VROOM, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and in the section titled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "Annual Report"), as updated by the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Vroom is an innovative, end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles. We are deeply committed to creating an exceptional experience for our customers. We are driving enduring change in the industry on a national scale. Leveraging the benefits of national scale and local efficiency, we take a vertically integrated, hybrid asset-light approach that is reinventing all phases of the vehicle buying and selling process, from discovery to delivery and everything in between. Our platform encompasses:
•
Ecommerce: We offer an exceptional ecommerce experience for our customers. In contrast to legacy dealerships and the peer-to-peer market, we provide consumers with a personalized and intuitive ecommerce interface to research and select from thousands of fully reconditioned vehicles. Our platform is accessible at any time on any device and provides transparent pricing, real-time financing and nationwide contact-free delivery right to a buyer's driveway. For consumers looking to sell or trade in their vehicles, we provide attractive market-based pricing, real-time price quotes and convenient, contact-free at-home vehicle pick-up.
•
Vehicle Operations: Our scalable and vertically integrated operations underpin our business model. We strategically source inventory from consumers, auctions, rental car companies, OEMs, and dealers. We improve our ability to acquire high-demand vehicles through enhanced supply science across all our sourcing channels and we have expanded our national marketing efforts to drive consumer sourcing. In our reconditioning and logistics operations, we deploy a hybrid asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships. As we scale nationally, we continue to leverage our last mile hub logistics operations and geographically dispersed network of reconditioning centers to further develop our regional operating model designed to improve our operating leverage, drive stronger unit economics and enhance our customer experience.
•
Data Science and Experimentation: Data science and experimentation are at the core of everything we do. We rely on data science, machine learning and A/B and multivariate testing to continually drive optimization and operating leverage across our ecommerce and vehicle operations. We leverage data to increase the effectiveness of our national brand and performance marketing, enhance our customer experience, analyze market dynamics at scale, calibrate our vehicle pricing and optimize our overall inventory sales velocity. On the operations side, data science and experimentation enables us to fine tune our supply, sourcing and logistics models and to streamline our reconditioning processes. Based on data fromCox Automotive , there were an estimated 40.5 million used vehicle transactions in 2021. TheU.S. used automotive market is also highly fragmented and ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration. Industry reports estimate that ecommerce penetration will grow to as much as half of all used vehicle sales by 2030. Our platform, coupled with our national presence and brand, provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology, operations and logistics. The traditional auto dealers and peer-to-peer market do not offer consumers what we offer. 42
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Recent Events
Business Realignment Plan
In light of operational challenges in our business, the need to reduce our cash
spend and changes in financial market sentiment, on May 5, 2022 , our board of
directors (the "Board") approved a business realignment plan designed to
position the Company for long-term profitable growth by prioritizing unit
economics, reducing our operating expenses and maximizing liquidity (the
"Realignment Plan"). The Realignment Plan included a number of elements, such as
reducing the rate of unit sales to focus on lowering SG&A and expanding GPPU;
reducing marketing expense by focusing on highest-ROI channels while aligning
with volume trajectory; reducing the number of physical office locations and
right sizing our organization to align with unit volume; and further developing
our regional operating model.
In addition, as we execute on our Realignment Plan, we intend to accelerate the
development of UACC as a captive financing operation, giving us the ability to
better serve our customers across the credit spectrum, drive enhanced unit
economics and improve our overall customer experience.
In connection with the Realignment Plan, in the second quarter of 2022 we
incurred expenses of approximately $4.3 million , consisting primarily of
severance and other related personnel reduction costs. Additionally, we
recognized approximately $3.4 million of lease impairment charges in the second
quarter of 2022, related to closing physical office locations in New York and
Detroit as well as Sell Us Your Car® centers. We expect to achieve approximately
$135.0 to $165.0 million of cost reductions and operating improvements across
our operations for the remainder of 2022, when compared to the first quarter
annualized, as a result of the Realignment Plan.
Throughout the second quarter of 2022, we continued our strategic analysis of
the operations at the TDA store location and subsequently decided to further
streamline those operations and close the TDA service center. We intend to
repurpose the service center to replace our reconditioning facility in Stafford,
Texas , which we believe will enable us to align our proprietary reconditioning
operations in the Houston market with our reduced unit sales volume, reduce our
lease expenses and provide an improved work environment for our employees. We
are also restructuring our network of logistics operations to align with reduced
unit volume and our regional operating model. Relatedly, we are taking further
action to right-size the staffing of those operations, which will result in a
further reduction in headcount. As a result, we incurred approximately $0.6
million in severance and other related personnel reduction costs during the
second quarter of 2022, related to the reduction in headcount at our
reconditioning operations, and expect to incur severance and other related
personnel reduction costs related to our logistics operations in the third
quarter of 2022. We also expect to incur approximately $2.0 million of lease
impairment charges in the second half of 2022.
The restructuring activities associated with the Realignment Plan are expected to be substantially completed during the third quarter of 2022.
The foregoing estimates are based upon current assumptions and expectations but are subject to known and unknown risks and uncertainties. Accordingly, we may not be able to fully realize the cost savings and benefits initially anticipated from the Realignment Plan, and the actual costs may be greater than expected. See Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading "Risk Factors- Risks Related to Our Financial Condition and Results of Operations-We may not successfully execute or achieve the expected benefits of our Realignment Plan and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations" for more information.
Long-Term Roadmap
Building on our Realignment Plan, we are following a long-term road map that is designed to achieve three key objectives: prioritizing unit economics over growth, significantly reducing operating expenses, and maximizing liquidity.
In order to achieve these objectives, we are focused on four strategic initiatives:
•
Building a well-oiled transaction machine: Optimize our sales channels using
internal and outsourced resources and digitization; streamline and digitize the
title and registration process; optimize our marketing strategies by building
brand awareness, growing organic search traffic and fine-tuning paid media
campaigns to improve direct traffic and drive conversion.
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•
Building a well-oiled metal machine: Optimize pricing and assortment of vehicles through predictive data and analytics and regionalization, as well as synchronize end-to-end supply chain to increase velocity and improve flow.
•
Building a regional operating model: Build a regional operating model to improve the customer experience, improve the speed of the supply chain, and reduce logistics costs and markdowns.
•
Building a captive finance offering: Accelerate the development of UACC as a captive financing operation, giving us the ability to better serve our customers across the credit spectrum, drive enhanced unit economics and improve our overall customer experience. These initiatives are designed to further our progress in building a profitable business model, enable us to build a well-oiled machine across our operations and position us to resume growth.
CEO Transition
EffectiveMay 9, 2022 ,Thomas H. Shortt was appointed as our Chief Executive Officer and a director, succeedingPaul J. Hennessy uponMr. Hennessy's resignation as Chief Executive Officer and a director of the Company.Mr. Shortt previously served as our Chief Operating Officer sinceJanuary 2022 .
We entered into a new employment agreement with
Also effective on
UACC Acquisition
OnFebruary 1, 2022 (the "Acquisition Date"), we completed the acquisition (the "UACC Acquisition") of 100% ofUnitas Holdings Corp. , including its wholly owned subsidiariesUnited PanAm Financial Corp. andUnited Auto Credit Corporation ("UACC").Unitas Holdings Corp. (now known asVroom Finance Corporation ),United PanAm Financial Corp. (now known asVroom Automotive Financial Corporation ) and UACC, as well as their other subsidiaries, are now our wholly owned subsidiaries. This acquisition accelerates our strategy of establishing a captive financing arm and underwriting vehicle financing for our customers, the results of which are included within the Ecommerce reporting segment. UACC will also continue its current operations with its network of third-party dealership customers, which we intend to continue growing, including the purchases and servicing of vehicle installment contracts, which constitutes a separate reporting segment - Retail Financing. The cash consideration transferred was approximately$315.4 million . We believe that, over time, the UACC platform will unlock the benefits of our captive finance strategy and enable us to expand our penetration of sales to customers across the credit spectrum, enhance aggregate gross profit and GPPU, and leverage our fixed cost base. In addition, we expect loans originated by UACC to be funded through existing warehouse credit facilities and sold via securitization transactions and whole loan sales under forward flow arrangements. This originate-to-sell strategy is designed to achieve the benefits of a captive financing operation while maintaining an asset-light funding strategy. Our Model We generate revenue through the sale of used vehicles, vehicle financing and value-added products. We sell vehicles directly to consumers primarily through our Ecommerce segment as a licensed dealer. As a result of the UACC Acquisition onFebruary 1, 2022 , we are developing a captive financing operation for Vroom customers, which will enable us to provide our customers with expanded financing solutions across the credit spectrum and an enhanced customer experience, while generating improved unit economics. We also expect to generate ecommerce product revenue through UACC's sale of Vroom finance receivables in securitization transactions or forward flow arrangements. Additionally, we expect UACC to continue to purchase and service finance receivables originated by its existing network of third-party dealership customers and generate finance revenue, including interest income as well as 44
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gain on sale related to these finance receivables. Over time, we intend to grow the third-party dealership network and business.
We also sell vehicles through wholesale channels, which provide a revenue source for vehicles that do not meet our Vroom retail sales criteria. Additionally, we generate revenue through the retail sale of used vehicles and value-added products atHouston -based Texas Direct Auto, or TDA. For the three months endedJune 30, 2022 , our Ecommerce, Wholesale, and Retail Financing segments represented 67.6%, 17.4%, and 6.8% of our total revenue, respectively. For the six months endedJune 30, 2022 , our Ecommerce, Wholesale, and Retail Financing segments represented 71.3%, 15.9%, and 5.7% of our total revenue, respectively. Our retail gross profit consists of two components: Vehicle Gross Profit and Product Gross Profit. Vehicle Gross Profit is calculated as the aggregate retail sales price for all vehicles sold to customers along with delivery fee revenue and document fees received from customers, less the aggregate cost to acquire such vehicles, the aggregate cost of inbound transportation for such vehicles to our vehicle reconditioning centers, which we refer to as VRCs, and the aggregate cost of reconditioning such vehicles for sale. Product Gross Profit consists of fees earned on vehicle financing originated by our third-party financing sources and any third-party value-added products sold as part of a vehicle sale. Because we are paid fees on the third-party financing and other value-added products we sell, our gross profit on such products is equal to the revenue we generate. Starting in the second quarter of 2022, Product Gross Profit also includes interest income earned on finance receivables held for sale from Vroom customers that we originate through UACC to finance the vehicles we sell. Going forward, it will also include gain on sales of those finance receivables once sold in a securitization transaction or forward flow arrangement. See "-Key Operating and Financial Metrics."
Below is an explanation of how we calculate vehicle gross profit per unit and product gross profit per unit:
[[Image Removed: img173402621_0.jpg]]
Our profitability depends primarily on improving unit economics and achieving
operating leverage. We deploy a hybrid asset-light strategy that optimizes a
combination of ownership and operation of assets by us with strategic
third-party partnerships. Our hybrid approach also applies to the third-party
value-added products we sell to customers. Historically, we generated additional
revenue streams without directly underwriting vehicle financing or protection
products; however, the UACC Acquisition enables us to underwrite vehicle
financing for our customers. As we scale, we expect to benefit from efficiencies
and operating leverage across our business, including our marketing and
technology investments, and our inventory procurement, logistics, reconditioning
and sales processes.
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Inventory Sourcing
We source our vehicle inventory from a variety of channels, including consumers, auctions, rental car companies, OEMs and dealers. Because the quality of vehicles and associated gross margin profile vary across each channel, the mix of inventory sources has an impact on our profitability. We continually evaluate the optimal mix of sourcing channels to generate the highest sales margins and shortest inventory turns, both of which contribute to increased gross profit per unit. We generate a vast set of predictive data derived from market demand, pricing dynamics, vehicle acquisitions and subsequent sales, and we leverage that data to optimize future vehicle acquisitions. See "-Other Key Factors and Trends Affecting our Operating Results-Ability to utilize data science to drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory."
Vehicle Reconditioning
Before a vehicle is listed for retail sale on our platform, it undergoes a
thorough reconditioning process in order to meet our Vroom retail sales
criteria. The efficiency of this reconditioning process is a key element in our
ability to grow profitably. To recondition vehicles, we rely on a combination of
our Vroom-owned vehicle reconditioning centers ("VRCs") along with a network of
VRCs owned and operated by third parties. In February 2022 , Adesa U.S.
("Adesa"), one of our third-party VRC providers and host of a number of our
last-mile hubs, communicated its intent to discontinue its third-party
reconditioning services with us as it was being acquired by a competitor. We
replaced Adesa's capacity with capacity at our other existing providers. In the
second quarter of 2022, we took further action to right-size the staffing of our
proprietary reconditioning operations as well as to optimize the number of
third-party reconditioning partner locations to align with a focus on reduced
unit sales volume, resulting in a further reduction in headcount. We also
announced our intention to relocate the reconditioning facility in Stafford,
Texas to the former service center at the TDA store location. Going forward, we
will seek to optimize the combination of strategic and geographically dispersed
proprietary and third-party VRCs, including the possible addition of proprietary
VRCs into our integrated hybrid network over time. See "-Other Key Factors and
Trends Affecting our Operating Results-Ability to optimize our reconditioning
capacity to satisfy increasing demand."
Logistics Network
As we scaled our business, we not only added proprietary line-haul capability, but also built our third-party logistics network nationally through the development of strategic carrier arrangements with national haulers and consolidated our carrier base into dedicated operating regions. This combination of proprietary and focused third-party service allowed us to focus on improving the quality and reliability of our logistics operations and enhancing of our customer experience. We have prioritized investment in our last mile hub delivery operations, where we can have the greatest impact on the customer experience, and invested in short-haul vehicles to make regional deliveries from our last mile hubs and line-haul vehicles for hub-to-hub shipments on high-volume routes. We are also continuing to invest in our processes and technology to remove inefficiencies, automate processes and improve our customer experience. We are taking further action to optimize our proprietary logistics operations in order to align with reduced unit sales volume, which will result in a further reduction in headcount, as well as the restructuring of our network of logistics operations. Consistent with the continued development of our regional operating model, we intend to strategically combine the operation of our proprietary fleet with the use of third-party carriers, as well as synchronize our end-to-end supply chain to increase sales velocity and optimize flow of our inventory. We believe these initiatives will enable us to reduce logistics costs per mile, improve our inventory turnover and provide the highest level of customer service. See "-Other Key Factors and Trends Affecting our Operating Results-Ability to optimize our logistics network."
Vehicle Financing
We generate revenue by earning fees on vehicle financing through our continued
partnerships with third-party lenders. The recent UACC Acquisition enables us to
accelerate the development of our captive financing capabilities. As a first
step in our integration plan, UACC has joined the existing lineup of third-party
lenders available on our ecommerce platform as we work to integrate UACC's
services and develop our captive financing operation, which will enable us to
provide our customers with automotive financing solutions across the credit
spectrum and an enhanced customer experience. See "-Other Key Factors and Trends
Affecting our Operating Results-Ability to expand and develop our financing
capabilities."
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Other Value-Added Products
We generate revenue by earning fees for selling value-added products to
customers in connection with vehicle sales. Currently, our other third-party
value-added product offerings consist of protection products, such as vehicle
service contracts, GAP protection and tire and wheel coverage. As we scale our
business, we intend to introduce additional value-added products that will be
attractive to our customers and drive revenue and profitable growth. We expect
that both expanded product offerings and increased attachment rates in
value-added product sales will have a positive impact on our profitability. See
"-Other Key Factors and Trends Affecting our Operating Results-Ability to
increase and better monetize other value-added products."
Our SegmentsWe manage and report operating results through three reportable segments:
•
Ecommerce (67.6% and 71.3% of total revenue for the three and six months endedJune 30, 2022 ): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales.
•
Wholesale (17.4% and 15.9% of total revenue for the three and six months endedJune 30, 2022 ): The Wholesale segment represents sales of used vehicles through wholesale channels.
•
Retail Financing (6.8% and 5.7% of total revenue for the three and six months endedJune 30, 2022 : The Retail Financing segment represents UACC's operations with its network of third-party dealership customers. As part of the Realignment Plan, initiated in the second quarter of 2022, we streamlined TDA's operations and closed our service center. We also reevaluated our reporting segments based on relative revenue and gross profit and significance in our long term strategy. As a result of the quantitative analysis, we determined to no longer report TDA as a separate segment.
Gross profit is defined as revenue less cost of sales for each segment.
Reflected below is a summary of segment revenue and segment gross profit for the
three and six months ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021(1) 2022 2021(1)
(in thousands) (in thousands)
Revenue:
Ecommerce $ 321,632 $ 579,663 $ 996,995 $ 1,001,971
Wholesale 82,901 128,108 222,885 246,132
Retail Financing 32,121 - 79,808 -
All Other 38,783 54,119 99,524 104,905
Total revenue $ 475,437 $ 761,890 $ 1,399,212 $ 1,353,008
Gross profit (loss):
Ecommerce $ 33,509 $ 49,638 $ 67,828 $ 81,475
Wholesale (1,934 ) 8,516 (4,686 ) 8,234
Retail Financing 28,720 - 73,682 -
All Other 6,062 4,974 11,173 9,595
Total gross profit $ 66,357 $ 63,128 $ 147,997 $ 99,304 (1) We reclassified TDA revenue and TDA gross profit from the TDA reportable segment to the "All Other" category to conform to current year presentation.
Key Operating and Financial Metrics
We regularly review a number of metrics, including the following key operating
and financial metrics, to evaluate our business, measure our performance,
identify trends in our business, prepare financial forecasts and make strategic
decisions. We believe these operational measures are useful in evaluating our
performance, in addition to our financial results prepared in accordance with
U.S. Generally Accepted Accounting Principles, or U.S. GAAP. You should read the
key operating and financial metrics in conjunction with the following discussion
of our results of operations and together
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with our condensed consolidated financial statements and related notes included
elsewhere in this Quarterly Report on Form 10-Q. We focus heavily on metrics
related to unit economics as improved gross profit per unit is a key element of
our growth and profitability strategies.
The calculation of our key operating and financial metrics is straightforward
and does not rely on significant projections, estimates or assumptions.
Nevertheless, each of our key operating and financial metrics has limitations
because each focuses specifically on only one standard by which to evaluate our
business, without taking into account other applicable standards, performance
measures or operating trends by which our business could be evaluated.
Accordingly, no single metric should be viewed as the bellwether by which our
business should be measured. Rather, each key operating and financial metric
should be considered in conjunction with other metrics and components of our
results of operations, such as each of the other key operating and financial
metrics and our revenues, inventory, loss from operations and segment results.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Ecommerce units sold 9,233 18,268 28,706 33,772
Vehicle Gross Profit per ecommerce unit $ 2,166 $ 1,587 $ 1,100 $ 1,387
Product Gross Profit per ecommerce unit 1,463 1,131 1,263 1,026
Total Gross Profit per ecommerce unit
1,734,535 1,749,480 2,160,983 1,649,869
Ecommerce average days to sale 128 68 110 76
Ecommerce Units Sold
Ecommerce units sold is defined as the number of vehicles sold and shipped to
customers through our ecommerce platform, net of returns under our Vroom 7-Day
Return Program. Ecommerce units sold excludes sales of vehicles at TDA and
through the Wholesale segment. Each vehicle sale through our ecommerce platform
also creates the opportunity to leverage such sale to provide vehicle financing,
sell value-added products and acquire trade-in vehicles from our customers,
which we can either recondition and add to our inventory or sell through
wholesale channels.
Vehicle Gross Profit per Ecommerce Unit
Vehicle Gross Profit per ecommerce unit, which we refer to as Vehicle GPPU, for a given period is defined as the aggregate retail sales price and delivery charges for all vehicles sold through our Ecommerce segment less the aggregate costs to acquire those vehicles, the aggregate costs of inbound transportation to the VRCs and the aggregate costs of reconditioning those vehicles in that period, divided by the number of ecommerce units sold in that period. We believe Vehicle GPPU is a key driver of our long-term profitability.
Product Gross Profit per Ecommerce Unit
Product Gross Profit per ecommerce unit, which we refer to as Product GPPU, for
a given period is defined as the aggregate fees earned on sales of value-added
products in that period, net of the reserves for chargebacks on such products in
that period, divided by the number of ecommerce units sold in that period.
Because we are paid fees on the vehicle financing and value-added products we
sell, our gross profit is equal to the revenue we generate from the sale of such
products. We plan to continue to introduce initiatives to increase the
attachment rates of value-added products and expand our offerings of value-added
products which will grow our Product GPPU. The UACC Acquisition accelerates our
strategy to develop a captive financing arm and creates the opportunity to
expand our automotive financing solutions across the credit spectrum, improve
unit economics and create long-term value for our shareholders. With the captive
financing offered by UACC, we will begin to generate additional product gross
profit on receivables generated by financing provided to Vroom customers from
interest income on such finance receivables held for sale and proceeds from the
sale of such finance receivables in securitization transactions or through
forward flow arrangements.
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Total Gross Profit per Ecommerce Unit
Total Gross Profit per ecommerce unit, which we refer to as Total GPPU, for a given period is calculated as the sum of Vehicle GPPU and Product GPPU. We view Total GPPU as a key metric of the profitability of our Ecommerce segment.
Average Monthly Unique Visitors
Average monthly unique visitors is defined as the average number of individuals who access our ecommerce platform within a calendar month. We calculate the average monthly unique visitors over any period by dividing the aggregate monthly unique visitors during such period by the number of months in that period. We use average monthly unique visitors to measure the quality of our customer experience, the effectiveness of our marketing campaigns and customer acquisition as well as the strength of our brand and market penetration. Average monthly unique visitors is calculated using data provided by
Ecommerce Average Days to Sale
We define ecommerce average days to sale as the average number of days between
our acquisition of vehicles and the final delivery of such vehicles to customers
through our ecommerce platform. We calculate average days to sale for a given
period by dividing the aggregate number of days between the acquisition of all
vehicles sold through our ecommerce platform during such period and final
delivery of such vehicles to customers by the number of ecommerce units sold in
that period. Ecommerce average days to sale excludes vehicles sold at TDA and
through the Wholesale segment. Ecommerce average days to sale is an important
metric because a reduction in the number of days between the acquisition of a
vehicle and the delivery of such vehicle typically results in a higher gross
profit per unit.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe
the following non-GAAP financial measures are useful in evaluating our operating
performance: EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding securitization
gain, Non-GAAP net loss, Non-GAAP net loss excluding securitization gain,
Non-GAAP net loss per share, and Non-GAAP net loss per share excluding
securitization gain. These non-GAAP financial measures have limitations as
analytical tools in that they do not reflect all of the amounts associated with
our results of operations as determined in accordance with U.S. GAAP. Because of
these limitations, these non-GAAP financial measures should be considered along
with other operating and financial performance measures presented in accordance
with U.S. GAAP. The presentation of these non-GAAP financial measures is not
intended to be considered in isolation or as a substitute for, or superior to,
financial information prepared and presented in accordance with U.S. GAAP. We
have reconciled all non-GAAP financial measures with the most directly
comparable U.S. GAAP financial measures.
EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding securitization gain, Non-GAAP
net loss, Non-GAAP net loss excluding securitization gain, Non-GAAP net loss per
share, and Non-GAAP net loss per share excluding securitization gain, are
supplemental performance measures that our management uses to assess our
operating performance and the operating leverage in our business. Because
EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding securitization gain, Non-GAAP
net loss, Non-GAAP net loss excluding securitization gain, Non-GAAP net loss per
share, and Non-GAAP net loss per share excluding securitization gain facilitate
internal comparisons of our historical operating performance on a more
consistent basis, we use these measures for business planning purposes.
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EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain
We calculate EBITDA as net loss before interest expense, interest income, income tax expense and depreciation and amortization expense and we calculate Adjusted EBITDA as EBITDA adjusted to exclude realignment costs, acquisition related costs, change in fair value of finance receivables, goodwill impairment charge and other costs, which relate to the write off of the upfront shares issued as part of the Rocket Auto agreement and previously recognized within "Other assets". Changes in fair value of finance receivables can fluctuate significantly from period to period and relate primarily to historical loans and debt which have been securitized, and acquired onFebruary 1, 2022 from UACC. Our ongoing business model is to originate or purchase finance receivables with the intent to sell which we recognize at the lower of cost or fair value. Therefore, these historical finance receivables acquired, which are accounted for under the fair value option, will experience fluctuations in value from period to period. We believe it is appropriate to remove this temporary volatility from our Adjusted EBITDA results to better reflect our ongoing business model. Additionally, these historical finance receivables acquired from UACC are expected to run-off within approximately 15 months. We calculate Adjusted EBITDA excluding securitization gain as Adjusted EBITDA adjusted to exclude the securitization gain from the sale of UACC's finance receivables as it provides a useful perspective on the underlying operating results and trends as well as a means to compare our period-over-period results. The following table presents a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain to net loss, which is the most directly comparableU.S. GAAP measure: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in thousands) (in thousands) Net loss$ (115,089 ) $ (65,807 ) $ (425,548 ) $ (142,996 ) Adjusted to exclude the following: Interest expense 9,533 3,880 18,913 7,692 Interest income (3,935 ) (2,062 ) (7,887 ) (4,358 ) (Benefit) provision for income taxes 256 194 (22,984 ) 350 Depreciation and amortization 10,115 3,122 18,010 6,028 EBITDA$ (99,120 ) $ (60,673 ) $ (419,496 ) $ (133,284 ) Realignment costs$ 9,529 $ -$ 9,529 $ - Acquisition related costs - - 5,653 - Change in fair value of finance receivables 1,846 - 7,467 - Goodwill impairment charge - - 201,703 - Other 2,127 - 2,127 - Adjusted EBITDA$ (85,618 ) $ (60,673 ) $ (193,017 ) $ (133,284 ) Securitization gain - -$ (29,617 ) - Adjusted EBITDA excluding securitization gain$ (85,618 ) $ (60,673 ) $ (222,634 ) $ (133,284 ) 50
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Non-GAAP net loss, Non-GAAP net loss excluding securitization gain, Non-GAAP net loss per share, and Non-GAAP net loss per share excluding securitization gain
We calculate Non-GAAP net loss as net loss adjusted to exclude realignment costs, acquisition related costs, change in fair value of finance receivables, goodwill impairment charge, and other costs, which relate to the write off of the upfront shares issued as part of the Rocket Auto agreement and previously recognized within "Other assets". We calculate Non-GAAP net loss per share as Non-GAAP net loss divided by weighted average number of shares outstanding. We calculate Non-GAAP net loss excluding securitization gain as Non-GAAP net loss adjusted to exclude the securitization gain from the sale of UACC's finance receivables. We calculate Non-GAAP net loss per share excluding securitization gain as Non-GAAP net loss excluding securitization gain divided by weighted average number of shares outstanding. The following table presents a reconciliation of Non-GAAP net loss, Non-GAAP net loss excluding securitization gain, Non-GAAP net loss per share, and Non-GAAP net loss per share excluding securitization gain to net loss and net loss per share, which are the most directly comparableU.S. GAAP measures: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in thousands, except share and per share amounts) Net loss$ (115,089 ) $ (65,807 ) $ (425,548 ) $ (142,996 ) Net loss attributable to common stockholders$ (115,089 ) $ (65,807 ) $ (425,548 ) $ (142,996 ) Add: Realignment costs 9,529 - 9,529 - Add: Acquisition related costs - - 5,653 - Add: Change in fair value of finance receivables 1,846 - 7,467 - Add: Goodwill impairment charge - - 201,703 - Add: Other 2,127 - 2,127 - Non-GAAP net loss$ (101,587 ) $ (65,807 ) $ (199,069 ) $ (142,996 ) Subtract: Securitization gain - - (29,617 ) - Non-GAAP net loss excluding securitization gain$ (101,587 ) $ (65,807 )
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted 138,075,210 136,507,177
137,667,419 136,002,344
Net loss per share, basic and diluted$ (0.83 ) $ (0.48 ) $ (3.09 ) $ (1.05 ) Impact of realignment costs 0.07 - 0.07 - Impact of acquisition related costs - - 0.04 - Impact of change in fair value of finance receivables 0.01 - 0.05 - Impact of goodwill impairment charge - - 1.47 - Impact of other 0.02 - 0.02 - Non-GAAP net loss per share, basic and diluted$ (0.73 ) $ (0.48 ) $ (1.44 ) $ (1.05 ) Impact of securitization gain - - (0.22 ) - Non-GAAP net loss per share excluding securitization gain, basic and diluted$ (0.73 ) $ (0.48 ) $ (1.66 ) $ (1.05 )
Other Key Factors and Trends Affecting our Operating Results
Our financial condition and results of operations have been, and will continue to be, affected by a number of factors and trends, including the following:
Ability to convert visitors to our platform into customers and source vehicles from consumers
The quality of the customer experience on our ecommerce platform is critical to
our ability to attract new visitors to our platform, convert such visitors into
customers and increase repeat customers, as well as our ability to acquire
vehicles directly from consumers. Our ability to drive higher customer
conversion and increased consumer sourcing depends on our ability to make our
platform a compelling choice for consumers based on our functionalities and
consumer offerings.
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Data analytics and experimentation drive decision making across all of our conversion and sourcing efforts. By analyzing the data generated by the millions of visitors and tens of thousands of transactions on our platform, and continually testing strategies to maximize conversion rates, we form a better understanding of consumer preferences and try to create a more tailored ecommerce experience for consumers looking to purchase vehicles. Similarly, for consumers looking to sell vehicles to us, we use a vast set of data and data analytics, to provide an automated pricing platform that delivers real time, market-driven appraisals, and continually experiment and test in order to further refine our approach to enhance the customer experience and drive increased vehicle purchases. Increased conversion and consumer sourcing also depends on our ability to provide the necessary customer service and sales support to respond to increased demand. Our ongoing investment in our sales and sales support operations includes investments in processes and technology. We are continuing to invest in our processes, including optimizing our sales channels using internal and outsourced resources, in order to remove friction and increase transaction flow and in technology, to automate and improve our customer experience, reduce costs per transaction and to drive conversion and consumer sourcing. In order to address the operational challenges created by our rapid growth over the past two years, including delays in titling and registering vehicles purchased by our customers, we have undertaken various initiatives. These initiatives include increased digitization and electronic transmission of transaction documents and implementation of our digital title vault to ensure that titles are quality checked and vaulted prior to listing. As we improve the customer experience and drive efficiency in transaction processing, we expect that we will attract more visitors, improve conversion, drive greater sales and increase the percentage of vehicles sourced from consumers.
Ability to optimize the mix of inventory sources to drive increased gross profit and improvements to our unit economics
Improving unit economics and driving increased gross profit requires a number of important capabilities, including the ability to finance the acquisition of inventory at competitive rates, source high quality vehicles across various acquisition channels nationwide, secure adequate reconditioning capacity and execute effective marketing strategies to increase consumer sourcing. In addition, our ability to accurately forecast pricing and consumer demand for specific types of vehicles is critical to sourcing high quality, high-demand vehicles, as well as lower-price-point vehicles to take advantage of the expanded sales opportunities to customers across the credit spectrum enabled by the UACC Acquisition. This ability is enabled by our data science capabilities that leverage the growing amount of data at our disposal and generate predictive data analytics that fine-tune our supply and sourcing models. As we continue to invest in our operational efficiency and data analytics, we expect that we will improve our unit economics and in turn drive increased gross profit. We strategically source inventory from consumers, auctions, rental car companies, OEMs and dealers. For the three and six months endedJune 30, 2022 , vehicles sourced from consumers represent approximately 76% of our retail inventory sold. Because the quality of vehicles and associated gross margin profile vary across each channel, the mix of inventory sources has an impact on our profitability. We continually evaluate the optimal mix of sourcing channels and strive to source vehicles in a way that maximizes our average gross profit per unit and improves our unit economics. For example, purchasing vehicles at third-party auctions is competitive and, consequently, vehicle prices at third-party auctions tend to be higher than vehicle prices for vehicles sourced directly from consumers. Accordingly, as part of our sourcing strategy, we have strategically increased the percentage of vehicle sales that we source from consumers. In the first half of 2022, we have continued to experience unprecedented market conditions, caused in part by supply chain dislocations, a shortage of microchips and associated delays in new car manufacturing, which increased demand for used vehicles, putting downward pressure on supply, and making consumer sourcing even more favorable.
In the future, we expect to have the ability to begin inspecting consumer sourced vehicles and making real time adjustments to acquisition pricing as a result of our scaling proprietary logistics operation, which we expect will provide improvements to our overall gross profit per unit over time.
Ability to optimize our reconditioning capacity
Our ability to recondition purchased vehicles to our quality standards is a
critical component of our business. Historically, we have successfully increased
our reconditioning capacity as our business has grown, and our future success
will depend on our ability to continue to optimize our reconditioning capacity
to satisfy customer demand, maximize profitability, and enhance the customer
experience. We employ a hybrid approach that combines the use of our proprietary
VRC and third-party VRCs to best meet our reconditioning needs.
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We intend to optimize reconditioning capacity and operational efficiency through third-party VRC locations and additional proprietary VRCs. Our use of third-party VRCs to recondition vehicles allows us to avoid additional capital expenditures, quickly adjust capacity, maintain greater operational flexibility and broaden our geographic footprint to drive lower logistics costs. Proprietary VRCs will enable us to have increased control over our reconditioning operations, increase capacity as we scale, and support our regional operating model. InFebruary 2022 , Adesa, one of our third-party VRC providers and host of a number of our last-mile hubs, communicated its intent to discontinue its third-party reconditioning services with us as it was being acquired by a competitor. We replaced Adesa's capacity with capacity at our other existing providers. In the second quarter of 2022, we took further action to right-size the staffing of our proprietary reconditioning operations as well as optimize the number of third-party reconditioning partner locations to align with our reduced unit sales volume, resulting in a further reduction in headcount. We also announced our intention to relocate our reconditioning facility fromStafford, Texas to the former service center at the TDA store location. Going forward, we will seek to optimize the combination of strategic and geographically dispersed proprietary and third-party VRCs, including the possible addition of proprietary VRCs into our integrated hybrid network over time. We leverage our data analytics and deep industry experience to strategically select VRC locations where we believe there is the highest supply and demand for our vehicles and enable us to leverage a regional operating model.
Ability to optimize our logistics network
As we scaled our business, we not only added proprietary line-haul capability, but also built our third-party logistics network nationwide through the development of strategic carrier arrangements with national haulers and the consolidation of our carrier base into a smaller number of carriers in dedicated operating regions. We expect that these enhanced logistics operations, combined with the expansion of strategically located VRCs, will drive efficiency in our logistics operations. We have been accelerating our strategy to optimize our hybrid approach by focusing on improving the quality and reliability of our logistics operations and enhancing our customer experience. We have prioritized investment in our last mile hub delivery operations, where we can have the greatest impact on the customer experience, and invested in short-haul vehicles to make regional deliveries from our last mile hubs, many of which are located at our third-party VRCs, and line-haul vehicles for hub-to-hub shipments on high-volume routes. We are also continuing to invest in our processes and technology to remove inefficiencies, automate processes and improve our customer experience. We are taking further action to optimize our proprietary logistics operations in order to align with reduced unit sales volume, which will result in a further reduction in headcount, as well as the restructuring of our network of logistics operations. Consistent with the continued development of our regional operating model, we intend to strategically combine the operation of our proprietary fleet with the use of third-party carriers, as well as synchronize our end-to-end supply chain to increase sales velocity and optimize flow of our inventory. We believe these initiatives will enable us to reduce logistics costs per mile, improve our inventory turnover and provide the highest level of customer service. We expect that optimizing our logistics network through this hybrid approach will result in improved unit economics, increased profitability and an enhanced customer experience.
Ability to leverage a regional operating model
As we have scaled our business, we have achieved a national presence and brand that provides a significant competitive advantage versus local and regional dealers, and has enabled us to take advantage of efficiencies and lower costs of national brand advertising. Our national vehicle operations enable us to leverage a regional operating model, which is designed to reduce our operating expenses, increase our operating leverage and improve our unit economics, while also enhancing our customer experience. The regional operating model will increasingly enhance our approach to each component of our vehicle operations. We believe the efficiencies and cost savings expected to be achieved through the regional operating model will be important components of our path to profitability.
Ability to expand and develop our financing capabilities
Fees earned on vehicle financing, both through our continued partnerships with
third-party lenders and the development of our captive financing capabilities,
present an opportunity to grow our business and drive profitability. Strategic
partnerships with lenders such as Chase, Ally Financial and Santander provide
enhanced revenue streams for us, as well as offering convenience, assurance and
efficiency for our customers and have contributed to improvements in Product
GPPU. In addition, our recent UACC Acquisition enables us to accelerate the
establishment of our captive financing capabilities. We expect that with further
investment and our continued integration efforts, the UACC Acquisition will
allow us to improve unit economics, which will accelerate our path to
profitability.
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Ability to increase and better monetize value-added products
Our offering of value-added products in addition to vehicle financing is an integral part of providing a seamless vehicle-buying experience to our customers. We sell our protection products through our strategic relationships with third parties who bear the incremental risks associated with the underwriting of such protection products. Additionally, through our on-going data analytics, experimentation and further development of our ecommerce technology, we expect to increase attachment rates of our existing protection products while finding new opportunities to include additional protection products, as well as other value-added products. Because we are paid fees on value-added products we sell, our gross profit is equal to the revenue we generate on such sales. As a result, such sales help drive total gross profit per unit. As we scale our business, we intend to increase the breadth and variety of value-added products offered to customers and improve attachment rates to our vehicle sales.
Seasonality
Used vehicle sales have historically been seasonal. The used vehicle industry typically experiences an increase in sales early in the calendar year and reaches its highest point late in the first quarter and early in the second quarter. Vehicle sales then level off through the rest of the year, with the lowest level of sales in the fourth quarter. This seasonality has historically corresponded with the timing of income tax refunds, which are an important source of funding for vehicle purchases. Additionally, used vehicles depreciate at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year. Given the current market demand for used vehicles and other macroeconomic factors, we have not experienced traditional seasonality trends in the most recent periods. See "Risk Factors-Risks Related to Our Financial Condition and Results of Operations-We may experience seasonal and other fluctuations in our quarterly results of operations, which may not fully reflect the underlying performance of our business."
Macroeconomic Factors
We have recently experienced unprecedented market conditions, caused in part by supply chain dislocations, a shortage of microchips and associated delays in new car manufacturing, which increased demand for used vehicles, putting downward pressure on supply and upward pressure on used vehicle pricing. This volatility creates risks around our ability to appropriately price our vehicles and maintain our sales margins and may cause our results of operations to fluctuate significantly. In addition, boththe United States and global economies are experiencing a sustained inflationary environment and theFederal Reserve's efforts to tame inflation have led to, and may continue to lead to, increased interest rates, which affects automotive finance rates, reducing discretionary spending and making vehicle financing more costly and less accessible to many consumers. Moreover,Russia's invasion ofUkraine has increased global economic and political uncertainty, which has caused dramatic fluctuations in global financial markets and uncertainty about world-wide oil supply and demand, which in turn has increased the volatility of oil and natural gas prices. A significant escalation or expansion of economic disruption could continue to disrupt our supply chain, broaden inflationary costs, and could have a material adverse effect on our results of operations. We will continue to actively monitor and develop responses to these disruptions, but depending on duration and severity, these trends could continue to negatively impact our business throughout the remainder of 2022. Components of Results of Operations Revenue
Retail vehicle revenue
We sell retail vehicles through both our ecommerce platform and TDA. Revenue
from vehicle sales, including any delivery charges, is recognized when vehicles
are delivered to the customers or picked up at our TDA retail location, net of a
reserve for estimated returns. The number of units sold and the average selling
price ("ASP") per unit are the primary factors impacting our retail revenue
stream.
The number of units sold depends on the volume of inventory and the selection of
vehicles listed on our ecommerce platform, our ability to attract new customers,
our brand awareness and our ability to expand our reconditioning operations and
logistics network.
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ASP depends primarily on our acquisition and pricing strategies, retail used vehicle market prices, our average days to sale and our reconditioning and logistics costs.
As a data-driven company, we acquire inventory based upon demand predicted by our data analytics. Recently, our ASP increased significantly primarily due to market appreciation, and we expect ASP to fluctuate in the short-term as a result of market conditions. However, our long-term strategy continues to move us towards lower-priced inventory, which we expect will result in a lower ASP. The UACC Acquisition will enable us to expand our automotive financing solutions across the credit spectrum and we expect to increase our offering of lower-price-point vehicles to take advantage of those capabilities.
Wholesale vehicle revenue
We sell vehicles that do not meet our Vroom retail sales criteria through wholesale channels. Vehicles sold through wholesale channels are acquired from customers who trade-in their vehicles when making a purchase from us, from customers who sell their vehicle to us in straight-buy transactions, and from liquidation of vehicles previously listed for retail sale. The number of wholesale vehicles sold and the ASP per unit are the primary drivers of wholesale revenue. The ASP per unit is affected by the mix of the vehicles we acquire and general supply and demand conditions in the wholesale market.
Product revenue
We generate revenue by earning fees on sales of third-party financing and value-added products to our customers in connection with vehicle sales, such as vehicle service contracts, GAP protection and tire and wheel coverage.
We earn fees on third-party financing and value-added products pursuant to
arrangements with the third parties that sell and administer these products. For
accounting purposes, we are an agent for these transactions and, as a result, we
recognize fees on a net basis when the customer enters into an arrangement to
purchase these products or obtain third-party financing, which is typically at
the time of a vehicle sale. Our gross profit on product revenue is equal to the
revenue we generate. Product revenue is affected by the number of vehicles sold,
the attachment rate of value-added products and the amount of fees we receive on
each product. Product revenue also consists of estimated profit-sharing amounts
to which we are entitled based on the performance of third-party protection
products once a required claims period has passed. A portion of the fees we
receive is subject to chargeback in the event of early termination, default, or
prepayment of the contracts by our customers. We recognize product revenue net
of reserves for estimated chargebacks.
As a result of the UACC Acquisition, we also generate ecommerce product revenue
from receivables generated by financing provided to Vroom customers through our
captive financing operation. We earn interest income on such finance receivables
held for sale and receive proceeds from the sale of such finance receivables in
securitization transactions or forward flow arrangements. We will account for
sales of these finance receivables in accordance with ASC Topic 860, Transfers
and Servicing of Financial Assets ("ASC 860"). In order for transfers of the
finance receivables to qualify as sales, the finance receivables being
transferred must be legally isolated, may not be constrained by restrictions
from further transfer, and must be deemed to be beyond our control. Depending on
market conditions, we intend to structure future securitization transactions to
qualify for sale accounting, similar to the 2022-1 securitization transaction
completed in February 2022 , for which gain on sale was recorded in "Finance
revenue", as discussed below. There were no gain on sales recorded in "Product
revenue" for the three and six months ended June 30, 2022 . The revenue we are
able to generate from these sales will be dependent on the number of finance
receivables UACC originates with our customers, the average principal balance of
the finance receivables, the credit quality of the portfolio, and the price at
which they are sold in securitization transactions or through forward flow
arrangements.
Finance revenue
Our finance revenue consists of gain on the sales of finance receivables
acquired by UACC from its network of third-party dealership customers, interest
income earned on finance receivables held for sale, as well as interest income
earned on finance receivables held in consolidated VIEs related to UACC
securitization transactions consummated prior
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Table of Contents to the Acquisition Date. UACC acquires and services finance receivables from its network of third-party dealership customers and generates revenue through the sales of these financing receivables. We account for sales of finance receivables in accordance with ASC 860. All securitization transactions consummated prior to the Acquisition Date were accounted for as secured borrowings and we recognize interest income, which includes finance charges and service charges in accordance with the terms of the related customer agreements. InFebruary 2022 , UACC completed the 2022-1 securitization transaction, which qualified as a sale, therefore we recorded a gain on the sale of the finance receivables. The amount of the gain is equal to the fair value of the net proceeds received less the carrying amount of the finance receivables. Subject to market conditions, we intend to structure future securitization transactions similar to the 2022-1 securitization and account for them as sales.
Servicing income represents the annual fees earned on the outstanding principal balance of the finance receivables serviced. Fees are earned monthly at an annual rate of approximately 4% of the outstanding principal balance of the finance receivables serviced.
Other revenue
Other revenue consists of revenue from CarStory's third-party customers and UACC licensing fee income.
See "Note 3-Revenue Recognition" to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Cost of sales
Retail cost of sales
Retail cost of sales primarily includes the costs to acquire vehicles, inbound transportation costs and direct and indirect reconditioning costs associated with preparing vehicles for sale. Costs to acquire vehicles are primarily driven by the inventory source, vehicle mix and general supply and demand conditions of the used vehicle market. Inbound transportation costs include costs to transport the vehicle to our VRCs. Reconditioning costs include parts, labor and third-party reconditioning costs directly attributable to the vehicle and allocated overhead costs. Cost of sales also includes any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Wholesale cost of sales
Wholesale cost of sales primarily includes costs to acquire vehicles sold through wholesale channels as well as any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Finance cost of sales
Finance cost of sales consists of interest expense incurred on securitization debt and collection expenses related to servicing finance receivables originated by UACC. Other cost of sales
Other cost of sales consists of cost of sales from CarStory's third-party customers.
Total gross profit
Total gross profit is defined as total revenue less costs associated with such revenue.
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Selling, general and administrative expenses
Our selling, general, and administrative expenses, which we refer to as SG&A expenses, consist primarily of advertising and marketing expenses, outbound transportation costs, employee compensation, occupancy costs of our facilities, professional fees for accounting, auditing, tax, legal and consulting services and software and IT costs. Depreciation and amortization Our depreciation and amortization expense primarily includes: depreciation related to our leasehold improvements and logistics fleet; amortization related to intangible assets in acquired businesses; and capitalized internal use software costs incurred in the development of our platform and website applications. Depreciation expense related to our Vroom VRC and the portion of depreciation expense for our proprietary logistics fleet related to inbound transportation is included in cost of sales in the consolidated statements of operations. Impairment Charges Impairment charges represent an impairment charge in the first quarter of 2022 to write down the carrying amount of the goodwill to fair value and lease impairment charges in the second quarter of 2022, related to closing physical office locations and Sell Us Your Car® centers as part of the Realignment Plan.
Interest expense
Our interest expense primarily includes interest expense related to our vehicle
floorplan facility with
Interest Income
Interest income primarily represents interest credits earned on cash deposits maintained in relation to our 2020 Vehicle Floorplan Facility as well as interest earned on cash and cash equivalents.
Other Loss (Income)
Other loss (income) primarily represents unrealized losses (gains) on finance receivables at fair value and beneficial interests in securitizations.
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Results of Operations
The following table presents our consolidated results of operations for the
periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(in thousands) (in thousands)Revenue: Retail vehicle, net$ 341,724 $ 608,116 (43.8 )%$ 1,048,910 $ 1,062,439 (1.3 )% Wholesale vehicle 82,901 128,108 (35.3 )% 222,885 246,132 (9.4 )% Product, net 14,324 22,306 (35.8 )% 38,773 37,878 2.4 % Finance 32,121 - 100.0 % 79,808 - 100.0 % Other 4,367 3,360 30.0 % 8,836 6,559 34.7 % Total revenue 475,437 761,890 (37.6 )% 1,399,212 1,353,008 3.4 % Cost of sales: Retail vehicle 319,903 577,636 (44.6 )% 1,015,412 1,012,903 0.2 % Wholesale vehicle 84,834 119,592 (29.1 )% 227,571 237,898 (4.3 )% Finance 3,402 - 100.0 % 6,126 - 100.0 % Other 941 1,534 (38.7 )% 2,106 2,903 (27.5 )% Total cost of sales 409,080 698,762 (41.5 )% 1,251,215 1,253,704 (0.2 )% Total gross profit 66,357 63,128 5.1 % 147,997 99,304 49.0 % Selling, general and administrative expenses 152,990 123,898 23.5 % 340,984 232,764 46.5 % Depreciation and amortization 10,039 3,058 228.3 % 17,895 5,900 203.3 % Impairment charges 3,407 - 100.0 % 205,110 - 100.0 % Loss from operations (100,079 ) (63,828 ) 56.8 % (415,992 ) (139,360 ) 198.5 % Interest expense 9,533 3,880 145.7 % 18,913 7,692 145.9 % Interest income (3,935 ) (2,062 ) 90.8 % (7,887 ) (4,358 ) 81.0 % Other loss (income), net 9,156 (33 ) (27,845.5 )% 21,514 (48 ) (44,920.8 )% Loss before provision for income taxes (114,833 ) (65,613 ) 75.0 % (448,532 ) (142,646 ) 214.4 % (Benefit) provision for income taxes 256 194 32.0 % (22,984 ) 350 (6,666.9 )% Net loss$ (115,089 ) $ (65,807 ) 74.9 %$ (425,548 ) $ (142,996 ) 197.6 % Segments
We manage and report operating results through three reportable segments:
•
Ecommerce (67.6% and 71.3% of total revenue for the three and six months endedJune 30, 2022 ): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales.
•
Wholesale (17.4% and 15.9% of total revenue for the three and six months endedJune 30, 2022 ): The Wholesale segment represents sales of used vehicles through wholesale channels.
•
Retail Financing (6.8% and 5.7% of total revenue for the three and six months endedJune 30, 2022 ): The Retail Financing segment represents UACC's operations with its network of third-party dealership customers. 58
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Three Months Ended
Ecommerce
The following table presents our Ecommerce segment results of operations for the
periods indicated:
Three Months Ended
June 30,
2022 2021 Change % Change
(in thousands, except unit
data and average days to sale)
Ecommerce units sold 9,233 18,268 (9,035 ) (49.5 )%
Ecommerce revenue:
Vehicle revenue $ 308,123 $ 559,010 $ (250,887 ) (44.9 )%
Product revenue 13,509 20,653 (7,144 ) (34.6 )%
Total ecommerce revenue $ 321,632 $ 579,663 $ (258,031 ) (44.5 )%
Ecommerce gross profit:
Vehicle gross profit $ 20,000 $ 28,985 $ (8,985 ) (31.0 )%
Product gross profit 13,509 20,653 (7,144 ) (34.6 )%
Total ecommerce gross profit $ 33,509 $ 49,638 $ (16,129 ) (32.5 )%
Average vehicle selling price per
ecommerce unit $ 33,372 $ 30,601 $ 2,771 9.1 %
Gross profit per ecommerce unit:
Vehicle gross profit per ecommerce
unit $ 2,166 $ 1,587 $ 579 36.5 %
Product gross profit per ecommerce
unit 1,463 1,131 332 29.4 %
Total gross profit per ecommerce unit $ 3,629 $ 2,718 $ 911 33.5 %
Ecommerce average days to sale 128 68 60 88.2 %
Ecommerce units
Ecommerce units sold decreased 9,035, or 49.5%, from 18,268 for the three months
ended June 30, 2021 to 9,233 for the three months ended June 30, 2022 . This
decrease was driven by our strategic decision to prioritize unit economics over
unit sales volume.
Ecommerce average days to sale increased from 68 days for the three months ended
June 30, 2021 to 128 days for the three months ended June 30, 2022 . We have
undertaken various initiatives to address the operational challenges created by
our rapid growth over the past two years. While these initiatives are designed
to improve our transaction processing, enhance our customer experience, and
reduce our regulatory risk, they resulted in an increase in the number of days
between our acquisition of vehicles and the final delivery of such vehicles to
customers. We expect Ecommerce average days to sale to improve over time.
Vehicle Revenue
Ecommerce vehicle revenue decreased$250.9 million , or 44.9%, from$559.0 million for the three months endedJune 30, 2021 to$308.1 million for the three months endedJune 30, 2022 . The decrease in ecommerce vehicle revenue was primarily attributable to the 9,035 decrease in ecommerce units sold, which decreased vehicle revenue by$276.5 million , partially offset by an increase in ASP per unit, which increased from$30,601 for the three months endedJune 30, 2021 to$33,372 for the three months endedJune 30, 2022 and increased vehicle revenue by$25.6 million . The increase in ASP per unit was primarily due to market appreciation. Although we expect ASP to fluctuate in the short-term, our long-term strategy is expected to move us toward lower-priced inventory, which would result in a lower ASP. Furthermore, the UACC Acquisition will begin to enable us to expand our automotive financing solutions across the credit spectrum, and we expect to increase our offering of lower-price-point vehicles to take advantage of those capabilities. Product Revenue Ecommerce product revenue decreased$7.2 million , or 34.6%, from$20.7 million for the three months endedJune 30, 2021 to$13.5 million for the three months endedJune 30, 2022 . The decrease in ecommerce product revenue 59
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was primarily attributable to the 9,035 decrease in ecommerce units sold, which decreased product revenue by$10.2 million , partially offset by a$332 increase in product revenue per unit, which increased product revenue by$3.0 million . Product revenue per unit increased from$1,131 for the three months endedJune 30, 2021 to$1,463 for the three months endedJune 30, 2022 , primarily due to interest income earned on finance receivables from Vroom customers originated by UACC. While in the long term we expect ecommerce product revenue will grow driven by the captive financing offered by UACC, the introduction of new value-added products and increased attachment rates, in the short term the growth will be partially impacted by our strategic decision to reduce ecommerce units sales as discussed above.
Vehicle Gross Profit
Ecommerce vehicle gross profit decreased$9.0 million , or 31.0%, from$29.0 million for the three months endedJune 30, 2021 to$20.0 million for the three months endedJune 30, 2022 . The decrease in vehicle gross profit was primarily attributable to the 9,035 decrease in ecommerce units sold, which decreased vehicle gross profit by$14.3 million , partially offset by a$579 increase in vehicle gross profit per unit, which increased vehicle gross profit by$5.3 million . Vehicle gross profit per unit increased from$1,587 for the three months endedJune 30, 2021 to$2,166 for the three months endedJune 30, 2022 , primarily driven by a lower inventory reserve as a result of a decrease in inventory levels and higher shipping fees as a result of new variable shipping fee arrangements, partially offset by higher reconditioning costs related to an increased mix of higher mileage vehicles along with significant parts inflation. As we continue to mature our infrastructure and increase and optimize our hybrid network of VRCs, we expect ecommerce vehicle gross profit per unit to continue to increase in the future driven by reduced costs across acquisitions, logistics and reconditioning. Product Gross Profit Ecommerce product gross profit decreased$7.2 million , or 34.6%, from$20.7 million for the three months endedJune 30, 2021 to$13.5 million for the three months endedJune 30, 2022 . The decrease in ecommerce product gross profit was primarily attributable to the 9,035 decrease in ecommerce units sold, which decreased product gross profit by$10.2 million , partially offset by a$332 increase in product revenue per unit, which increased product revenue by$3.0 million . Product gross profit per unit increased from$1,131 for the three months endedJune 30, 2021 to$1,463 for the three months endedJune 30, 2022 , primarily due to interest income earned on finance receivables from Vroom customers originated by UACC. While in the long term we expect ecommerce product gross profit will grow driven by the captive financing offered by UACC, the introduction of new value-added products and increased attachment rates, in the short term the growth will be partially impacted by our strategic decision to reduce ecommerce units sales as discussed above.
Wholesale
The following table presents our Wholesale segment results of operations for the
periods indicated:
Three Months Ended
June 30,
2022 2021 Change % Change
(in thousands, except unit data)
Wholesale units sold 5,867 10,020 (4,153 ) (41.4 )%
Wholesale revenue $ 82,901 $ 128,108 $ (45,207 ) (35.3 )%
Wholesale gross (loss) profit $ (1,934 ) $ 8,516 $ (10,450 ) (122.7 )%
Average selling price per unit $ 14,130 $ 12,785 $ 1,345 10.5 %
Wholesale gross (loss) profit per unit $ (330 ) $ 850 $ (1,180 ) (138.8 )%
Wholesale Units
Wholesale units sold decreased 4,153, or 41.4%, from 10,020 for the three months
ended June 30, 2021 to 5,867 for the three months ended June 30, 2022 , primarily
driven by a decrease in wholesale units purchased from consumers and a lower
number of trade-in vehicles associated with the decrease in the number of
ecommerce units sold.
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Wholesale Revenue
Wholesale revenue decreased$45.2 million , or 35.3%, from$128.1 million for the three months endedJune 30, 2021 to$82.9 million for the three months endedJune 30, 2022 . The decrease was primarily attributable to the 4,153 decrease in wholesale units sold, which decreased wholesale revenue by$53.1 million , partially offset by a higher ASP per wholesale unit, which increased wholesale revenue by$7.9 million .
Wholesale Gross (Loss) Profit
Wholesale gross profit of$8.5 million for the three months endedJune 30, 2021 decreased to gross loss of$1.9 million for the three months endedJune 30, 2022 . The decrease was primarily attributable to a$1,180 decrease in wholesale gross loss per unit, which decreased wholesale gross loss by$6.9 million , primarily driven by lower sales margins as well as the 4,153 decrease in wholesale units sold, which decreased wholesale gross loss by$3.5 million . In the second quarter of 2021 there was significant appreciation in the wholesale market, which positively impacted sales margins.
Retail Financing
The following table presents our Retail Financing segment results of operations
for the periods indicated:
Three Months Ended
June 30,
2022 2021 Change % Change
(in thousands)
Retail Financing revenue $ 32,121 $ - $ 32,121 100.0 %
Retail Financing gross profit $ 28,720 $ - $ 28,720 100.0 %
Retail Financing Revenue
Retail Financing revenue was $32.1 million for the three months ended June 30,
2022 and primarily included interest income of $27.3 million earned on finance
receivables with third-party dealership customers and servicing income of $3.5
million .
Retail Financing Gross Profit
Retail Financing gross profit was$28.7 million for the three months endedJune 30, 2022 and primarily included interest income of$27.3 million earned on finance receivables with third-party dealership customers and servicing income of$3.5 million , partially offset by collection expenses of$1.7 million related to servicing finance receivables originated by UACC and interest expense of$1.1 million incurred on securitization debt.
Selling, general and administrative expenses
Three Months Ended
June 30,
2022 2021 Change % Change
(in thousands)
Compensation & benefits $ 68,891 $ 51,811 $ 17,080 33.0 %
Marketing expense 21,138 23,495 (2,357 ) (10.0 )%
Outbound logistics (1) 8,232 20,153 (11,921 ) (59.2 )%
Occupancy and related costs 5,721 4,042 1,679 41.5 %
Professional fees 6,827 4,259 2,568 60.3 %
Software and IT costs 11,306 6,855 4,451 64.9 %
Other 30,875 13,283 17,592 132.4 %
Total selling, general & administrative
expenses $ 152,990 $ 123,898 $ 29,092 23.5 %
(1)
Outbound logistics primarily includes third-party transportation fees as well as
cost related to operating our proprietary logistics network, including fuel,
tolls, and maintenance expenses. Inbound transportation costs, from the point of
acquisition to the relevant reconditioning facility, are included in cost of
sales.
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SG&A expenses increased$29.1 million , or 23.5%, from$123.9 million for the three months endedJune 30, 2021 to$153.0 million for the three months endedJune 30, 2022 . The increase was primarily due to:
•
a$17.1 million increase in compensation and benefits, primarily as a result of an increase in salaries and$4.6 million in severance costs. Despite the workforce reduction as part of our Realignment Plan, overall headcount increased compared to the same period of the prior year. These increases were partially offset by a decrease in variable fees for third-party sales as a result of a decrease in units sold;
•
a
•
a
•
a$17.6 million increase in other SG&A expenses primarily due to operational challenges created by our rapid growth over the past two years which resulted in approximately$8.3 million of additional costs incurred, including legal settlements and rental car expenses. We regard these situational costs as non-recurring and expect them to decline significantly as we resolve the challenges that arose prior to the implementation of our digital title vault, continue to streamline and automate our titling and registration process, and implement other improvements to our transaction processing.
The above increases were partially offset by:
•
a
•
a
SG&A expenses sequentially decreased$35.0 million from$188.0 million in the first quarter of 2022 to$153.0 million in the second quarter of 2022, primarily related to an$18.5 million decrease in outbound logistics costs due to the decrease in ecommerce units sold, a$12.6 million decrease in marketing expenses, and a$5.6 million decrease in compensation and benefits as a result of our Realignment Plan. These decreases were partially offset by an increase in other SG&A expenses primarily due to operational challenges created by our rapid growth over the past two years which resulted in approximately$8.3 million of additional costs incurred, including legal settlements and rental car expenses. We regard these situational costs as non-recurring and expect them to decline significantly as we resolve the challenges that arose prior to the implementation of our digital title vault, continue to streamline and automate our titling and registration process, and implement other improvements to our transaction processing. We expect SG&A expenses to decrease in the future driven by reductions in both fixed and variable cost components primarily as a result of our Realignment Plan. Specifically, we expect to reduce SG&A expenses by reducing marketing expense by focusing on highest-ROI channels while aligning with volume trajectory, a workforce reduction, further regionalizing our business and operations, eliminating certain physical office locations and further improving and automating key aspects of sales operations. These cost reductions are expected to be partially offset by increases in SG&A expenses as we continue to integrate and invest in UACC, invest in and improve our customer experience, and continue expanding our proprietary logistics and reconditioning hybrid networks. We may not be able to fully realize the cost savings and benefits initially anticipated from the Realignment Plan, and the expected costs may be greater than expected. See Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading "Risk Factors- Risks Related to Our Financial Condition and Results of Operations-We may not successfully execute or achieve the expected benefits of our Realignment Plan and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations" for more information.
Depreciation and amortization
Depreciation and amortization expenses increased$6.9 million , or 228.3%, from$3.1 million for the three months endedJune 30, 2021 to$10.0 million for the three months endedJune 30, 2022 . The increase was primarily due to 62
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amortization expense of intangible assets acquired as part of the UACC Acquisition and depreciation of short-haul and line-haul vehicles acquired for our proprietary logistics network.
Impairment Charges
Impairment charges represent lease impairment charges of$3.4 million in the second quarter of 2022, related to closing physical office locations and Sell Us Your Car® centers as part of the Realignment Plan.
Interest expense
Interest expense increased$5.6 million , or 145.7%, from$3.9 million for the three months endedJune 30, 2021 to$9.5 million for the three months endedJune 30, 2022 . The increase was primarily attributable to a higher outstanding balance of the 2020 Vehicle Floorplan Facility, which increased interest expense$2.6 million , interest expense incurred on the Notes, which increased interest expense$1.7 million , and interest expense incurred on the Warehouse Credit Facilities, which increased interest expense$1.3 million .
Interest income
Interest income increased
Other loss (income)
Other loss (income) increased to
Six Months Ended
Ecommerce
The following table presents our Ecommerce segment results of operations for the
periods indicated:
Six Months Ended
June 30,
2022 2021 Change % Change
(in thousands, except unit
data and average days to sale)
Ecommerce units sold 28,706 33,772 (5,066 ) (15.0 )%
Ecommerce revenue:
Vehicle revenue $ 960,747 $ 967,324 $ (6,577 ) (0.7 )%
Product revenue 36,248 34,647 1,601 4.6 %
Total ecommerce revenue $ 996,995 $ 1,001,971 $ (4,976 ) (0.5 )%
Ecommerce gross profit:
Vehicle gross profit $ 31,580 $ 46,828 $ (15,248 ) (32.6 )%
Product gross profit 36,248 34,647 1,601 4.6 %
Total ecommerce gross profit $ 67,828 $ 81,475 $ (13,647 ) (16.7 )%
Average vehicle selling price per
ecommerce unit $ 33,469 $ 28,643 $ 4,826 16.8 %
Gross profit per ecommerce unit:
Vehicle gross profit per ecommerce
unit $ 1,100 $ 1,387 $ (287 ) (20.7 )%
Product gross profit per ecommerce
unit 1,263 1,026 237 23.1 %
Total gross profit per ecommerce unit $ 2,363
110 76 34 44.7 %
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Ecommerce units
Ecommerce units sold decreased 5,066, or 15.0%, from 33,772 for the six months endedJune 30, 2021 to 28,706 for the six months endedJune 30, 2022 . This decrease was driven by our strategic decision to prioritize unit economics over unit sales volume. Ecommerce average days to sale increased from 76 days for the six months endedJune 30, 2021 to 110 days for the six months endedJune 30, 2022 . We have undertaken various initiatives to address the operational challenges created by our rapid growth over the past two years. While these initiatives are designed to improve our transaction processing, enhance our customer experience, and reduce our regulatory risk, they resulted in an increase in the number of days between our acquisition of vehicles and the final delivery of such vehicles to customers. We expect Ecommerce average days to sale to improve over time.
Vehicle Revenue
Ecommerce vehicle revenue decreased$6.6 million , or 0.7%, from$967.3 million for the six months endedJune 30, 2021 to$960.7 million for the six months endedJune 30, 2022 . The decrease in ecommerce vehicle revenue was primarily attributable to the 5,066 decrease in ecommerce units sold, which decreased vehicle revenue by$145.1 million , partially offset by an increase in ASP per unit, which increased from$28,643 for the six months endedJune 30, 2021 to$33,469 for the six months endedJune 30, 2022 and increased vehicle revenue by$138.5 million . The increase in ASP per unit was primarily due to market appreciation. Although we expect ASP to fluctuate in the short-term, our long-term strategy is expected to move us toward lower-priced inventory, which would result in a lower ASP. Furthermore, the UACC Acquisition will begin to enable us to expand our automotive financing solutions across the credit spectrum, and we expect to increase our offering of lower-price-point vehicles to take advantage of those capabilities. Product Revenue Ecommerce product revenue decreased$1.6 million , or 4.6%, from$34.6 million for six months endedJune 30, 2021 to$36.2 million for the six months endedJune 30, 2022 The increase in ecommerce product revenue was primarily attributable to a$237 increase in product revenue per unit, which increased product revenue by$6.8 million and was partially offset by the 5,066 increase in ecommerce units sold, which decreased product revenue by$5.2 million . Product revenue per unit increased from$1,026 for the six months endedJune 30, 2021 to$1,263 for the six months endedJune 30, 2022 , primarily due to interest income earned on finance receivables from Vroom customers originated by UACC and higher attachment rates and an increase in the average loan size as a result of higher ASP. While in the long term we expect ecommerce product revenue will grow driven by the captive financing offered by UACC, the introduction of new value-added products and increased attachment rates, in the short term the growth will be partially impacted by our strategic decision to reduce ecommerce units sales as discussed above. 64
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Vehicle Gross Profit
Ecommerce vehicle gross profit decreased$15.2 million , or 32.6%, from$46.8 million for the six months endedJune 30, 2021 to$31.6 million for the six months endedJune 30, 2022 . The decrease in vehicle gross profit was primarily attributable to a$287 decrease in vehicle gross profit per unit, which decreased vehicle gross profit by$8.2 million and by the 5,066 decrease in ecommerce units sold, which decreased vehicle gross profit by$7.0 million . Vehicle gross profit per unit decreased from$1,387 for the six months endedJune 30, 2021 to$1,100 for the six months endedJune 30, 2022 , primarily driven by lower sales margins as a result of higher depreciation on less fuel efficient vehicles and higher reconditioning costs related to an increased mix of higher mileage vehicles along with significant parts inflation, partially offset by a lower inventory reserve as a result of a decrease in inventory levels. As we continue to mature our infrastructure and increase and optimize our hybrid network of VRCs, we expect ecommerce vehicle gross profit per unit to increase in the future driven by reduced costs across acquisitions, logistics and reconditioning.
Product Gross Profit
Ecommerce product gross increased$1.6 million , or 4.6%, from$34.6 million for six months endedJune 30, 2021 to$36.2 million for the six months endedJune 30, 2022 . The increase in ecommerce product gross was primarily attributable to a$237 increase in product gross profit per unit, which increased product gross profit by$6.8 million and was partially offset by the 5,066 increase in ecommerce units sold, which decreased product gross profit by$5.2 million . Product gross profit per unit increased from$1,026 for the six months endedJune 30, 2021 to$1,263 for the six months endedJune 30, 2022 , primarily due to interest income earned on finance receivables from Vroom customers originated by UACC and higher attachment rates and an increase in the average loan size as a result of higher ASP. While in the long term we expect ecommerce product gross profit will grow driven by the captive financing offered by UACC, the introduction of new value-added products and increased attachment rates, in the short term the growth will be partially impacted by our strategic decision to reduce ecommerce units sales as discussed above.
Wholesale
The following table presents our Wholesale segment results of operations for the
periods indicated:
Six Months Ended
June 30,
2022 2021 Change % Change
(in thousands, except unit data)
Wholesale units sold 15,980 18,661 (2,681 ) (14.4 )%
Wholesale revenue $ 222,885 $ 246,132 $ (23,247 ) (9.4 )%
Wholesale gross (loss) profit $ (4,686 ) $ 8,234 $ (12,920 ) (156.9 )%
Average selling price per unit $ 13,948 $ 13,190 $ 758 5.7 %
Wholesale gross (loss) profit per unit $ (293 ) $ 441 $ (734 ) (166.4 )%
Wholesale Units
Wholesale units sold decreased 2,681, or 14.4%, from 18,661 for the six months
ended June 30, 2021 to 15,980 for the six months ended June 30, 2022 , primarily
driven by a decrease in wholesale units purchased from consumers and a lower
number of trade-in vehicles associated with the decrease in the number of
ecommerce units sold.
Wholesale Revenue
Wholesale revenue decreased$23.2 million , or 9.4%, from$246.1 million for the six months endedJune 30, 2021 to$222.9 million for the six months endedJune 30, 2022 . The decrease was primarily attributable to the 2,681 decrease in wholesale units sold, which decreased wholesale revenue by$35.4 million , partially offset by a slightly higher ASP per wholesale unit, which increased wholesale revenue by$12.2 million . 65
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Wholesale Gross (Loss) Profit
Wholesale gross profit of$8.2 million for the six months endedJune 30, 2021 decreased to a gross loss of$4.7 million for the six months endedJune 30, 2022 . The decrease was primarily attributable to a$734 decrease in wholesale gross loss per unit primarily driven by lower sales margins. In the first half of 2021 there was significant appreciation in the wholesale market, which positively impacted sales margins.
Retail Financing
The following table presents our Retail Financing segment results of operations
for the periods indicated:
Six Months Ended
June 30,
2022 2021 Change % Change
(in thousands)
Retail Financing revenue $ 79,808 $ - $ 79,808 100.0 %
Retail Financing gross profit $ 73,682 $ - $ 73,682 100.0 %
Retail Financing Revenue
Retail Financing revenue was $79.8 million for the three months ended June 30,
2022 and primarily included interest income of $42.2 million earned on finance
receivables with third-party dealership customers, a gain on sale of $29.6
million on the United Auto Credit 2022-1 securitization transaction and
servicing income of $5.8 million .
Retail Financing Gross Profit
Retail Financing gross profit was$73.7 million for the three months endedJune 30, 2022 and primarily included interest income of$42.2 million earned on finance receivables with third-party dealership customers, a gain on sale of$29.6 million on theUnited Auto Credit 2022-1 securitization transaction and servicing income of$5.8 million , partially offset by collection expenses of$3.1 million related to servicing finance receivables originated by UACC and interest expense of$2.0 million incurred on securitization debt.
Selling, general and administrative expenses
Six Months Ended
June 30,
2022 2021 Change % Change
(in thousands)
Compensation & benefits $ 143,416 $ 91,681 $ 51,735 56.4 %
Marketing expense 54,874 53,053 1,821 3.4 %
Outbound logistics (1) 34,980 35,271 (291 ) (0.8 )%
Occupancy and related costs 11,367 7,964 3,403 42.7 %
Professional fees 20,126 8,257 11,869 143.7 %
Software and IT costs 22,129 12,135 9,994 82.4 %
Other 54,092 24,403 29,689 121.7 %
Total selling, general & administrative
expenses $ 340,984 $ 232,764 $ 108,220 46.5 %
(1)
Outbound logistics primarily includes third-party transportation fees as well as
cost related to operating our proprietary logistics network, including fuel,
tolls, and maintenance expenses. Inbound transportation costs, from the point of
acquisition to the relevant reconditioning facility, are included in cost of
sales.
SG&A expenses increased $108.2 million , or 46.5%, from $232.8 million for the
six months ended June 30, 2021 to $341.0 million for the six months ended June
30, 2022 . The increase was primarily due to:
•
a$51.7 million increase in compensation and benefits primarily as a result of an increase in salaries and$4.6 million in severance costs. Despite the workforce reduction as part of our Realignment Plan, overall headcount increased compared to the same period of the prior year;
•
a
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•
a
•
a$3.4 million increase in occupancy and related costs primarily a result of rent expense related to additional hubs added in the latter half of 2021 and rent expense for UACC offices; and
•
a$29.7 million increase in other SG&A expenses primarily due to operational challenges created by our rapid growth over the past two years which resulted in approximately$8.3 million of additional costs incurred, including legal settlements and rental car expenses. We regard these situational costs as non-recurring and expect them to decline significantly as we resolve the challenges that arose prior to the implementation of our digital title vault, continue to streamline and automate our titling and registration process, and implement other improvements to our transaction processing. We expect SG&A expenses to decrease in the future driven by reductions in both fixed and variable cost components primarily as a result of our Realignment Plan. Specifically, we expect to reduce SG&A expenses by reducing marketing expense by focusing on highest-ROI channels while aligning with volume trajectory, a workforce reduction, further regionalizing our business and operations, eliminating certain physical office locations and further improving and automating key aspects of sales operations. These cost reductions are expected to be partially offset by increases in SG&A expenses as we continue to integrate and invest in UACC, invest in and improve our customer experience, and continue expanding our proprietary logistics and reconditioning hybrid networks. We may not be able to fully realize the cost savings and benefits initially anticipated from the Realignment Plan, and the expected costs may be greater than expected. See Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading "Risk Factors- Risks Related to Our Financial Condition and Results of Operations-We may not successfully execute or achieve the expected benefits of our Realignment Plan and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations" for more information.
Depreciation and amortization
Depreciation and amortization expenses increased$12.0 million , or 203.3%, from$5.9 million for the six months endedJune 30, 2021 to$17.9 million for the six months endedJune 30, 2022 . The increase was primarily due to amortization expense of intangible assets acquired as part of the UACC Acquisition and depreciation of short-haul and line-haul vehicles acquired for our proprietary logistics network. Impairment Charges Impairment charges represent an impairment charge in the first quarter of 2022 of$201.7 million to write down the carrying amount of the goodwill to fair value and lease impairment charges of$3.4 million in the second quarter of 2022, related to closing physical office locations and Sell Us Your Car® centers as part of the Realignment Plan.
Interest expense
Interest expense increased$11.2 million , or 145.9%, from$7.7 million for the six months endedJune 30, 2021 to$18.9 million for the six months endedJune 30, 2022 . The increase was primarily attributable to a higher outstanding balance of the 2020 Vehicle Floorplan Facility, which increased interest expense$5.6 million , interest expense incurred on the Notes, which increased interest expense$3.7 million , and interest expense incurred on the Warehouse Credit Facilities, which increased interest expense$1.5 million .
Interest income
Interest income increased$3.5 million , or 81.0%, from$4.4 million for the six months endedJune 30, 2021 to$7.9 million for the six months endedJune 30, 2022 . The increase in interest income was primarily driven by higher interest credits earned by the Company related to the 2020 Vehicle Floorplan. 67
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Other loss (income)
Other loss (income) increased to$21.5 million for the six months endedJune 30, 2022 . The increase in other loss (income) was primarily driven by an unrealized loss on the fair value of finance receivables. Quarterly Results of Operations Supplemental data The following tables set forth our quarterly financial information for the first and second quarter of 2022: Three Months Ended Three Months Ended June 30, March 31, 2022 2022 Change % Change (in thousands, except unit data) Total revenues $ 475,437 $ 923,775$ (448,338 ) (48.5 )% Total gross profit $ 66,357 $ 81,640$ (15,283 ) (18.7 )% Ecommerce units sold 9,233 19,473 (10,240 ) (52.6 )% Ecommerce revenue $ 321,632 $ 675,364$ (353,732 ) (52.4 )% Ecommerce gross profit $ 33,509 $ 34,320$ (811 ) (2.4 )% Vehicle gross profit per ecommerce unit $ 2,166 $ 595$ 1,571 264.0 % Product gross profit per ecommerce unit 1,463 1,168 295 25.3 % Total gross profit per ecommerce unit $ 3,629 $ 1,763$ 1,866 105.8 % Wholesale units sold 5,867 10,113 (4,246 ) (42.0 )% Wholesale revenue $ 82,901 $ 139,984$ (57,083 ) (40.8 )% Wholesale gross loss $ (1,934 ) $ (2,753 )$ 819 29.7 % Wholesale gross loss per unit $ (330 ) $ (272 )$ (58 ) (21.2 )% Retail Financing revenue $ 32,121 $ 47,687$ (15,566 ) (32.6 )% Retail Financing gross profit $ 28,720 $ 44,963$ (16,243 ) (36.1 )% Total selling, general, and administrative expenses $ 152,990 $ 187,994$ (35,004 ) (18.6 )% Three Three Months Months Ended Ended June 30, March 31, 2022 2022 Change % Change (in thousands) Net loss$ (115,089 ) $ (310,459 ) $ 195,370 62.9 % Adjusted to exclude the following: Interest expense 9,533 9,380 153 1.6 % Interest income (3,935 ) (3,952 ) 17 0.4 % (Benefit) provision for income taxes 256 (23,240 ) 23,496 101.1 % Depreciation and amortization 10,115 7,895 2,220 28.1 % EBITDA$ (99,120 ) $ (320,376 ) $ 221,256 69.1 % Realignment costs$ 9,529 $ -$ 9,529 100.0 % Acquisition related costs - 5,653 (5,653 ) (100.0 )% Change in fair value of finance receivables 1,846 5,621 (3,775 ) (67.2 )% Goodwill impairment charge - 201,703 (201,703 ) (100.0 )% Other 2,127 - 2,127 100.0 % Adjusted EBITDA$ (85,618 ) $ (107,399 ) $ 21,781 20.3 % Securitization gain - (29,617 ) 29,617 100.0 % Adjusted EBITDA excluding securitization gain$ (85,618 ) $ (137,016 ) $ 51,398 37.5 % 68
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Liquidity and Capital Resources
As of June 30, 2022 , we had cash and cash equivalents of $532.6 million and
restricted cash of $153.7 million . Restricted cash primarily includes cash
deposits required under our 2020 Vehicle Floorplan Facility of $42.2 million ,
cash deposits of $77.0 million required under cash collateral agreements with
certain of our lenders and restricted cash for UACC under the securitizations
and warehouse credit facilities of $33.5 million . Our primary source of
liquidity is cash generated through financing activities. On February 1, 2022 ,
we completed the UACC Acquisition for a cash purchase price of approximately
$315.4 million .
We anticipate that our existing cash and cash equivalents and the 2020 Vehicle
Floorplan Facility will be sufficient to support our working capital and capital
expenditure requirements for at least the next twelve months from the date of
this Quarterly Report on Form 10-Q.
We have experienced a continued increase in our cash usage as we scaled our
business. Our Realignment Plan is designed to reduce our use of cash and
position us for long-term profitable growth by prioritizing unit economics,
reducing operating expenses and maximizing liquidity. Once the Realignment Plan
is fully executed, we expect to achieve approximately $135.0 to $165.0 million
of cost reductions and operating improvements across our operations for the
remainder of 2022, when compared to the first quarter annualized. We may not be
able to fully realize the cost savings and benefits initially anticipated from
the Realignment Plan, and the expected costs may be greater than expected. See
Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading "Risk
Factors- Risks Related to Our Financial Condition and Results of Operations-We
may not successfully execute or achieve the expected benefits of our Realignment
Plan and other cost saving measures we may take in the future, and our efforts
may result in further actions and may adversely affect our business, financial
condition and results of operations" for more information.
Our future capital requirements will depend on many factors, including our rate
of revenue growth, our efforts to reduce fixed and variable expenses,
integration and investment costs for the UACC Acquisition, investment in our
inventory, sales and marketing activities, and investment in our reconditioning,
logistics and customer experience operations. To finance our long term growth
and capital expenditures, we expect to use our cash and cash equivalents,
borrowings under our 2020 Vehicle Floorplan Facility and debt and equity
financing. Currently, we finance approximately 18% of our retail inventory with
our cash and cash equivalents. We have no significant debt maturities due until
2026 and the payments on our securitization debt is funded by cashflows on the
finance receivables within the securitization trusts. We may be required to seek
additional equity or debt financing in the future to fund our operations or to
fund our needs for capital expenditures, however, there can be no assurance that
such financing will be available in amounts or on terms acceptable to us, if at
all. Failure to generate sufficient revenues, raise additional capital through
debt or equity financings, and/or reduce operating costs could have a material
adverse effect on our ability to meet our short and long-term liquidity needs
and achieve our intended long-term business objectives.
Convertible Senior Notes
OnJune 18, 2021 , we issued$625.0 million aggregate principal amount of the Notes pursuant to an indenture between us andU.S. Bank National Association , as trustee (the "Indenture"). The Notes bear interest at a rate of 0.75% per annum, payable semiannually in arrears onJanuary 1 andJuly 1 of each year, beginning onJanuary 1, 2022 . The Notes will mature onJuly 1, 2026 , subject to earlier repurchase, redemption or conversion. The total net proceeds from the offering, after deducting commissions paid to the initial purchasers and debt issuance costs, were approximately$608.9 million . During the three and six months endedJune 30, 2022 , the conditions allowing holders of the Notes to convert were not met. Refer to Note 12 - Long Term Debt to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for further discussion. Vehicle Financing As ofJune 30, 2022 , we finance our inventory primarily through the 2020 Vehicle Floorplan Facility withAlly Bank and Ally Financial (together, "Ally"), which provides a committed credit line of up to$700.0 million . The amount of credit available to us under the 2020 Vehicle Floorplan Facility is determined on a monthly basis based on a calculation that considers average outstanding borrowings and vehicle units paid off by us within the three 69
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immediately preceding months. Approximately$277.5 million was available under this facility as ofJune 30, 2022 . InFebruary 2022 , we amended the 2020 Vehicle Floorplan Facility to extend the maturity date toMarch 31, 2023 . We are required to pay an availability fee on the average unused capacity from the prior quarter if it was greater than 50% of the calculated floorplan allowance, as defined. We are subject to financial covenants that require us to maintain a certain level of equity in the vehicles that are financed, to maintain at least 7.5% of the credit line in cash and cash equivalents and to maintain 10% of the monthly daily floorplan principal balance outstanding on deposit withAlly Bank . We were required to pay an upfront commitment fee upon execution of the amendment. Outstanding borrowings are due as the vehicles financed are sold, or in any event, on the maturity date. The amended 2020 Vehicle Floorplan Facility bears interest at a rate equal to the Prime Rate, announced per annum byAlly Bank , plus 105 basis points. We are party to a Credit Balance Agreement that permits us to deposit cash with Ally for the purpose of reducing the amount of interest payable for borrowings under the 2020 Vehicle Floorplan Facility.
Finance Receivables
We are planning to sell finance receivables originated by UACC through asset-backed securitization transactions and forward flow arrangements. InFebruary 2022 , UACC sold$281.4 million of rated asset-backed securities and$32.3 million of residual certificates in an auto loan securitization offering from a securitization trust, established and sponsored by UACC, for proceeds of$317.3 million . The trust is collateralized by finance receivables with an aggregate principal balance of$318.5 million and has a carrying value of$287.7 million at the time of sale. These finance receivables are serviced by UACC. UACC retained 5% of the notes and residual certificates sold. Depending on market conditions, we intend to structure future securitization transactions similar to the 2022-1 transaction and account for them as sales. InJuly 2022 , UACC completed a securitization transaction in which it sold approximately$242.3 million of rated asset-backed securities and$17.3 million of residual certificates in an auto loan securitization offering from a securitization trust, established and sponsored by UACC. The trust is collateralized by finance receivables with an aggregate principal balance of$285.0 million and had a carrying value of$246.9 million at the time of sale. UACC received proceeds of$265.6 million in connection with the transaction and recognized a gain on the sale upon transfer in an amount equal to the fair value of the net proceeds received less the carrying amount of the finance receivables sold. These finance receivables are serviced by UACC. UACC retained 5% of the notes and residual certificates sold.
Refer to Note 4 - Variable Interest Entities and Securitizations to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for further discussion regarding our transactions with unconsolidated variable interest entities.
Warehouse Credit Facilities
UACC has three senior secured warehouse facility agreements the ("Warehouse
Credit Facilities") with banking institutions. The Warehouse Credit Facilities
are collateralized by eligible finance receivables and available borrowings are
computed based on a percentage of eligible finance receivables. The aggregate
borrowing limit is $400.0 million with maturities between May 2023 and May 2024 .
As of June 30, 2022 , outstanding borrowings related to the Warehouse Credit
Facilities were $210.6 million and we were in compliance with all covenants
related to the warehouse credit facilities. Refer to Note 11 - Warehouse Credit
Facilities of Consolidated VIEs to our condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q, for further
discussion.
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Cash Flows from Operating, Investing, and Financing Activities
The following table summarizes our cash flows for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 (in thousands) Net cash used in operating activities$ (137,519 ) $ (151,851 ) Net cash used in investing activities (226,573 ) (85,088 ) Net cash (used in) provided by financing activities (164,300 )
647,589
Net (decrease) increase in cash, cash equivalents and restricted cash (528,392 )
410,650
Cash and cash equivalents and restricted cash at beginning of period 1,214,775
1,090,039
Cash and cash equivalents and restricted cash at end of period$ 686,383 $ 1,500,689 Operating Activities Net cash flows used in operating activities decreased by$14.4 million , from$151.9 million for the six months endedJune 30, 2021 to$137.5 million for the six months endedJune 30, 2022 . The decrease is primarily attributable to proceeds from the sale of finance receivables held for sale for the 2022-1 securitization transaction of$271.8 million , a decrease in working capital of$137.6 million , primarily related to lower inventory levels, and principal payments received on finance receivables held for sale of$23.2 million , partially offset by originations of finance receivables held for sale of$319.3 million and$94.9 million in incremental net loss after reconciling adjustments for the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . We finance a majority of our inventory with the 2020 Vehicle Floorplan Facility. In accordance withU.S. GAAP, we report all cash flows arising in connection with the 2020 Vehicle Floorplan Facility, as a financing activity in our consolidated statement of cash flows.
Investing Activities
Net cash flows used in investing activities increased$141.5 million , from$85.1 million for the six months endedJune 30, 2021 to$226.6 million for the six months endedJune 30, 2022 , primarily as a result of the UACC Acquisition inFebruary 2022 which resulted in cash outflow of$267.5 million and originations of finance receivables recorded at fair value of$49.5 million , partially offset by principal payments received on finance receivables held in consolidated VIEs of$74.7 million , proceeds from the sale of finance receivables of$29.0 million and the$76.1 million cash outflow for the six months endedJune 30, 2021 for the acquisition of the CarStory business.
Financing Activities
Net cash flows from financing activities changed$811.9 million from net cash provided by financing activities of$647.6 million for the six months endedJune 30, 2021 to net cash used in financing activities of$164.3 million for the six months endedJune 30, 2022 . The decrease was primarily related to net proceeds of$608.8 million received upon issuance of the unsecured 0.75% Convertible Senior Notes due 2026 under our Indenture (the "Notes"), net repayments of$124.7 million related to our Vehicle Floorplan in 2021, and net repayments of$105.6 million related to our secured financing agreements, partially offset by net proceeds of$33.0 million related to our Warehouse Credit Facilities. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, revenue-related reserves, as well as impairment of goodwill and long-lived assets. We base our estimates on historical experience, market conditions and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates. 71
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The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include those described in Note 2-Summary of Significant Accounting Policies and Note 3-Revenue Recognition to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and Note 2-Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K. Except as described below, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Business Combination We account for business combinations using the acquisition method of accounting, which requires all assets acquired and liabilities assumed to be recorded at their respective fair values at the date of acquisition. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The determination of the acquisition date fair value of the assets acquired and liabilities assumed requires significant estimates and assumptions, such as, if applicable, forecasted revenue growth rates and operating cash flows, royalty rates, customer attrition rates, obsolescence rates of developed technology, and discount rates. These estimates are inherently uncertain and subject to refinement. We use a discounted cash flow ("DCF") method under the income approach to measure the fair value of these intangible assets. Under this approach, the Company estimates future cash flows and discounts these cash flows at a rate of return that reflects the Company's relative risk. When estimating the significant assumptions to be used in the valuation we include consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. We engage the assistance of valuation specialists in connection with determining fair values of assets acquired and liabilities assumed in a business combination.
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations.Goodwill is tested for impairment annually as ofOctober 1 , or whenever events or changes in circumstances indicate that an impairment may exist. We have four reporting units: Ecommerce, Wholesale, TDA and Retail Financing. In performing our annual goodwill impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is more than its carrying amount, then performing the quantitative test is unnecessary and our goodwill is not considered to be impaired. However, if based on the qualitative assessment we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we elect to bypass the optional qualitative assessment as provided for under GAAP, we proceed with performing the quantitative impairment test. When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit is influenced by a number of factors, inclusive of the carrying value of the reporting unit's goodwill, the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, and the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of an individual reporting unit's goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values. The quantitative goodwill impairment test requires a determination of whether the estimated fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting units using an income approach. The income approach is applied using the discounted cash flow method which requires (1) estimating future cash flows for a discrete projection period (2) estimating the terminal value, which reflects the remaining value that the reporting unit is expected to generate beyond the projection period and (3) discounting those amounts to present value at a discount rate which is based on a weighted average cost of capital that considers the relative risk of the cash flows. The income approach requires the use of significant estimates and assumptions, which include revenue growth rates, future gross profit margins and operating expenses used to calculate projected future cash flows, determination of the weighted average cost of capital, and future economic and market conditions. The terminal value is based on an exit revenue multiple which requires significant assumptions regarding the selection of appropriate multiples that consider relevant market trading data. We base our estimates and assumptions on our knowledge of the automotive and 72
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ecommerce industries, our recent performance, our expectations of future performance and other assumptions we believe to be reasonable. Actual future results may differ from those estimates. A material change in the underlying assumptions could result in an impairment of goodwill. We also make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. As ofMarch 31, 2022 a quantitative interim goodwill impairment assessment was performed over the Company's reporting units due to further sustained declines in the Company's and comparable companies' stock prices during the three months endedMarch 31, 2022 . The Company determined that the estimated fair value of the Ecommerce, Wholesale, and TDA reporting units was less than their carrying amounts. The Company recorded a goodwill impairment charge of$201.7 million in the condensed consolidated statements of operations for the six months endedJune 30, 2022 . No goodwill impairment charges were recorded for the three and six months endedJune 30, 2021 . Recently Issued and Adopted Accounting Pronouncements Refer to "Note 2-Summary of Significant Accounting Policies" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report. 73
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