necessary, to provide inventory at our newer hub
locations, to round out our inventory and during periods of tight supply.
We expect to maintain long-term sourcing relationships with a number of national
accounts and to pursue sales from new accounts. We support our corporate vehicle
sourcing partners by offering a technology platform designed to allow our supply
partners to track the sale process of their vehicles in real-time, along with a
custom system for managing customer leads and leads from third party providers.
Our proprietary application includes a suite of tailored features designed to
create value for sellers with tools for documenting and transmitting vehicle
information.
We generally charge our retail sellers and some corporate vehicle sourcing
partners a flat fee for our consignment services. In addition to our flat fee
model, we also enter into alternative fee arrangements, such as profit sharing
programs or programs with fees based on a return above a wholesale index. The
profit sharing programs generally include arrangements where we share a
percentage of vehicle sale profits and, in some cases, fees with our corporate
sourcing partners. The programs with fees based on a return above a wholesale
index generally include a payment above the wholesale price. Under these
alternative fee arrangements, our gross profit for a particular unit could be
higher or lower than the gross profit per unit we would realize under our flat
fee pricing model depending on, among other things, the unit's sale price,
shipping and reconditioning costs, and fees we are able to charge in connection
with the sale. We do not have long-term contracts with any of our corporate
vehicle sourcing partners and, under arrangements with them, they are not
required to make vehicles available to us. For these and other reasons, our
volume and mix of vehicles from our corporate vehicle sourcing partners has
fluctuated in the past and will continue to fluctuate over time. In addition,
our gross profit per unit has fluctuated in the past and is likely to fluctuate
from period to period, perhaps significantly, due to, among other reasons, our
mix of competitively sourced and non-competitively sourced inventory, and the
sales prices and fees we are able to collect on the vehicles.
We also have dealer owned inventory, which includes inventory purchased at
wholesale auctions or purchased from consumers and our corporate partners, that
operates in a similar manner to traditional used car dealers and which exposes
us directly to the effects of changes in vehicle prices (generally price
depreciation) more directly than inventory sourced through consignment.
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Our gross profit per unit has fluctuated and will continue to fluctuate from
period to period, perhaps significantly, due to, among other things, our mix of
competitively sourced and non-competitively sourced inventory, acquisition costs
and the sales prices and fees we are able to collect on the vehicles. We expect
to source a smaller volume of vehicles to align with our reduced footprint,
while we focus on the profitability of each vehicle sourced.
Regional Hub Network
Through our e-commerce website and 11 regional hubs, we aim to provide a shopping experience for today's modern vehicle buyer, allowing our nationwide retail customers to transact online, in-person or a combination of both. We aim to offer a full-spectrum of inventory, including high-value and commercial vehicles, available for delivery anywhere in theU.S. Our regional hubs allow for test drives and on-site purchase. Our current facilities are located inAlabama ,California ,Colorado ,Florida ,Illinois ,North Carolina , andVirginia .
Finance and Insurance (F&I)
CarLotz also generates revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties; these services are provided by third parties that payCarLotz a commission based on our customers' purchases. Since we do not control these products before they are transferred to the consumer, we recognize commission revenue at the time of sale.
Factors Affecting our Performance
Impact of COVID-19
Our ability to acquire and sell used vehicles can be negatively impacted by a number of factors that are outside of our control. Due to the impacts of the COVID-19 pandemic and shortages of semi-conductor chips and other automotive supplies starting in 2020, certain automobile manufacturers have slowed production of new vehicles. The reduction in supply of new vehicles has limited the supply of used vehicles available through our corporate sourcing partners and is likely to continue to do so until the market normalizes. To address the reduction from this supply source, we have sourced a higher percentage of our vehicles through wholesale auction channels than we have on average historically. Because we are purchasing these vehicles in a competitive environment and paying auction fees, there is greater risk to the Company that the margin between the cost of the vehicle and the selling price will be compressed, and, in turn, will result in reduced gross profit and retail GPU, which we expect to continue until the used vehicle market normalizes and we are able to improve the productivity and efficiency at our hubs. This risk could be compounded by our inability to turn inventory quickly and the pace at which used vehicles depreciate. Volatility caused by, among other events, the COVID-19 pandemic, the global semi-conductor chip shortage, and inflationary pressures has resulted in, or may result in, reduced demand for our services, consigned and purchased vehicles and value-added products, reduced spending on vehicles, the inability of customers to obtain credit to finance purchases of vehicles, and decreased consumer confidence to make discretionary purchases. In addition, global inflation has increased during 2021, related to the COVID-19 economic recovery and associated disruptions in global demand, supply, geopolitical events, logistics and labor markets. Fears of recession, stock market volatility, inflationary pressures, inflation and regulations as a result of the COVID-19 pandemic may decrease consumer demand and reduce our revenue. We cannot provide assurance of the ultimate significance and duration of the COVID-19 pandemic and the variants' disruption to our operations for several reasons, including, but not limited to, uncertainty regarding the duration of the pandemic and related disruptions, the impact of governmental orders and regulations that have been, and may in the future be, imposed, and the impact of the COVID-19 pandemic and the variants on our customers and corporate vehicle sourcing partners. Like many companies, the COVID-19 pandemic has increased our focus on the health and safety of our guests, employees and their families. To maintain a safe work environment, we have implemented procedures aligned with theCenters for Disease Control and Prevention to limit the spread of the virus and provide a safe environment for our guests and teammates. Some of the measures taken include encouraging our teammates to take advantage of flexible work arrangements, and acquiring additional corporate office space.
Ability to Source a Profitable Mix of Vehicles
In addition to leveraging our retail-remarketing sourcing channel, we believe
that we can benefit from the significant volume of vehicles which consumers are
selling to dealers and to car buying companies. We intend to increase our
efforts on sourcing vehicles from the consumer market. Our ability to
successfully source vehicles from consumers is dependent on our
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--------------------------------------------------------------------------------marketing, brand, process and pricing. In addition to our consignment model, we partnered with a third-party company to be able to provide instant purchase offers to potential sellers.
Further Penetration of Existing Accounts and Key Vehicle Channels
We believe that we can benefit from volume with existing corporate vehicle sourcing partners. Many of our existing sourcing partners still sell only a small percentage of their volumes through the retail channel. As Retail Remarketing™ continues to develop as a more established alternative and asCarLotz expands to serve buyers and sellers in its markets, we believe we can grow our existing commercial seller accounts, after the supply of new vehicles returns to normal. Seasonality Used vehicle sales generally experience seasonality with sales typically peaking late in the first calendar quarter of each year and diminishing through the rest of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter. Used vehicle prices also exhibit seasonality, with used vehicle prices declining at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year, all other factors being equal. Because of the market dynamics related to the continuing semi-conductor chip shortage and COVID-related supply chain issues constraining supply, we have not seen the typical seasonality related to used vehicle volume and prices. Operational Efficiency As we scaled our business, we incurred various costs to identify new hub locations, obtain licensing, build out our hubs and hire and train our employees. The costs we incurred scaling our business are non-recurring, and we further plan to focus on operational efficiency by reducing discretionary spending, optimizing our staffing level, and focusing on the efficiency of our processing centers. Following our strategic review of the business during the three months endedJune 30, 2022 , we outlined a phased approach to renew our focus on our primary objectives of achieving cash preservation and future profitable growth, which we began to implement inJune 2022 (see Note 21 - Restructuring Charges, Asset Impairment, and Assets Held For Sale in our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information). In addition to achieving cost savings and operational efficiencies, we aim to lower our days to recondition. Going forward, our strategy is to focus on efficiency and reduce our use of the third party reconditioning services which are more costly and are not as timely as our internal reconditioning resources. All of these initiatives are designed to lower reconditioning costs per unit and thereby improve per unit economics.
Technological Capabilities
We are constantly reviewing our technology platform, and our goal is to enhance our online platform for seamless end-to-end transactions and to continually enhance both the car buying and selling experience. Our B2B portal and integration framework are designed to support the assignment, reconditioning, sale and remittance of vehicles from corporate vehicle sourcing partners. We plan to invest in our core suite of technology to enhance the buyer and seller experience, improve our B2B vehicle sourcing, enhance our business intelligence capabilities, and create a peer-to-peer virtual consignment marketplace.
Key Operating Metrics
We regularly review a number of metrics, including the following key metrics, to
evaluate our business, measure our progress and make strategic decisions. Our
operating metrics (which may be changed or adjusted over time as our business
scales up or industry dynamics change) measure the key drivers of our growth,
including opening new hubs, increasing our brand awareness through unique site
visitors and continuing to offer a full spectrum of used vehicles to service all
types of customers.
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Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Retail vehicles sold 2,421 2,009 4,691 4,563
Number of hubs(1) 11 15 11 15
Average monthly unique visitors 264,565 177,377 260,794 178,080
Vehicles available for sale 981 1,431 981 1,431
Retail gross profit per unit $ 1,200 $ 2,175 $ 1,019 $ 1,619
Percentage of unit sales sourced
non-competitively(2) 78 % 92 % 72 % 96 %
Wholesale vehicles sold $ 706 $ 394 $ 1,270 $ 837
Wholesale gross profit per unit $ (2,210)
(1) The Company closed retail operations at 11 hub locations on
(2) Vehicles are sourced non-competitively through our consignment to retail sales model, through purchases directly from consumers and through arrangements with corporate vehicle sourcing partners.
Retail Vehicles Sold
We define retail vehicles sold as the number of vehicles sold to customers in a given period, net of returns. We currently have a three-day, 500 mile exchange policy. The number of retail vehicles sold is the primary contributor to our revenues and gross profit, since retail vehicles enable multiple complementary revenue streams, including all finance and insurance products. We view retail vehicles sold as a key measure of our growth, as growth in this metric is an indicator of our ability to successfully scale our operations while maintaining product integrity and customer satisfaction.
Number of Hubs
We define a hub as a physical location at which we may sell and purchase, recondition and store vehicles within a market.
Average Monthly Unique Visitors
We define a monthly unique visitor as an individual who has visited our website within a calendar month, based on data provided by Google Analytics. We calculate average monthly unique visitors as the sum of monthly unique visitors in a given period, divided by the number of months in that period. We view average monthly unique visitors as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising campaigns and consumer awareness. Vehicles Available-for-Sale We define vehicles available-for-sale as the number of vehicles listed for sale on our website on the last day of a given reporting period. We view vehicles available-for-sale as a key measure in determining whether our inventory levels are appropriate to drive hub productivity.
Retail Gross Profit per Unit
We define retail gross profit per unit as the aggregate retail and F&I gross profit in a given period divided by retail vehicles sold during that period. Total retail gross profit per unit is driven by sales of used vehicles and the profit margin and fees on sale of those vehicles, each of which may generate additional revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties. We believe gross profit per unit is a key measure of our growth and long-term profitability.
Percentage of unit sales non-competitively sourced
We define percentage of unit sales sourced non-competitively as the percentage derived by dividing the number of vehicles sold during the period that were sourced non-competitively (i.e., number of vehicles sourced other than from auctions) divided by the total number of vehicles sold during the period. The percentage of unit sales sourced non-competitively dropped in the three and six months endedJune 30, 2022 compared to the same periods in the prior year due to the low supply of vehicles available from our corporate vehicle sourcing accounts as a result of the chip shortage. 44 --------------------------------------------------------------------------------
Wholesale vehicles sold
We define wholesale vehicles sold as the number of vehicles sold through channels other than to retail customers at our hub locations (at auction or directly to a wholesaler) in a given period, net of returns.
Wholesale vehicles gross profit per unit
We define wholesale vehicles sold as the wholesale gross profit in a given period divided by wholesale vehicles sold during that period.
Components of Results of Operations
Revenues
Retail Vehicle Sales
CarLotz sells used vehicles to retail customers through its hubs in various cities throughout the continentalU.S. Revenue from retail vehicle sales is recognized when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. We recognize revenue based on the total purchase price stated in the contract, including any processing fees. Our exchange policy allows customers to initiate the exchange of a vehicle until the earlier of the first three days or 500 miles after delivery.
Wholesale Vehicle Sales
Vehicles that do not meet the Company's standards for retail vehicle sales, retail vehicles that did not sell through the retail channel within a reasonable period of time and vehicles that the Company determines offer greater financial benefit through the wholesale channel are sold through various wholesale methods. Revenue from wholesale vehicle sales is recognized when the vehicle is sold, either at auction or directly to a wholesaler, and title to the vehicle passes to the buyer. Additionally, in the three months endedJune 30, 2022 , the Company sold vehicles at the closed hub locations through the wholesale channel that may not have been sold through the wholesale channel if the hubs had remained open.
Finance and Insurance, net
We provide customers with options for financing, insurance and extended warranties. Certain warranties sold beginningJanuary 1, 2019 are serviced by a company owned by a major stockholder. All other such services are provided by third-party vendors with whom we have agreements giving us the right to offer such services directly. When a customer selects a service from these third-party vendors, we earn a commission based on the actual price paid or financed. We recognize finance and insurance revenue at the point in time when the customer enters into the contract. Lease Income, net Lease income, net represents revenue earned on the spread between the interest rate on leases we enter into with our B2B lease customers and the related leases we enter into with third party lessors, as well as revenue (net of depreciation and other costs to maintain the vehicles) earned on our owned vehicles leased to B2B lease customers. Cost of Sales Cost of sales includes the cost to acquire used vehicles and the related reconditioning costs to prepare the vehicles for resale. Vehicle reconditioning costs include parts, labor, inbound transportation costs and other costs such as mechanical inspection, vehicle preparation supplies and repair costs. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily include compensation and
benefits, marketing, facilities cost, technology expenses, logistics and other
administrative expenses. Advertising costs are expensed as incurred.
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--------------------------------------------------------------------------------Depreciation and Amortization
Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which is: the lesser of 15 years or the underlying lease terms for leasehold improvements, one to five years for equipment, furniture and fixtures, and five years for corporate vehicles. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major remodels and improvements are capitalized. Depreciation on vehicles leased to B2B customers is calculated using the straight-line method over the estimated useful life and is included as a charge to Lease income, net. Amortization of capitalized website and internal-use software costs is computed using the straight-line method over 3 years. Amortization of operating lease right-of-use assets is rent expense, included in selling, general, and administrative expenses.
Non-Operating Expenses
Non-operating expenses represent the change in fair value of the Merger warrants and the earnout shares. Additional non-operating income and expense include interest income on marketable securities, floor plan interest incurred on borrowings to finance the acquisition of used vehicle inventory under the Company's former$12 million revolving floor plan facility withAutomotive Finance Corporation and floor plan interest incurred on borrowings to finance the acquisition of used vehicle inventory under the Company's current$40 million revolving floor plan facility with Ally.
Results of Operations
The following table presents our condensed consolidated statements of operations for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
($ in thousands)
Revenues:
Retail vehicle sales $ 59,211 $
44,230
13,949 4,660 22,524 9,228
Finance and insurance, net 3,196 1,780 6,900 3,334
Lease income, net 137 98 283 205
Total Revenues 76,493 50,768 139,506 107,380
Cost of sales (exclusive of depreciation) 75,011 46,586 135,947 101,190
Gross Profit 1,482 4,182 3,559 6,190
Operating Expenses:
Selling, general and administrative 27,009 19,386 54,684 38,259
Stock based compensation expense 1,141 3,704 2,825 45,667
Depreciation and amortization expense 2,359 95 4,147 478
Management fee expense - related party - - - 2
Impairment expense 724 - 724 -
Restructuring expenses 10,731 - 10,731 -
Total Operating Expenses 41,964 23,185 73,111 84,406 Loss from Operations (40,482) (19,003) (69,552) (78,216) Interest expense 594 184 1,210 359 Other Income (Expense), net Change in fair value of Merger warrants liability 3,213 325 4,813 12,683 Change in fair value of earnout provision 2,587 12,210 6,616 44,056 Other (expense) income 371 (553) (408) (391) Total Other Income, net 6,171 11,982 11,021 56,348 Loss Before Income Tax Expense (34,905) (7,205) (59,741) (22,227) Income tax expense - - - - Net Loss$ (34,905) $ (7,205) $ (59,741) $ (22,227) 46
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Presentation of Results of Operations
We present operating results down to gross profit for our three distinct revenue channels along with our net lease income:
Retail Vehicle Sales: Retail vehicle sales represent sales of vehicles to our retail customers through our hubs.
Wholesale Vehicle Sales: Wholesale vehicle sales represent sales of vehicles through wholesale channels, primarily through wholesale auctions.
Finance and Insurance: Finance and insurance represents commissions earned on financing, insurance and extended warranty products that we offer to our retail vehicle buyers. Lease Income, net: Lease income, net represents revenue earned on the spread between the interest rate on leases we enter into with our B2B lease customers and the related leases we enter into with third party lessors, as well as revenue (net of depreciation and other costs to maintain the vehicles) earned on our owned vehicles leased to B2B lease customers.
Three and Six Months Ended
The following table presents certain information from our condensed consolidated statements of operations by channel:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
($ in thousands, except per unit metrics) ($ in thousands, except per unit metrics)
Revenue:
Retail vehicle sales $ 59,211 $ 44,230 33.9 % $ 109,799 $ 94,613 16.1 %
Wholesale vehicle sales 13,949 4,660 199.3 % 22,524 9,228 144.1 %
Finance and insurance, net 3,196 1,780 79.6 % 6,900 3,334 107.0 %
Lease income, net 137 98 39.8 % 283 205 38.0 %
Total revenues 76,493 50,768 50.7 % 139,506 107,380 29.9 %
Cost of sales:
Retail vehicle cost of sales 59,502 41,641 42.9 % 111,917 90,558 23.6 %
Wholesale vehicle cost of sales 15,509 4,945 213.6 % 24,030 10,632 126.0 %
Total cost of sales $ 75,011 $ 46,586 61.0 % $ 135,947 $ 101,190 34.3 %
Gross profit:
Retail vehicle gross profit
(loss) $ (291) $ 2,589 (111.2) % $ (2,118) $ 4,055 (152.2) %
Wholesale vehicle gross profit
(loss) (1,560) (285) (447.4) % (1,506) (1,404) 7.3 %
Finance and insurance gross
profit 3,196 1,780 79.6 % 6,900 3,334 107.0 %
Lease income, net 137 98 39.8 % 283 205 38.0 %
Total gross profit $ 1,482 $ 4,182 (64.6) % $ 3,559 $ 6,190 (42.5) %
Retail gross profit per unit(1):
Retail vehicle gross profit
(loss) (291) 2,589 (111.2) % (2,118) 4,055 (152.2) %
Finance and insurance gross
profit 3,196 1,780 79.6 % 6,900 3,334 107.0 %
Total retail vehicle and finance
and insurance gross profit 2,905 4,369 (33.5) % 4,782 7,389 (35.3) %
Retail vehicle unit sales 2,421 2,009 20.5 % 4,691 4,563 2.8 %
Retail vehicle gross profit per
unit $ 1,200 $ 2,175 (44.8) % $ 1,019 $ 1,619 (37.1) %
Wholesale gross profit per
unit(2):
Wholesale vehicle gross profit
(loss) (1,560) (285) (447.4) % (1,506) (1,404) 7.3 %
Wholesale vehicle unit sales 706 394 79.2 % 1,270 837 51.7 %
Wholesale vehicle gross profit
per unit $ (2,210) $ (723) (205.7) % $ (1,186) $ (1,677) 29.3 %
______________
(1)Retail gross profit per unit is calculated as gross profit for retail vehicles and finance and insurance, each of which is divided by the total number of retail vehicles sold in the period.
47
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(2)Wholesale gross profit per unit is calculated as gross profit for wholesale
vehicles, each of which is divided by the total number of wholesale vehicles
sold in the period.
Retail Vehicle Sales
Retail vehicle sales revenue increased by $15.0 million , or 33.9%, to
$59.2 million during the three months ended June 30, 2022 , from $44.2 million in
the comparable period in 2021. The increase was primarily driven by an increase
in average sale price per unit of $3,715 , to $25,108 in addition to an increase
in retail vehicle unit sales to 2,421 retail vehicles in the three months ended
June 30, 2022 , compared to 2,009 retail vehicles in the comparable period in
2021. The average sale price has increased consistent with macroeconomic trends
in the used car industry.
Retail vehicle sales revenue increased by $15.2 million , or 16.1%, to
$109.8 million during the six months ended June 30, 2022 , from $94.6 million in
the comparable period in 2021. The increase was primarily driven by an increase
in average sale price per unit of $3,589 , to $24,069 in addition to an increase
in retail vehicle unit sales to 4,691 retail vehicles in the six months ended
June 30, 2022 , compared to 4,563 retail vehicles in the comparable period in
2021. The average sale price has increased consistent with macroeconomic trends
in the used car industry.
Wholesale Vehicle Revenue
Wholesale vehicle revenue increased by $9.3 million , or 199.3%, to $13.9 million
during the three months ended June 30, 2022 , from $4.7 million in the comparable
period in 2021. The increase was primarily due to a 79.2% increase in wholesale
vehicle unit sales from the comparable period in 2021, combined with an
increased average selling price of the wholesale vehicles sold.
Wholesale vehicle revenue increased by $13.3 million , or 144.1%, to
$22.5 million during the six months ended June 30, 2022 , from $9.2 million in
the comparable period in 2021. The increase was primarily due to a 51.7%
increase in wholesale vehicle unit sales from the comparable period in 2021,
combined with an increased average selling price of the wholesale vehicles sold.
Finance and Insurance (F&I)
F&I revenue increased by$1.4 million , or 79.6%, to$3.2 million during the three months endedJune 30, 2022 , from$1.8 million in the comparable period in 2021. This increase in F&I revenue was driven by an increase in retail unit sales and a higher penetration of contract sales per unit sold and higher profit per contract. F&I revenue increased by$3.6 million , or 107.0%, to$6.9 million during the six months endedJune 30, 2022 , from$3.3 million in the comparable period in 2021. This increase in F&I revenue was driven by an increase in retail unit sales and a higher penetration of contract sales per unit sold and higher profit per contract.
Lease Income, net
Lease income, net was
Lease income, net was
Cost of Sales
Cost of sales increased by$28.4 million , or 61.0%, to$75.0 million during the three months endedJune 30, 2022 , from$46.6 million in the comparable period in 2021. The increase was due to the increase in vehicles sold, an increased average acquisition price of the vehicles we sold in that period, as well as increased shipping and reconditioning costs. Cost of sales increased by$34.8 million , or 34.3%, to$135.9 million during the six months endedJune 30, 2022 , from$101.2 million in the comparable period in 2021. The increase was due to the increase in vehicles sold, an increased average acquisition price of the vehicles we sold in that period, as well as increased shipping and reconditioning costs.
Retail Vehicle Gross Profit
Retail vehicle gross profit (loss) decreased by$(2.9) million , or (111.2)%, to$(0.3) million during the three months endedJune 30, 2022 , from$2.6 million in the comparable period in 2021. The decrease in retail gross profit for the three months 48 -------------------------------------------------------------------------------- endedJune 30, 2022 resulted from a decrease in front-end margin per unit compared to the same period in 2021, driven by decreased front-end margins due to a combination of elevated acquisition prices of inventory consistent with the rise in used vehicle prices seen across the industry, as well as increased shipping and reconditioning costs. Retail vehicle gross profit (loss) decreased by$(6.2) million , or (152.2)%, to$(2.1) million during the six months endedJune 30, 2022 , from$4.1 million in the comparable period in 2021. The decrease in retail gross profit for the six months endedJune 30, 2022 resulted from a decrease in front-end margin per unit compared to the same period in 2021, driven by decreased front-end margins due to a combination of elevated acquisition prices of inventory primarily sourced through auction towards the end of prior year and the lowering of retail prices relative to the acquisition costs as the inventory aged, as well as increased shipping and reconditioning costs.
Wholesale Vehicle Gross Profit
Wholesale vehicle gross profit (loss) decreased by$1.3 million , to$(1.6) million during the three months endedJune 30, 2022 , from$(0.3) million in the comparable period in 2021. The decrease was primarily due to increased wholesale vehicle cost of sales, as retail-ready vehicles from closed hubs were moved to the wholesale channel by the end of the period, which resulted in a lower of cost or market adjustment of$1.0 million to reflect the value of the vehicles atJune 30, 2022 . Wholesale vehicle gross profit (loss) decreased by$(0.1) million , to$(1.5) million during the six months endedJune 30, 2022 , from$(1.4) million in the comparable period in 2021. F&I Gross Profit F&I revenue consists of 100% gross margin products for which there are no costs associated with the products. Therefore, changes in F&I gross profit and the associated drivers are identical to changes in F&I revenue and the associated drivers. Components of SG&A Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Change ($ in thousands) ($ in thousands) Compensation and benefits(1)$ 9,307 $ 5,907 $ 20,105 $ 12,763 58 % Marketing 2,393 3,906 5,547 6,432 (39) % Technology 1,400 2,453 2,935 5,378 (43) % Accounting and legal 1,680 2,017 3,745 4,668 (17) % Insurance 2,270 1,890 4,507 3,221 20 % Occupancy 3,046 1,580 6,337 2,611 93 % Other costs(2) 6,913 1,634 11,508 3,186 323 % Total selling, general and administrative expenses$ 27,009 $ 19,386 $ 54,684 $ 38,259 39 % (1)Compensation and benefits includes all payroll and related costs, including benefits, and payroll taxes, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.
(2)Other costs include all other selling, general and administrative expenses such as logistics and other administrative expenses.
Selling, general and administrative expenses increased by$7.6 million , to$27.0 million during the three months endedJune 30, 2022 , from$19.4 million in the comparable period in 2021. Costs related to the expansion of the Company, prior to the hub closures announced onJune 21, 2022 , since the prior year period increased$6.8 million , primarily due to insurance, occupancy and vehicle listing costs. Compensation and benefits increased$3.4 million due to increased corporate headcount and new hub openings, prior to the hub closures announced onJune 21, 2022 . Marketing expense decreased$(1.5) million as we have refocused on direct marketing as opposed to brand marketing compared to the same period in the prior year during our national expansion, and technology expense decreased$(1.1) million due to elevated costs in the prior year quarter when the Company began website enhancements. 49 -------------------------------------------------------------------------------- Selling, general and administrative expenses increased by$16.4 million , to$54.7 million during the six months endedJune 30, 2022 , from$38.3 million in the comparable period in 2021. Costs related to the expansion of the Company since the prior year period increased$12.4 million , primarily due to insurance, occupancy and vehicle listing costs. Compensation and benefits increased$7.3 million due to increased corporate headcount and new hub openings, prior to the hub closures announced onJune 21, 2022 . Marketing expense decreased$(0.9) million as we have refocused on direct marketing as opposed to brand marketing compared to the same period in the prior year during our national expansion, and technology expense decreased$(2.4) million due to elevated costs in the prior year quarter when the Company began website enhancements. Non-GAAP Financial Measures To supplement the interim unaudited condensed consolidated financial statements, which are prepared and presented in accordance withU.S. generally accepted accounting principles (GAAP), we also present the following non-GAAP measures: EBITDA and Adjusted EBITDA. We believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team, and it also improves investors' understanding of our underlying operating performance and their ability to analyze our ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures. EBITDA is defined as net loss attributable to common stockholders adjusted to exclude interest expense, income tax expense and depreciation and amortization expense.
Adjusted EBITDA is EBITDA adjusted to exclude certain expenses related to the Company's capital structure and management fee expense prior to the Merger, stock compensation expense and other non-operating income and expenses, including interest, investment gain/loss and nonrecurring income/expense.
Management believes the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is useful to investors in comparing the Company's performance prior to the Merger and the Company's performance following the Merger. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.
The following tables reconcile EBITDA and Adjusted EBITDA to net loss attributable to common stockholders:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
($ in thousands)
Net Loss $ (34,905) $ (7,205) $ (59,741) $ (22,227)
Adjusted to exclude the following:
Interest expense 594 184 1,210 359
Income tax expense - - - -
Depreciation and amortization
expense 2,359 95 4,147 478
EBITDA $ (31,952) $ (6,926) $ (54,384) $ (21,390)
Other expense (371) 553 408 391
Stock compensation expense 1,141 3,704 2,825 45,667
Management fee expense - related
party - - - 2
Change in fair value of warrants
liability (3,213) (325) (4,813) (12,683)
Change in fair value of earnout
provision (2,587) (12,210) (6,616) (44,056)
Restructuring expense 11,741 - 11,741 -
Adjusted EBITDA $ (25,241) $ (15,204) $ (50,839) $ (32,069)
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Liquidity and Capital Resources
Sources of liquidity
Our main source of liquidity is cash generated from financing activities, which primarily includes proceeds from the Merger (see Note 3 - Merger in our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information). In connection with the Merger, pursuant to subscription agreements datedOctober 21, 2020 by and betweenAcamar Partners Acquisition Corp. ("Acamar Partners ") and certain strategic and accredited investors (the "PIPE Investors "), with respect to a private placement of shares of Acamar Partners Class A common stock, the Company issued and sold 12.5 million shares of Acamar Partners Class A common stock to thePIPE Investors at a price per share of$10.00 and an aggregate purchase price of$125.0 million . Since inception, we have generally operated at a loss for most periods. As ofJune 30, 2022 , we had cash and cash equivalents, restricted cash and short-term marketable securities of$128.1 million . We believe our available cash, restricted cash, short-term marketable securities and liquidity available under the Ally Facility are sufficient to fund our operations for at least the next 12 months. In the event amounts are not available under the Ally Facility or otherwise, we expect to continue to operate at a loss until we improve productivity and efficiency at our hubs and are able to leverage our operating costs. We may also seek additional funds as needed through alternative sources of liquidity, including equity or debt financings, additional floorplan financing or other arrangements. However, additional funds may not be available when we need them on terms that are acceptable to us, or at all.
Debt obligations
OnMarch 10, 2021 , we entered into an Inventory Financing and Security Agreement (the "Ally Facility") withAlly Bank , aUtah chartered state bank ("Ally Bank "), and Ally Financial, Inc., aDelaware corporation ("Ally" and, together withAlly Bank , the "Lender"), pursuant to which the Lender may provide up to$30 million in financing, or such lesser sum which may be advanced to or on behalf of us from time to time, as part of our floorplan vehicle financing program. InJune 2021 , the Company expanded the floor plan credit facility by$10 million to a total of$40 million . As ofJune 30, 2022 , we had$15.7 million principal outstanding under the Ally Facility, primarily from increased sourcing through vehicle purchases. Under the Ally Facility, the Company is subject to financial covenants that require the Company to maintain at least 10% of the credit line in cash and cash equivalents, to maintain at least 10% of the credit line on deposit withAlly Bank and to maintain a minimum tangible net worth of$90 million calculated in accordance withU.S. GAAP. Advances under the Ally Facility bear interest at a per annum rate designated from time to time by the Lender determined using a 365/360 simple interest method of calculation, unless expressly prohibited by law. The interest rate is currently the prime rate plus 2.50% per annum, or 8.00%. Advances under the Ally Facility, if not demanded earlier, are due and payable for each vehicle financed under the Ally Facility as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise disposed of. Interest under the Ally Facility is due and payable upon demand, but, in general, in no event later than 60 days from the date of request for payment. Upon any event of default (including, without limitation, our obligation to pay upon demand any outstanding liabilities of the Ally Facility), the Lender may, at its option and without notice to us, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to the Lender and its affiliates by us and our affiliates. In addition, the Lender may, upon sixty (60) calendar days prior written notice to us, for any or no reason, with or without cause, terminate our ability to request and obtain financing from the Lender. We have recently had discussions with the Lender about the terms of the Ally Facility, and liquidity availability thereunder. If the Lender were to terminate the Ally Facility, no assurance can be given that we would be able to secure a replacement facility, or alternative financing, on terms that are acceptable to us, or at all.
The Ally Facility is secured by a grant of a security interest in certain vehicle inventory and other assets of the Company.
We are not a party to any off-balance sheet arrangements, including guarantee
contracts, retained or contingent interests, certain derivative instruments and
variable interest entities that either have, or are reasonably likely to have, a
current or future material effect on our interim unaudited condensed
consolidated financial statements.
51
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Cash Flows - Six Months Ended
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
2022 2021
($ in thousands)
Cash Flow Data:
Net cash (used in) operating activities $ (47,796) $ (70,664)
Net cash provided by (used in) investing activities 54,783 (189,099)
Net cash provided by (used in) financing activities (12,309) 340,752
Operating Activities
For the six months ended June 30, 2022 , net cash used in operating activities
was $(47.8) million , primarily driven by net loss of $(59.7) million adjusted
for non-cash charges of $11.3 million and net changes in our operating assets
and liabilities of $0.6 million . The non-cash adjustments primarily relate to a
decrease in fair value of the warrants and earnout shares of $(11.4) million ,
offset by depreciation and amortization of $6.7 million , stock compensation of
$2.8 million , and restructuring charges of $10.7 million . The changes in
operating assets and liabilities were primarily driven by a decrease in
inventories of $9.0 million , partially offset by an increase in accounts
receivable of $(2.6) million , an increase other current assets of $(3.0)
million , and a decrease in accounts payable of $(2.4) million .
For the six months ended June 30, 2021 , net cash used in operating activities
was $(70.7) million , primarily driven by net loss of $(22.2) million adjusted
for non-cash charges of $(9.8) million and net changes in our operating assets
and liabilities of $(38.6) million . The non-cash adjustments primarily relate to
a decrease in fair value of the warrants and earnout shares of $(56.7) million ,
partially offset by stock compensation of $45.7 million . The changes in
operating assets and liabilities are primarily driven by an increase in
inventories $(36.3) million , an increase other current assets of $(5.5) million
and an increase in other long-term assets of $(4.1) million , partially offset by
an increase in accrued expenses of $6.2 million and an increase in accounts
payable of $2.5 million .
Investing Activities
For the six months endedJune 30, 2022 , net cash provided by investing activities was$54.8 million , primarily driven by sales and maturities of marketable securities of$114.9 million and partially offset by the purchase of property and equipment of$(5.1) million and purchases of marketable securities of$(52.1) million . For the six months endedJune 30, 2021 , net cash used in investing activities was$(188.9) million , primarily driven by purchases of marketable securities of$(307.6) million , the purchase of property and equipment of$(3.7) million and capitalized software costs of$(6.6) million , partially offset by proceeds from sales and maturities of marketable securities of$129.0 million .
Financing Activities
For the six months endedJune 30, 2022 , net cash used in financing activities was$(12.3) million , primarily driven by payments on floor plan notes payable of$(82.4) million , partially offset by borrowings on the floor plan facility of$70.3 million . For the six months endedJune 30, 2021 , net cash provided by financing activities was$340.8 million , primarily driven by the issuance of common stock to the PIPE investors and Former CarLotz shareholders of$435.0 million , an advance from the holder of marketable securities of$4.7 million , and borrowings on the floor plan facility of$52.4 million , partially offset by the payments made to existing shareholders of Former CarLotz as part of the Merger of$(62.7) million , transaction costs and advisory fees of$(47.6) million , payments on floor plan notes payable of$(29.1) million , payments made on accrued dividends of$(4.9) million , repayment of debt of$(4.7) million and the payment of cash consideration on options of$(2.5) million . 52 --------------------------------------------------------------------------------
Material Contractual Obligations
The Company had contractual obligations as ofJune 30, 2022 that are material to an assessment of the Company's short- and long-term cash requirements. As ofJune 30, 2022 , the Company has total outstanding debt of$15.7 million under the floorplan facility, which represents the principal amount outstanding due to the uncertainty of forecasting the timing of expected variable interest rate payments. Borrowings under the floorplan facility are payable when the underlying vehicle is sold, which is expected to be in 2022.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our interim unaudited consolidated financial statements.
Critical Accounting Policies and Estimates
For information on critical accounting policies, see "Critical Accounting Policy and Estimates" in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Form 10-K filed with theSEC onMarch 15, 2022 . There have been no changes to our critical accounting policies during the three months endedJune 30, 2022 other than the new critical accounting policy and estimate below.
Asset Impairment and Assets Held-For-Sale
Asset impairment is subject to uncertainty as the recoverability of asset costs is subjective. The fair value of each asset is estimated at a point in time and compared to the carrying value of the asset. If the fair value is less than the carrying value, the asset impairment expense is recognized in the period in which the asset fair value is estimated to be lower than the carrying value. The hub closures onJune 21, 2022 (see Note 21 - Restructuring Charges, Asset Impairment, and Assets Held For Sale in our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information), was a triggering event in the current period and the fair value of associated lease and other fixed assets was estimated and compared to the carrying value. The assumptions used in estimating the fair value of lease and other fixed assets included our most current and best available information based on negotiations with third parties to relieve us of our obligation under the leases of each closed location and include: if we expect to assign the lease or sub-lease a property to a third party, the timeline by which we expect assignments or sub-leases to be finalized, and the recoverability of fixed asset costs based on negotiations with potential third party assignee, sub-lessee, or, in some cases, the vendor that we purchased the fixed assets from. The assumption, by lease, of potential assignment or sub-lease directly impacts the classification of lease assets held-for-sale as only leases that we expect to be assignable are classified as held-for-sale. The held-for-sale criteria is subject to uncertainty given the fluid nature of negotiations with third parties.
Because of the magnitude of the carrying value of lease and other fixed assets, small changes in assumptions could have a material impact on the financial condition of the Company.
Recently Issued and Adopted Accounting Pronouncements
See the section titled "Recently Issued Accounting Pronouncements" in Note 2 in
the "Notes to Condensed Consolidated Financial Statements" in our interim
unaudited condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q for additional information.
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