VROOM, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our interim 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 those
incorporated by reference into 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. We take a
vertically integrated, 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
auctions, consumers, rental car companies, Original Equipment
Manufacturers ("OEMs") and dealers. We improve our ability to acquire
high-demand vehicles through enhanced supply science across all our
sourcing channels and we are expanding our national marketing efforts to
drive consumer sourcing. In our reconditioning and logistics operations,
we deploy an asset-light strategy that optimizes a combination of
ownership and operation of assets by us with strategic third-party
partnerships. This hybrid approach provides flexibility, agility and speed
without taking on unnecessary risk and capital investment, and drives
improved unit economics and operating leverage.
• 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 andperformance marketing, enhance the 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.
TheU.S. used automotive market is the largest consumer product category, generating approximately$841 billion from sales of approximately 40 million units in 2019. The industry is highly fragmented with over 42,000 dealers and millions of peer-to-peer transactions. It also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration at only 0.9%. 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 and cannot offer consumers what we offer. InDecember 2015 , we acquiredHouston -based Texas Direct Auto, or TDA, which included our proprietary vehicle reconditioning center, or Vroom VRC, our sole physical retail location and our Sell Us Your Car® centers. From the launch of our combined operations inJanuary 2016 , our business has grown significantly as we have scaled our operations, developed our ecommerce platform and leveraged the network effects inherent in our model. 26 -------------------------------------------------------------------------------- For the three and nine months endedSeptember 30, 2020 , we generated$323.0 million and$951.9 million in total revenue, respectively, representing a 5.1% decrease and a 13.8% increase, respectively, over$340.3 million and$836.2 million for the three and nine months endedSeptember 30, 2019 . Our business generated a net loss of$39.8 million and$37.9 million for the three months endedSeptember 30, 2019 and 2020, and a net loss of$100.2 million and$142.1 million for the nine months endedSeptember 30, 2019 and 2020, respectively. We intend to continue to invest in growth to scale our company responsibly and drive towards profitability. Our Model We generate revenue through the sale of used vehicles and value-added products. We sell vehicles directly to consumers primarily through our Ecommerce segment. As the largest segment in our business, Ecommerce revenue grew 24.5% from the three months endedSeptember 30, 2019 to the three months endedSeptember 30, 2020 and 62.1% from the nine months endedSeptember 30, 2019 to the nine months endedSeptember 30, 2020 , and we expect Ecommerce to continue to outgrow our other segments as it is the core focus of our growth strategy. We also sell vehicles through wholesale auctions, 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 endedSeptember 30, 2020 , our Ecommerce, TDA and Wholesale segments represented 68.7%, 11.5% and 19.8% of our total revenue, respectively. For the nine months endedSeptember 30, 2020 , our Ecommerce, TDA and Wholesale segments represented 66.2%, 15.9% and 17.9% 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 any value-added products sold as part of a vehicle sale. Because we are paid fees on the value-added products we sell, our gross profit on such products is equal to the revenue we generate. 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:
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Our profitability depends primarily on increasing unit sales and operating
leverage, as well as improving unit economics. We deploy an 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, which enables us to
generate additional revenue streams without taking on the risk associated with
underwriting vehicle financing or protection products. 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 auctions, consumers, 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 data derived from market demand, pricing dynamics, vehicle acquisitions and subsequent sales, and we leverage that data to optimize future vehicle acquisitions. As we scale, we expect to continue to leverage the data at our disposal to optimize and enhance the volume and selection of vehicles in our inventory and, in turn, drive revenue growth and profitability. We also have begun to offer third party inventory listings, which expand our sourcing channels through third party sellers while offering us attractive revenue models in an asset light, debt free structure. See "-Key Factors and Trends Affecting our Operating Results-Ability to drive 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 profitably grow. To recondition vehicles, we rely on a combination of our Vroom VRC along with a network of VRCs owned and operated by third parties. We intend to continue to expand our network of third-party VRCs and going forward intend to make capital investments in additional Vroom VRCs. Utilizing this hybrid approach, we have increased our total reconditioning capacity to approximately 400 units per day as ofSeptember 30, 2020 , with more than half from our third-party VRCs. As we increase the number of vehicles in our inventory and expand our reconditioning capacity, we expect that reconditioning costs per unit will decrease as we benefit from economies of scale and operating leverage in reconditioning costs. See "-Key Factors and Trends Affecting our Operating Results-Ability to expand and optimize our reconditioning capacity to satisfy increasing demand."
Logistics Network
For our logistics operations, we primarily have used national third-party carriers, which has allowed us to efficiently deliver vehicles to customers throughoutthe United States while focusing on expanding other critical components of our business, such as the volume and selection of vehicles in our inventory. We optimized 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 strategy enhances the flexibility, agility and speed of our growth while reducing the need for additional capital commitments as we scale our business. Recently, as a result of the continued prevalence of the COVID-19 pandemic, we have experienced a reduced supply of carriers, increased shipping prices and deteriorating service levels. Thus, we are accelerating our strategy to optimize our hybrid approach by expanding our proprietary logistics network. Currently, we are prioritizing investment in our last-mile delivery operations where we can have the greatest impact on the customer experience and expect over time to expand our operations to include hub-to-hub shipments. Consistent with our hybrid approach, as we continue to scale our business, we intend to strategically combine the operation of our expanded proprietary fleet with the use of third-party carriers, which we expect will enable us to both accommodate our growth and provide the highest level of customer service. See "-Key Factors and Trends Affecting our Operating Results-Ability to expand and develop our logistics network."
Value-Added Products
We generate revenue by earning fees for selling value-added products to customers in connection with vehicle sales. Currently, our third-party value-added product offering consists of finance and protection products, including financing from third-party lenders for our customers' vehicle purchases, as well as sales of extended warranty contracts, GAP protection and wheel and tire 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 "-Key Factors and Trends Affecting our Operating Results-Ability to increase and better monetize value-added products." Our Segments
We manage and report operating results through three reportable segments:
• Ecommerce (68.7% and 66.2% of revenue for the three and nine months ended
sales of used vehicles through our ecommerce platform and fees earned on
sales of value-added products associated with those vehicle sales.
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• TDA (11.5% and 15.9% of revenue for the three and nine months ended
of used vehicles from TDA and fees earned on sales of value-added products
associated with those vehicle sales.
• Wholesale (19.8% and 17.9% of revenue for three and nine months ended
September 30, 2020 , respectively): The Wholesale segment represents sales
of used vehicles through wholesale auctions.
Gross profit is defined as revenue less cost of sales for each segment.
Reflected below is a summary of reportable segment revenue and reportable
segment gross profit for the three and nine months ended September 30, 2019 and
2020:
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2020 2019 2020
(in thousands) (in thousands)
Revenue:
Ecommerce $ 178,113 $ 221,761 $ 388,921 $ 630,501
TDA 103,106 37,272 281,603 150,901
Wholesale 59,054 63,972 165,705 170,469
Total revenue $ 340,273 $ 323,005 $ 836,229 $ 951,871
Gross profit:
Ecommerce $ 8,774 $ 19,304 $ 21,823 $ 40,789
TDA 6,650 2,798 18,830 9,144
Wholesale 247 3,343 875 1,506
Total gross profit $ 15,671 $ 25,445 $ 41,528 $ 51,439
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 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 Nine Months Ended
September 30, September 30,
2019 2020 2019 2020
Ecommerce units sold 5,563 8,823 12,606 23,466
Vehicle Gross Profit per ecommerce unit $ 929 $ 1,302 $ 1,159 $ 865
Product Gross Profit per ecommerce unit 648 886 572 873
Total Gross Profit per ecommerce unit
777,313 928,277 605,820 958,397
Listed Vehicles 5,256 12,302 5,256 12,302
Ecommerce average days to sale 71 52 67 62
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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 Policy. Ecommerce units sold excludes sales of vehicles through the TDA and Wholesale segments. As we continue to expand our ecommerce business, we expect that ecommerce units sold will be the primary driver of our revenue growth. Additionally, each vehicle sale through our ecommerce platform also creates the opportunity to leverage such sale to sell value-added products. Continued ecommerce growth will also increase the number of trade-in vehicles acquired from our customers, which we can either recondition and add to our inventory or sell at wholesale auctions.
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. As we continue to expand our ecommerce business, we believe Vehicle GPPU will be 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 value-added products we sell, our gross profit is equal to the revenue we generate from the sale of value added products. We plan 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.
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
Listed Vehicles
We define listed vehicles as the aggregate number of vehicles listed on our platform at any given point in time. Listed vehicles includes both vehicles that are available for sale and "coming soon" vehicles. Listed vehicles is a key indicator of our performance because we believe that the number of vehicles listed on our platform is a key driver of vehicle sales and revenue growth. Increasing the number of vehicles listed on our platform results in a greater selection of vehicles for our customers, creating demand and increasing conversion.
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 through the
TDA and Wholesale segments. 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.
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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 loss from operations, Non-GAAP
net loss, Non-GAAP net loss per share and Non-GAAP net loss per share, as
adjusted. 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 and Adjusted EBITDA
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 the one-time, IPO related acceleration of
non-cash stock-based compensation expense and the one-time, IPO related non-cash
revaluation of a preferred stock warrant. EBITDA and Adjusted EBITDA are
supplemental performance measures that our management uses to assess our
operating performance and the operating leverage in our business. Because EBITDA
and Adjusted EBITDA facilitate internal comparisons of our historical operating
performance on a more consistent basis, we use these measures for business
planning purposes. The following table presents a reconciliation of EBITDA and
Adjusted EBITDA to net loss, which is the most directly comparable U.S. GAAP
measure:
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2020 2019 2020
(in thousands) (in thousands)
Net loss $ (39,764 ) $ (37,850 ) $ (100,243 ) $ (142,137 )
Adjusted to exclude the following:
Interest expense 3,797 2,259 9,903 6,382
Interest income (1,190 ) (1,289 ) (4,454 ) (3,960 )
Provision for income taxes 48 33 122 138Depreciation and amortization expense 1,537 1,196 4,683 3,255 EBITDA
$ (35,572 ) $ (35,651 ) $ (89,989 ) $ (136,322 ) One-time IPO related acceleration of non-cash stock-based compensation - - - 1,262 One-time IPO related non-cash revaluation of preferred stock warrant - - - 20,470 Adjusted EBITDA$ (35,572 ) $ (35,651 ) $ (89,989 ) $ (114,590 )
Adjusted loss from operations
We calculate Adjusted loss from operations as loss from operations adjusted to exclude the one-time, IPO related acceleration of non-cash stock-based compensation expense. The following table presents a reconciliation of Adjusted loss from operations to loss from operations, which is the most directly comparableU.S. GAAP measure: Three Months Ended Nine Months Ended September 30, September 30, 2019 2020 2019 2020 (in thousands) (in thousands) Loss from operations$ (36,780 ) $ (36,873 ) $ (94,232 ) $ (119,218 ) Add: One-time IPO related acceleration of non-cash stock based compensation - - - 1,262 Adjusted loss from operations$ (36,780 ) $ (36,873 ) $ (94,232 ) $ (117,956 ) 31
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Non-GAAP net loss, Non-GAAP net loss per share and Non-GAAP net loss per share, as adjusted
We calculate Non-GAAP net loss as net loss adjusted to exclude the one-time, IPO related acceleration of non-cash stock-based compensation expense and the one-time, IPO related non-cash revaluation of a preferred stock warrant. We calculate Non-GAAP net loss per share as Non-GAAP net loss divided by weighted average number of shares outstanding. The following table presents a reconciliation of Non-GAAP net loss and Non-GAAP net loss per share to net loss and net loss per share, which are the most directly comparableU.S. GAAP measures: Three Months Ended Nine Months Ended September 30, September 30, 2019 2020 2019 2020 (in thousands, except share and per share amounts) Net loss$ (39,764 ) $ (37,850 ) $ (100,243 ) $ (142,137 ) Accretion of redeemable convertible preferred stock (65,686 ) - (109,529 ) - Net loss attributable to common stockholders$ (105,450 ) $ (37,850 ) $ (209,772 ) $ (142,137 ) Add: One-time IPO related acceleration of non-cash stock based compensation - - - 1,262 Add: One-time IPO related non-cash revaluation of preferred stock warrant - - - 20,470 Non-GAAP net loss$ (105,450 ) $ (37,850 )
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted 8,615,682 121,123,472
8,591,554 53,731,475
Net loss per share, basic and diluted
$ (24.42 ) $ (2.65 ) Impact of one-time IPO related acceleration of non-cash stock based compensation - - - 0.02 Impact of one-time IPO related non-cash revaluation of preferred stock warrant - - - 0.38 Non-GAAP net loss per share, basic and diluted$ (12.24 ) $ (0.31 ) $ (24.42 ) $ (2.25 ) Non-GAAP net loss per share, as adjusted, basic and diluted(a)$ (0.31 ) $ (0.29 ) $ (0.77 ) $ (0.93 ) (a)Non-GAAP net loss per share, as adjusted has been computed to give effect to, as of the beginning of each period presented, (i) the shares of common stock issued in connection with our IPO and (ii) the automatic conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock that occurred upon the consummation of our IPO. The computation of Non-GAAP net loss per share, as adjusted is as follows: Three Months Ended Nine Months Ended September 30, September 30, 2019 2020 2019 2020 (in thousands, except share and per share amounts) Non-GAAP net loss$ (105,450 ) $ (37,850 ) $ (209,772 ) $ (120,405 ) Add: Accretion of redeemable convertible preferred stock 65,686 - 109,529 - Non-GAAP net loss, as adjusted$ (39,764 ) $ (37,850
)
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted 8,615,682 121,123,472 8,591,554 53,731,475 Add: unweighted adjustment for common stock issued in connection with IPO 24,437,500 - 24,437,500 24,437,500 Add: unweighted adjustment for conversion of redeemable convertible preferred stock in connection with IPO 85,533,394 - 85,533,394 85,533,394 Add: unweighted adjustment for common stock issued in connection with follow-on public offering 10,800,000 10,800,000 10,800,000 10,800,000 Less: Adjustment for the impact of the above items already included in weighted-average number of shares outstanding for the periods presented - (1,760,869 ) - (44,897,573 ) Weighted-average number of shares outstanding used to compute net loss per share, as adjusted, basic and diluted 129,386,576 130,162,603
129,362,448 129,604,796
Non-GAAP net loss per share, as adjusted, basic and diluted$ (0.31 ) $ (0.29 ) $ (0.77 ) $ (0.93 ) 32
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Recent Events
Initial Public Offering
On June 11, 2020 , we completed an initial public offering, or IPO, in which we
sold 24,437,500 shares of common stock, which included 3,187,500 shares sold
pursuant to the exercise by the underwriters of an over-allotment option to
purchase additional shares, at a public offering price of $22.00 per share. We
received proceeds of approximately $504.0 million , net of underwriting discount
and before deducting offering expenses of $7.5 million , from sales of our shares
in the IPO. Prior to the completion of the IPO, we effected a 2-for-1 forward
stock split of all the issued and outstanding shares of our common stock the
("Stock Split"). As a result of the Stock Split and the completion of the IPO,
all of our redeemable convertible preferred stock outstanding automatically
converted into an aggregate of 85,533,394 shares of our common stock.
Follow-on Public Offering
OnSeptember 15, 2020 , we closed on our follow-on public offering in which we sold 10,800,000 shares of common stock at the public offering price of$54.50 per share. We received proceeds of approximately$569.5 million from the offering, net of the underwriting discount and before deducting offering expenses of$1.5 million .
Rocket Agreement
OnMay 15, 2020 , we entered into an agreement withRocket Auto LLC and certain of its affiliates (collectively, "Rocket") providing for the launch of an ecommerce platform under the "Rocket Auto" brand for the marketing and sale of vehicles directly to consumers (the "RA Agreement"). We will list our used vehicle inventory for sale on the Rocket Auto platform, but all sales of the inventory will be conducted through our platform. Rocket Auto is expected to launch publicly during the first quarter of 2021 and, during the term of the RA Agreement, Rocket has agreed to ensure that a minimum percentage of all used vehicles sold or leased through the platform on a monthly basis will be Vroom inventory We issued Rocket 183,870 shares of our common stock upon execution of the RA Agreement. We will pay Rocket a combination of cash and stock for vehicle sales made through the platform. Rocket may earn up to 8,641,914 shares of common stock over a four-year period based upon sales volume of Vroom inventory through the Rocket Auto platform. Impact of COVID-19 Due to the evolving nature of the COVID-19 crisis, we continue to monitor the situation closely and assess the impact on our business. We expect our operations will continue to be adversely impacted through the end of 2020 and continuing into in 2021, however, the magnitude and duration of the ultimate impact is impossible to predict with certainty due to: • uncertainties regarding the duration of the COVID-19 pandemic and the length of time over which the disruptions caused by COVID-19 will continue;
• the impact of governmental orders and regulations that have been, and may
in the future be, imposed in response to the pandemic;
• the impact of COVID-19 on VRCs, wholesale auctions, state DMV titling and
registration services, third party vehicle carriers and other third
parties on which we rely;
• uncertainty as to the impact future increases in transmission could have
on our ability to fully staff portions of our business;
• the deterioration of economic conditions in
high unemployment levels, which could have an adverse impact on
discretionary consumer spending; and
• uncertainty regarding the potential for, timing and duration of, and
severity of future "waves" of the COVID-19 crisis; and
• uncertainty as to whether and to what degree governmental economic relief
will be provided to soften the negative economic effects of the COVID-19
crisis and the resulting governmental orders and restrictions.
Impact on ecommerce operations
After the initial disruption in our ecommerce operations due to the COVID-19 pandemic, consumer demand for used vehicles has returned to pre-COVID-19 levels, and, in the three months endedSeptember 30, 2020 , we experienced continued strong consumer demand for our ecommerce solutions and contact-free delivery. Ecommerce units sold increased, as compared to the three months endedJune 30, 2020 , 31.4% to 8,823 units primarily driven by increased inventory levels and marketing spend. Ecommerce revenue increased 26.3% to$221.8 million as the result of a higher number of ecommerce units sold. 33 --------------------------------------------------------------------------------
Ecommerce gross profit and gross profit per unit experienced strong growth of
167.4% to
Impact on TDA
Both TDA and our back-office facility inHouston continued to remain open during the three months endedSeptember 30, 2020 . However, as a result of continuous impact of the COVID-19 pandemic, we have seen a significant reduction in foot traffic at TDA. Although we experienced an approximate 31.8% increase in unit sales for the three months endedSeptember 30, 2020 , as compared to the three months endedJune 30, 2020 , our unit sales at TDA continued to be 51.8% lower as compared to the first quarter of 2020. As COVID-19 disruptions continue, we are unsure when TDA will return to normal operations.
Impact on our vehicle reconditioning and our logistics network
In the three months endedSeptember 30, 2020 , our Vroom VRC and all third-party VRCs remained open. However, we continued to experience disruption across our logistics network due to the COVID-19 pandemic, with a reduced number of third-party providers available to deliver our vehicles, which has resulted in a slowdown of inventory being picked up and delivered to our VRCs and in sold units being delivered to customers. In addition, our transportation costs have increased as the remaining carriers have increased prices.
Impact on our administrative functions
Most of our corporate, engineering and back-office operations have been able to successfully sustain the transition to a remote working environment. However, certain of our back-office functions that require handling documents in person have experienced productivity challenges due to the government-ordered limitations on office capacity. The COVID-19-related restrictions also continue to have a significant effect in areas such as the titling and registration of vehicles sold to customers, due to processing backlogs and limited service capacity of state division of motor vehicle offices acrossthe United States .
Management actions in response to the COVID-19 disruptions
In response to the COVID-19 disruptions, we implemented a number of measures to
protect the health and safety of our workforce. These measures include
restrictions on non-essential business travel, the institution of work-from-home
policies wherever feasible and the implementation of strategies for workplace
safety at our facilities. We are following the guidance from public health
officials and government agencies, including limiting the number of employees in
our office facilities, implementation of enhanced cleaning measures, social
distancing guidelines, wearing of masks, eliminating non-essential vendor /
guest visitation, and requiring temperature checks and health attestations prior
to entering buildings. Seating, signage, and cleaning materials have been added
to ensure adherence to best practices for employee health and safety during this
pandemic. Where feasible, we operate on a rotating team schedule to reduce
exposure and also require any diagnosed or exposed employees to self-isolate for
up to two weeks.
We also continue to take precautionary measures to enhance our customer
experience during the pandemic, such as increasing the level of cleaning and
sanitation of vehicles prior to making delivery to our customers. Additionally,
we adjusted our delivery protocols to provide contact-free delivery and pick up
of vehicles.
While our ecommerce business, including contact-free delivery, is continuing to
operate nationwide, the COVID-19 crisis has had a significant impact on our
business operations. We are unable to accurately predict the ultimate impact
that the COVID-19 disruptions will have on our business and financial results
going forward due to the uncertainties surrounding the extent, duration and risk
of recurrence of such disruptions. Nevertheless, we believe the measures we have
taken and will continue to take will position Vroom to emerge from the crisis in
a healthy financial position, and that our business model and years of
experience with ecommerce vehicle sales and home delivery enable us to be highly
responsive to increased consumer desire for ecommerce solutions and contact-free
delivery.
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 drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory
Our growth is primarily driven by vehicle sales. Vehicle sales growth, in turn, is largely driven by the volume of inventory and the selection of vehicles listed on our platform. Accordingly, we believe that having the appropriate volume and mix of vehicle inventory is critical to our ability to drive growth.
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The continued growth of our vehicle inventory 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. This
ability is enabled by our data science capabilities that leverage the growing
amount of data at our disposal and fine-tune our supply and sourcing models. As
we continue to invest in our operational efficiency and data analytics, we
expect that we will continue to cost effectively increase the volume and
optimize the selection of our ecommerce inventory.
Ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing efforts
While the overall ecommerce penetration rate in used vehicle sales remains low, over the last several years, ecommerce used vehicle sales have experienced significant growth. There has been a shift in consumer buying patterns towards more convenient, personalized, and on-demand purchases, as well as a demand for ecommerce across more diverse categories, including the used vehicle market. We expect that the ecommerce model for buying and selling used vehicles will continue to grow and such growth may be accelerated by the COVID-19 pandemic. Our ability to continue to benefit from this trend will be an important driver of our future performance. We seek to improve our brand awareness among consumers through national marketing campaigns in order to strengthen our customer acquisition funnel. We also use digital performance marketing such as search engine marketing, automotive aggregator sites and social media to acquire customers more cost effectively. Our aggregate marketing spend has increased over time, with our first national brand marketing campaign commencing in the first quarter of 2019, and we expect to continue to invest in both national brand marketing and performance marketing efforts. As we leverage our national brand, we believe this investment in marketing spend will drive additional demand and sales. We also believe that we have the ability to drive down the cost of acquisition per unit sold by increasing the efficiency of our marketing spend.
Ability to convert visitors to our platform into customers
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. Our ability to drive higher customer conversion depends on our ability to make our platform a compelling choice for consumers based on our functionalities and consumer offerings. Data analytics and experimentation drive decision making across all of our conversion 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. Increased conversion also depends on our ability to provide the necessary customer service and sales support to respond to increased demand. Over the fourth quarter, we intend to pursue further expansion of our customer experience team as we ramp up our sales support in anticipation of continued sales growth in 2021. As we continue to invest in our brand and improve the customer experience, we expect that we will attract more visitors, improve conversion and drive greater sales.
Ability to optimize the mix of inventory sources to drive increased gross profit and improvements to our unit economics
We strategically source inventory from auctions, consumers, rental car companies, OEMs and dealers. Auctions, consumers, and rental car companies represent the vast majority of our inventory sources, accounting for approximately 51%, 36%, and 13% of our retail inventory sold for the three months endedSeptember 30, 2020 , respectively, and 52%, 32%, and 15% for the nine months endedSeptember 30, 2020 , respectively. 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 seek to increase the percentage of vehicle sales that we source from consumers.
Our ability to increase the percentage of inventory sourced directly from consumers will depend on the popularity and success of our ecommerce platform. In order to continue to increase the percentage of vehicles that we source directly
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from consumers, we are expanding our national marketing efforts that are focused
on our Sell Us Your Car® proposition, which we believe will result in more
customers gaining familiarity with our platform. We expect that, as consumers
experience the convenience of our platform to sell or trade in their used
vehicles, the percentage of inventory we source directly from consumers will
continue to grow.
We have begun to offer third-party inventory listings, which expand our sourcing
channels through third party sellers while offering us attractive revenue models
in an asset light, debt free structure.
Ability to expand and optimize our reconditioning capacity to satisfy increasing demand
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 expand and optimize our reconditioning capacity to satisfy increasing customer demand. We employ a hybrid approach that combines the use of our Vroom VRC and third-party VRCs to best meet our reconditioning needs. In 2019, we significantly increased our reconditioning capacity within our Vroom VRC by overhauling our operations and applying lean manufacturing techniques and other software-enabled technological advances. As we continue to grow our business, we intend to continue to invest in increased reconditioning capacity and operational efficiency through third-party VRC locations and going forward we expect to invest in additional proprietary reconditioning capacity to provide added scale with reduced lead-time and greater flexibility. Additionally, our use of third-party VRCs to recondition vehicles allows us to avoid additional capital expenditures, quickly increase capacity, maintain greater operational flexibility and broaden our geographic footprint to drive lower logistics costs. We have continued to expand our third-party VRC operations and, as of the date of this Quarterly Report on Form 10-Q, have a current total of eighteen. See "-Liquidity and Capital Resources." We leverage our data analytics and deep industry experience to strategically select both Vroom VRCs and third-party VRCs in locations where we believe there is the highest supply and demand for our vehicles. We expect that our continued investment in reconditioning capacity and technology will lower our reconditioning costs per unit and drive greater operational efficiency, higher gross profit per unit and improved unit economics.
Ability to expand and develop our logistics network
We primarily use third-party carriers and have optimized our third-party logistics network nationwide through the development of strategic carrier arrangements with national haulers and the consolidation of our carrier base into 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. Our VRCs also serve as pooling points to aggregate acquired vehicles and we intend to begin using certain VRCs as hubs for staging vehicles for last-mile delivery to customers, which we expect to provide an improved experience for customers. Recently, as a result of the continued prevalence of the COVID-19 pandemic, we have experienced a reduced supply of carriers, increased shipping prices and deteriorating service levels. Thus, we are accelerating our strategy to optimize our hybrid approach by expanding our proprietary logistics network. Currently, we are prioritizing investment in our last-mile delivery operations where we can have the greatest impact on the customer experience and expect over time to expand our operations to include hub-to-hub shipments. As we invest in our expanded logistics operations, we expect to incur increased operating expenses and capital expenditures associated with purchasing or leasing fleet vehicles, leasing space for delivery hubs, hiring qualified drivers, and operating and maintaining fleet vehicles, offset in part by reduced third-party logistics expense. Consistent with our hybrid approach, we intend to strategically combine the operation of our expanded proprietary fleet with the use of third-party carriers, which we expect will enable us to both accommodate our growth and provide the highest level of customer service. Over time, as our business scales, 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 increase and better monetize value-added products
Our offering of value-added products is an integral part of providing a seamless
vehicle-buying experience to our customers. These products provide added revenue
streams for us as well as offering convenience, assurance and efficiency for our
customers. We sell our third-party value-added products through our strategic
relationships with multiple lenders and other third parties who bear the
incremental risks associated with the underwriting of finance and protection
products. In the fourth quarter of 2019 and first quarter of 2020, we entered
into strategic partnerships with lenders such as Chase and Santander which have
contributed to improvements in Product GPPU. Additionally, through our on-going
data analytics, experimentation and further development of our ecommerce
technology, we expect to increase attachment rates of our existing value-added
products while finding new opportunities to include additional finance and
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
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to the revenue we generate on such sales. As a result, such sales help drive
total gross profit per unit. We expect that, as we scale our business, we will
increase the breadth and variety of value-added products offered to customers
and improve attachment rates to our vehicle sales, which in turn will grow
revenue and drive profitability.
Seasonality
Used vehicle sales are 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. In line with these macro trends, our gross profit per unit has
historically been higher in the first half of the year when compared to the
second half of the year. See "Risk Factors-Risks Related to Our Business-We may
experience seasonal and other fluctuations in our quarterly results of
operations, which may not fully reflect the underlying performance of our
business."
Components of Results of Operations
Revenue
Retail vehicle revenue
We sell vehicles through both our ecommerce platform and TDA. Revenue from
vehicle sales, including any delivery charges, are 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.
ASP depends primarily on our acquisition and pricing strategies, retail used car
market prices, our average days to sale and our reconditioning and logistics
costs.
We have begun to strategically take advantage of a broader portion of the used
vehicle market by adding more lower priced vehicles to our inventory. As a
data-driven company, we acquire inventory based upon demand predicted by our
data analytics. Since the COVID-19 pandemic, that data has been moving towards
lower-priced inventory, which we expect to continue to result in a lower ASP per
unit than historical levels.
Wholesale vehicle revenue
We sell vehicles that do not meet our Vroom retail sales criteria through third-party wholesale auctions. Vehicles sold at auction are acquired from customers who trade-in their vehicles when making a purchase from us, from customers who sell their vehicle to us in direct-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 value-added products to our customers in connection with vehicle sales, including fees earned on customer vehicle financing from third-party lenders and fees earned on sales of other value-added products, such as extended warranty contracts, GAP protection and wheel and tire coverage. We earn fees on these 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.
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Other revenue consists of labor and parts revenue earned by us for vehicle repair services at TDA.
See "Note 3-Revenue Recognition" to our condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Cost of sales
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.
Total gross profit
Total gross profit is defined as total revenue less costs associated with such revenue.
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 and professional fees for accounting, auditing, tax, legal and consulting services. We expect that our SG&A expenses will increase in the future as we expand our operations, including our planned expansion of our proprietary logistics operations, hire additional employees and continue to increase our marketing spend to build brand awareness and increase consumer traffic on our platform. Over the fourth quarter, we intend to pursue further expansion of our customer experience team as we ramp up our sales support in anticipation of continued sales growth in 2021. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance withSEC and the Nasdaq Global Select Market requirements, director and officer insurance costs, and investor and public relations costs.
Depreciation and amortization
Our depreciation and amortization expense primarily includes depreciation related to our leasehold improvements, as well as amortization related to intangible assets acquired in the TDA acquisition and capitalized internal use software costs incurred in the development of our platform and website applications. Depreciation expense related to our Vroom VRC is included in cost of sales in the consolidated statements of operations.
Interest expense
Our interest expense includes interest expense related to our 2020 Vehicle Floorplan Facility (as defined herein), which is used to finance our inventory, as well as interest expense on our term loan facility, which was repaid in full inDecember 2019 . Interest Income
Interest income primarily represents interest credits earned on cash deposits maintained in relation to our 2020 Vehicle Floorplan Facility.
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Results of Operations
The following table presents our consolidated results of operations for the
periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2020 % Change 2019 2020 % Change
(in thousands) (in thousands)
Revenue:
Retail vehicle, net $ 273,743 $ 249,518 (8.8 )% $ 652,895 $ 754,380 15.5 %
Wholesale vehicle 59,054 63,972 8.3 % 165,705 170,469 2.9 %
Product, net 7,029 9,198 30.9 % 16,265 25,979 59.7 %
Other 447 317 (29.1 )% 1,364 1,043 (23.5 )%
Total revenue 340,273 323,005 (5.1 )% 836,229 951,871 13.8 %
Cost of sales 324,602 297,560 (8.3 )% 794,701 900,432 13.3 % Total gross profit 15,671 25,445 62.4 % 41,528
51,439 23.9 %
Selling, general and
administrative
expenses 50,934 61,127 20.0 % 131,209 167,418 27.6 %
Depreciation and
amortization 1,517 1,191 (21.5 )% 4,551 3,239 (28.8 )%
Loss from operations (36,780 ) (36,873 ) 0.3 % (94,232 ) (119,218 ) 26.5 % Interest expense
3,797 2,259 (40.5 )% 9,903 6,382 (35.6 )%
Interest income (1,190 ) (1,289 ) 8.3 % (4,454 ) (3,960 ) (11.1 )%
Revaluation of stock
warrant 373 - (100.0 )% 515 20,470 3,874.8 %
Other income, net (44 ) (26 ) (40.9 )% (75 ) (111 ) 48.0 %
Loss before
provision for income
taxes (39,716 ) (37,817 ) (4.8 )% (100,121 ) (141,999 ) 41.8 %
Provision for income
taxes 48 33 (31.3 )% 122 138 13.1 %
Net loss $ (39,764 ) $ (37,850 ) (4.8 )% $ (100,243 ) $ (142,137 ) 41.8 %
Segments
We manage and report operating results through three reportable segments:
• Ecommerce (68.7% and 66.2% of revenue for the three and nine months ended
vehicles through our ecommerce platform and fees earned on sales of
value-added products associated with those vehicle sales.
• TDA (11.5% and 15.9% of revenue for the three and nine months ended
September 30, 2020 ): The TDA segment represents retail sales of used
vehicles from TDA and fees earned on sales of value-added products
associated with those vehicle sales.
• Wholesale (19.8% and 17.9% of revenue for the three and nine months ended
September 30, 2020 ): The Wholesale segment represents sales of used vehicles through wholesale auctions. 39
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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
September 30,
2019 2020 Change % Change
(in thousands, except unit
data and average days to sale)
Ecommerce units sold 5,563 8,823 3,260 58.6 %
Ecommerce revenue:
Vehicle revenue $ 174,510 $ 213,943 $ 39,433 22.6 %
Product revenue 3,603 7,818 4,215 117.0 %
Total ecommerce revenue $ 178,113 $ 221,761 $ 43,648 24.5 %
Ecommerce gross profit:
Vehicle gross profit $ 5,171 $ 11,486 $ 6,315 122.1 %
Product gross profit 3,603 7,818 4,215 117.0 %
Total ecommerce gross profit $ 8,774 $ 19,304 $ 10,530 120.0 %
Average vehicle selling price per
ecommerce unit $ 31,370 $ 24,248 $ (7,122 ) (22.7 )%
Gross profit per ecommerce unit:
Vehicle gross profit per ecommerce unit $ 929 $ 1,302 $ 373 40.2 %
Product gross profit per ecommerce unit 648 886 238 36.7 %
Total gross profit per ecommerce unit $ 1,577 $ 2,188 $ 611 38.7 %
Ecommerce average days to sale 71 52 (19 ) (26.8 )%
Ecommerce units
Ecommerce units sold increased 3,260, or 58.6%, from 5,563 for the three months
ended September 30, 2019 to 8,823 for the three months ended September 30, 2020 .
This increase was driven by higher inventory levels, our national advertising
campaign which continues to strengthen our national brand awareness as well as
greater consumer acceptance of our business model as a result of disruptions
caused by the COVID-19 pandemic, and process improvements in our ecommerce
platform. Average monthly unique visitors to our website grew from 777,313 for
the three months ended September 30, 2019 to 928,277 for the three months ended
September 30, 2020 , representing year over year growth of 19.4%. We expect
ecommerce units sold to continue to grow in the future as we increase our
inventory selection and marketing efforts as well as improve conversion.
Vehicle Revenue
Ecommerce vehicle revenue increased$39.5 million , or 22.6%, from$174.5 million for the three months endedSeptember 30, 2019 to$214.0 million for the three months endedSeptember 30, 2020 . The increase in ecommerce vehicle revenue was primarily attributable to the 3,260 increase in ecommerce units sold, which increased vehicle revenue by$102.3 million , partially offset by a lower ASP per unit, which decreased from$31,370 for the three months endedSeptember 30, 2019 to$24,248 for the three months endedSeptember 30, 2020 and decreased vehicle revenue by$62.8 million . The decrease in ASP per unit was driven by demand predicted by our data analytics. Since the COVID-19 pandemic, that data has been moving towards lower-priced inventory, which we expect to continue to result in a lower ASP per unit than historical levels. We expect ecommerce vehicle revenue will continue to grow driven by increases in ecommerce units sold. 40 --------------------------------------------------------------------------------
Product Revenue
Ecommerce product revenue increased$4.2 million , or 117.0%, from$3.6 million for the three months endedSeptember 30, 2019 to$7.8 million for the three months endedSeptember 30, 2020 . The increase in ecommerce product revenue was primarily attributable to the 3,260 increase in ecommerce units sold, which increased product revenue by$2.1 million and a$238 increase in product revenue per unit which increased product revenue by$2.1 million . Product revenue per unit increased from$648 for the three months endedSeptember 30, 2019 to$886 for the three months endedSeptember 30, 2020 , which was primarily due to higher attachment rates, improved financing features in our ecommerce platform as well as our strategic partnerships. We expect ecommerce product revenue will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. Vehicle Gross Profit Ecommerce vehicle gross profit increased$6.3 million , or 122.1%, from$5.2 million for the three months endedSeptember 30, 2019 to$11.5 million for the three months endedSeptember 30, 2020 . The increase in vehicle gross profit was primarily attributable to a$373 increase in vehicle gross profit per unit, which increased vehicle gross profit by$3.3 million and the 3,260 increase in ecommerce units sold, which increased vehicle gross profit by$3.0 million for the three months endedSeptember 30, 2020 . Vehicle gross profit per unit increased from$929 for the three months endedSeptember 30, 2019 to$1,302 for the three months endedSeptember 30, 2020 primarily attributable to improvements in inbound logistics and reconditioning costs. As we continue to mature our infrastructure, increase the number of VRCs and optimize our 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 increased$4.2 million , or 117.0%, from$3.6 million for the three months endedSeptember 30, 2019 to$7.8 million for the three months endedSeptember 30, 2020 . The increase in ecommerce product gross profit was primarily attributable to the 3,260 increase in ecommerce units sold which increased product gross profit by$2.1 million and a$238 increase in product gross profit per unit which increased product gross profit by$2.1 million for the three months endedSeptember 30, 2020 . The increase in product gross profit per unit was primarily attributable to higher attachment rates, improved financing features in our ecommerce platform as well as our strategic partnerships. The increase was partially offset by the lower ASP per unit which reduced the fees we earned on our financing products. We expect ecommerce product gross profit will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. 41 --------------------------------------------------------------------------------
TDA
The following table presents our TDA segment results of operations for the
periods indicated:
Three Months Ended
September 30,
2019 2020 Change % Change
(in thousands, except unit
data and average days to sale)
TDA units sold 3,282 1,463 (1,819 ) (55.4 )%
TDA revenue:
Vehicle revenue $ 99,234 $ 35,575 $ (63,659 ) (64.2 )%
Product revenue 3,425 1,380 (2,045 ) (59.7 )%
Other 447 317 (130 ) (29.1 )%
Total TDA revenue $ 103,106 $ 37,272 $ (65,834 ) (63.9 )%
TDA gross profit:
Vehicle gross profit $ 3,053 $ 1,295 $ (1,758 ) (57.6 )%
Product gross profit 3,425 1,380 (2,045 ) (59.7 )%
Other gross profit 172 123 (49 ) (28.5 )%
Total TDA gross profit $ 6,650 $ 2,798 $ (3,852 ) (57.9 )%
Average vehicle selling price per TDA unit $ 30,236 $ 24,316 $ (5,920 ) (19.6 )%
Gross profit per TDA unit:
Vehicle gross profit per TDA unit $ 930 $ 885 $ (45 ) (4.8 )%
Product gross profit per TDA unit 1,044 943 (101 ) (9.7 )%
Total gross profit per TDA unit $ 1,974 $ 1,828 $ (146 ) (7.4 )%
TDA average days to sale 50 32 (18 ) (36.0 )%
TDA units
TDA units sold decreased 1,819, or 55.4%, from 3,282 for the three months ended
September 30, 2019 to 1,463 for the three months ended September 30, 2020 . The
Houston area has been a relative COVID-19 hotspot in the country and, as a
result, TDA foot traffic continues to be negatively impacted by the pandemic. In
addition, despite the fact that we have dramatically expanded our total
inventory in excess of pre-COVID levels, the supply of used vehicles in Houston
has not returned to the pre-COVID levels. We believe that TDA units sold will
rebound with an eventual recovery in the area, but the timing is uncertain.
Vehicle Revenue
TDA vehicle revenue decreased$63.6 million , or 64.2%, from$99.2 million for the three months endedSeptember 30, 2019 to$35.6 million for the three months endedSeptember 30, 2020 . The decrease in TDA vehicle revenue was primarily due to the 1,819 decrease in TDA units sold which decreased TDA vehicle revenue by$55.0 million and a lower ASP per unit, which decreased from$30,236 for the three months endedSeptember 30, 2019 to$24,316 for the three months endedSeptember 30, 2020 and decreased revenue by$8.6 million . We expect our TDA vehicle revenue will continue to be negatively impacted by the COVID-19 pandemic, but the ultimate extent and duration of the impact is uncertain at this time. Product Revenue TDA product revenue decreased$2.0 million , or 59.7%, from$3.4 million for the three months endedSeptember 30, 2019 to$1.4 million for the three months endedSeptember 30, 2020 . The decrease in TDA product revenue was primarily attributable to the 1,819 decrease in TDA units sold, which decreased TDA product revenue by$1.9 million and the decrease in product revenue per unit which decreased revenue by$0.1 million .
Other Revenue
TDA other revenue decreased$0.1 million , or 29.1%, from$0.4 million for the three months endedSeptember 30, 2019 to$0.3 million for the three months endedSeptember 30, 2020 . 42
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Vehicle Gross Profit
TDA vehicle gross profit decreased$1.8 million , or 57.6%, from$3.1 million for the three months endedSeptember 30, 2019 to$1.3 million for the three months endedSeptember 30, 2020 . The decrease was primarily attributable to the 1,819 decrease in TDA units sold, which decreased TDA vehicle gross profit by$1.7 million and a decrease in TDA vehicle gross profit per unit, which decreased vehicle gross profit by$0.1 million . We expect our TDA vehicle gross profit to continue to be negatively impacted by the COVID-19 pandemic, but the ultimate extent and duration of the impact is uncertain at this time.
Product Gross Profit
TDA product gross profit decreased$2.0 million , or 59.7% from$3.4 million for the three months endedSeptember 30, 2019 to$1.4 million for the three months endedSeptember 30, 2020 . The decrease in TDA product gross profit was primarily attributable to the 1,819 decrease in TDA units sold, which decreased TDA product gross profit by$1.9 million and the decrease in product gross profit per unit which decreased gross profit by$0.1 million .
Other gross profit
TDA other gross profit decreased$0.1 million , or 28.5%, from$0.2 million for the three months endedSeptember 30, 2019 to$0.1 million for the three months endedSeptember 30, 2020 . Wholesale The following table presents our Wholesale segment results of operations for the periods indicated: Three Months Ended September 30, 2019 2020 Change % Change (in thousands, except unit data) Wholesale units sold 5,420 6,166 746 13.8 % Wholesale revenue $ 59,054 $ 63,972$ 4,918 8.3 % Wholesale gross profit $ 247 $ 3,343$ 3,096 1,253.4 % Average selling price per unit $ 10,896 $ 10,375$ (521 ) (4.8 )% Wholesale gross profit per unit $ 46 $ 542$ 496 1,078.3 % Wholesale Units Wholesale units sold increased 746, or 13.8%, from 5,420 for the three months endedSeptember 30, 2019 to 6,166 for the three months endedSeptember 30, 2020 , primarily driven by an increase in wholesale units purchased from customers.
Wholesale Revenue
Wholesale revenue increased$4.9 million , or 8.3%, from$59.1 million for the three months endedSeptember 30, 2019 to$64.0 million for the three months endedSeptember 30, 2020 . The increase was primarily attributable to the 746 increase in wholesale units sold which increased wholesale revenue by$8.1 million , partially offset by a lower ASP per wholesale unit which decreased from$10,896 for the three months endedSeptember 30, 2019 to$10,375 for the three months endedSeptember 30, 2020 and decreased wholesale revenue by$3.2 million . Wholesale Gross Profit Wholesale vehicle gross profit increased$3.1 million from$0.2 million for the three months endedSeptember 30, 2019 to$3.3 million for the three months endedSeptember 30, 2020 . The increase was primarily attributable to a$496 increase in wholesale gross profit per unit, which increased from$46 per unit to$542 per unit primarily as the result of favorable used car prices. 43 --------------------------------------------------------------------------------
Selling, general and administrative expenses
Three Months Ended
September 30,
2019 2020 Change % Change
(in thousands)
Compensation & benefits $ 19,050 $ 22,881 $ 3,831 20.1 %
Marketing expense 14,606 15,341 735 5.0 %
Outbound logistics 4,255 8,500 4,245 99.8 %
Occupancy and related costs 2,770 2,610 (160 ) (5.8 )%
Professional fees 3,497 1,773 (1,724 ) (49.3 )%
Other 6,756 10,022 3,266 48.3 %
Total selling, general & administrative
expenses $ 50,934 $ 61,127 $ 10,193 20.0 %
Selling, general and administrative expenses increased $10.2 million , or 20.0%,
from $50.9 million for the three months ended September 30, 2019 to $61.1
million for the three months ended September 30, 2020 . The increase was
primarily due to a $3.6 million increase in stock-based compensation included
within compensation and benefits, a $4.2 million increase in outbound logistics
costs partially attributable to the growth in ecommerce units sold, which
increased outbound logistics costs by $2.5 million , and increases in market
rates of logistics providers, which increased outbound logistics costs by $1.7
million , and a $3.3 million increase in other selling, general, and
administrative expenses primarily related to additional insurance costs
associated with being a publicly traded company. These increases were offset by
a $1.7 million decrease in professional services due to a reduction in
consulting expenses, primarily in the finance and reconditioning departments, as
a result of completion of certain process improvement projects and hiring more
employees.
We expect selling, general and administrative expenses to increase in the future
as we scale our business and sell more ecommerce units. We will also continue to
invest in and improve our customer experience and invest in expanding our
proprietary logistics network including our last-mile delivery operations.
Depreciation and amortization
Depreciation and amortization expenses decreased$0.3 million , or 21.5%, from$1.5 million for three months endedSeptember 30, 2019 to$1.2 million for the three months endedSeptember 30, 2020 . The decrease was primarily due to reduced amortization expense as certain intangible assets were fully amortized.
Interest expense
Interest expense decreased$1.5 million , or 40.5%, from$3.8 million for the three months endedSeptember 30, 2019 to$2.3 million for the three months endedSeptember 30, 2020 . The decrease was primarily attributable to lower interest rates for the 2020 Vehicle Floorplan Facility as a result of decreases in the1-Month LIBOR rate as well as the repayment of our term loan facility inDecember 2019 .
Interest income
Interest income increased$0.1 million , or 8.3%, from$1.2 million for the three months endedSeptember 30, 2019 to$1.3 million for the three months endedSeptember 30, 2020 . The increase in interest income was primarily driven by higher cash and cash equivalent balances as a result of the IPO and follow-on public offering which was offset by lower interest rates. 44 --------------------------------------------------------------------------------
Nine Months Ended
Ecommerce
The following table presents our Ecommerce segment results of operations for the
periods indicated:
Nine Months Ended
September 30,
2019 2020 Change % Change
(in thousands, except unit
data and average days to sale)
Ecommerce units sold 12,606 23,466 10,860 86.1 %
Ecommerce revenue:
Vehicle revenue $ 381,709 $ 610,008 $ 228,299 59.8 %
Product revenue 7,212 20,493 13,281 184.2 %
Total ecommerce revenue $ 388,921 $ 630,501 $ 241,580 62.1 %
Ecommerce gross profit:
Vehicle gross profit $ 14,611 $ 20,296 $ 5,685 38.9 %
Product gross profit 7,212 20,493 13,281 184.2 %
Total ecommerce gross profit $ 21,823 $ 40,789 $ 18,966 86.9 %
Average vehicle selling price per
ecommerce unit $ 30,280 $ 25,995 $ (4,285 ) (14.2 )%
Gross profit per ecommerce unit:
Vehicle gross profit per ecommerce unit $ 1,159 $ 865 $ (294 ) (25.4 )%
Product gross profit per ecommerce unit 572 873 301 52.6 %
Total gross profit per ecommerce unit $ 1,731 $ 1,738 $ 7 0.4 %
Ecommerce average days to sale 67 62 (5 ) (7.5 )%
Ecommerce units
Ecommerce units sold increased 10,860, or 86.1%, from 12,606 for the nine months
ended September 30, 2019 to 23,466 for the nine months ended September 30, 2020 ,
driven by our increased inventory levels, process improvements in our ecommerce
platform and our national advertising campaign which has strengthened our
national brand awareness as well as greater consumer acceptance of our business
model as a result of the COVID-19 pandemic. Average monthly unique visitors to
our website increased from 605,820 for the nine months ended September 30, 2019
to 958,397 for the nine months ended September 30, 2020 . We expect ecommerce
units sold to continue to grow in the future as we increase our inventory
selection and marketing efforts and improve conversion.
Vehicle Revenue
Ecommerce vehicle revenue increased$228.3 million , or 59.8%, from$381.7 million for the nine months endedSeptember 30, 2019 to$610.0 million for the nine months endedSeptember 30, 2020 . The increase in ecommerce vehicle revenue was primarily attributable to the 10,860 increase in ecommerce units sold, which increased revenue by$328.8 million , partially offset by a lower ASP per unit, which decreased from$30,280 for the nine months endedSeptember 30, 2019 to$25,995 for the nine months endedSeptember 30, 2020 and decreased revenue by$100.5 million . The decrease in ASP per unit was driven by our strategic decision to reduce vehicle pricing in order to sell pre-COVID-19 inventory during the second quarter of 2020 as well as demand predicted by our data analytics. Since the COVID-19 pandemic, that data has been moving towards lower-priced inventory, which we expect to continue to result in a lower ASP per unit than historical levels. We expect ecommerce vehicle revenue will continue to grow driven by increases in ecommerce units sold.
Product Revenue
Ecommerce product revenue increased$13.3 million , or 184.2%, from$7.2 million for the nine months endedSeptember 30, 2019 to$20.5 million for the nine months endedSeptember 30, 2020 . The increase was attributable to the increase in product revenue per unit of$301 , which increased product revenue by$7.1 million , and the 10,860 increase in ecommerce units sold which increased product revenue by$6.2 million . Product revenue per unit increased from$572 for the nine months endedSeptember 30, 2019 to$873 for the nine months endedSeptember 30, 2020 , which was primarily due to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships. We expect ecommerce product revenue will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. 45 --------------------------------------------------------------------------------
Vehicle Gross Profit
Ecommerce vehicle gross profit increased$5.7 million , or 38.9%, from$14.6 million for the nine months endedSeptember 30, 2019 to$20.3 million for the nine months endedSeptember 30, 2020 . The increase was attributable to the 10,860 increase in ecommerce units sold which increased vehicle gross profit by$12.6 million partially offset by a lower vehicle gross profit per unit, which decreased vehicle gross profit by$6.9 million . Vehicle gross profit per unit decreased by$294 from$1,159 for the nine months endedSeptember 30, 2019 to$865 for the nine months endedSeptember 30, 2020 , primarily attributable to our strategic decision to reduce vehicle pricing in order to drive vehicle sales in the early stage of the COVID-19 pandemic. As we continue to mature our infrastructure, increase the number of VRCs and optimize our 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 profit increased$13.3 million , or 184.2%, from$7.2 million for the nine months endedSeptember 30, 2019 to$20.5 million for the nine months endedSeptember 30, 2020 . The increase was attributable to the increase in product gross profit per unit of$301 , which increased product gross profit by$7.1 million , and the 10,860 increase in ecommerce units sold which increased product gross profit by$6.2 million . Product gross profit per unit increased from$572 for the nine months endedSeptember 30, 2019 to$873 for the nine months endedSeptember 30, 2020 , which was primarily due to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships. We expect ecommerce product gross profit will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. TDA The following table presents our TDA segment results of operations for the periods indicated: Nine Months Ended September 30, 2019 2020 Change % Change (in thousands, except unit data and average days to sale) TDA units sold 9,444 5,608 (3,836 ) (40.6 )% TDA revenue: Vehicle revenue $ 271,186$ 144,372 $ (126,814 ) (46.8 )% Product revenue 9,053 5,486 (3,567 ) (39.4 )% Other 1,364 1,043 (321 ) (23.5 )% Total TDA revenue $ 281,603$ 150,901 $ (130,702 ) (46.4 )% TDA gross profit: Vehicle gross profit $ 9,179$ 3,313 $ (5,866 ) (63.9 )% Product gross profit 9,053 5,486 (3,567 ) (39.4 )% Other gross profit 598 345 (253 ) (42.3 )% Total TDA gross profit $ 18,830$ 9,144 $ (9,686 ) (51.4 )% Average vehicle selling price per TDA unit $ 28,715$ 25,744 $ (2,971 ) (10.3 )% Gross profit per TDA unit: Vehicle gross profit per TDA unit $ 972 $ 591$ (381 ) (39.2 )% Product gross profit per TDA unit 959 978 19 2.0 % Total gross profit per TDA unit $ 1,931$ 1,569 $ (362 ) (18.8 )% TDA average days to sale 49 42 (7 ) (14.3 )% TDA units TDA units sold decreased 3,836, or 40.6%, from 9,444 for the nine months endedSeptember 30, 2019 to 5,608 for the nine months endedSeptember 30, 2020 . Although our physical retail location remained open, during the second quarter consumer demand for vehicles at TDA declined significantly due to government mandated "stay-home" orders and other disruptions related to the COVID-19 pandemic. In addition, despite the fact that during the third quarter we dramatically expanded our total inventory in excess of pre-COVID levels, the supply of used vehicles inHouston has not returned to pre-COVID levels. We believe that TDA units sold will rebound with an eventual recovery in the area, but the timing is uncertain. 46
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Vehicle Revenue
TDA vehicle revenue decreased$126.8 million , or 46.8%, from$271.2 million for the nine months endedSeptember 30, 2019 to$144.4 million for the nine months endedSeptember 30, 2020 . The decrease was driven by the 3,836 decrease in TDA units sold, which decreased vehicle revenue by$110.2 million and the lower ASP per unit, which decreased from$28,715 for the nine months endedSeptember 30, 2019 to$25,744 for the nine months endedSeptember 30, 2020 and decreased vehicle revenue by$16.6 million .
Product Revenue
TDA product revenue decreased$3.6 million , or 39.4%, from$9.1 million for the nine months endedSeptember 30, 2019 to$5.5 million for the nine months endedSeptember 30, 2020 . The decrease was primarily driven by the 3,836 decrease in TDA units sold. Other Revenue TDA other revenue decreased$0.3 million , or 23.5%, from$1.3 million for the nine months endedSeptember 30, 2019 to$1.0 million for the nine months endedSeptember 30, 2020 . Vehicle Gross Profit TDA vehicle gross profit decreased$5.9 million , or 63.9%, from$9.2 million for the nine months endedSeptember 30, 2019 to$3.3 million for the nine months endedSeptember 30, 2020 . The decrease was attributable to the 3,836 decrease in TDA units sold, which decreased vehicle gross profit by$3.7 million and a decrease in TDA vehicle gross profit per unit of$381 , which decreased vehicle gross profit by$2.2 million . We expect our vehicle gross profit to continue to be negatively impacted by the COVID-19 pandemic but the ultimate extent and duration of the impact is uncertain at this time.
Product Gross Profit
TDA product gross profit decreased$3.6 million , or 39.4%, from$9.1 million for the nine months endedSeptember 30, 2019 to$5.5 million for the nine months endedSeptember 30, 2020 . The decrease was primarily driven by the 3,836 decrease in TDA units sold.
Other gross profit
TDA other gross profit decreased$0.3 million , or 42.3%, from$0.6 million for the nine months endedSeptember 30, 2019 to$0.3 million for the nine months endedSeptember 30, 2020 . Wholesale The following table presents our Wholesale segment results of operations for the periods indicated: Nine Months Ended September 30, 2019 2020 Change % Change (in thousands, except unit data) Wholesale units sold 16,046 14,110 (1,936 ) (12.1 )% Wholesale revenue $ 165,705 $ 170,469$ 4,764 2.9 % Wholesale gross profit $ 875 $ 1,506$ 631 72.1 % Average selling price per unit $ 10,327 $ 12,081$ 1,754 17.0 % Wholesale gross profit per unit $ 55 $ 107$ 52 94.5 % Wholesale Units Wholesale units sold decreased 1,936, or 12.1%, from 16,046 for the nine months endedSeptember 30, 2019 to 14,110 for the nine months endedSeptember 30, 2020 , primarily driven by a decrease in the number of trade-in vehicles as a result of the decrease in number of TDA units sold. 47 --------------------------------------------------------------------------------
Wholesale Revenue
Wholesale revenue increased$4.8 million , or 2.9%, from$165.7 million for the nine months endedSeptember 30, 2019 to$170.5 million for the nine months endedSeptember 30, 2020 . The increase in wholesale revenue was attributable to a higher ASP per unit which increased from$10,327 million for the nine months endedSeptember 30, 2019 to$12,081 for the nine months endedSeptember 30, 2020 and increased revenue by$24.8 million , offset by the 1,936 decrease in wholesale units sold, which decreased wholesale revenue by$20.0 million . The increase in ASP per unit was primarily driven by the sale of retail quality vehicles through the wholesale auctions as we initially reduced our inventory levels in order to respond to decreased consumer demand due to the COVID-19 pandemic.
Wholesale Gross Profit
Wholesale vehicle gross profit increased$0.6 million , or 72.1%, from$0.9 million for the nine months endedSeptember 30, 2019 to$1.5 million for the nine months endedSeptember 30, 2020 . The increase was primarily attributable to a$52 increase in wholesale gross profit per unit.
Selling, general and administrative expenses
Nine Months Ended
September 30,
2019 2020 Change % Change
(in thousands)
Compensation & benefits $ 52,018 $ 63,821 $ 11,803 22.7 %
Marketing expense 34,442 44,829 10,387 30.2 %
Outbound logistics 9,199 19,762 10,563 114.8 %
Occupancy and related costs 8,041 7,574 (467 ) (5.8 )%
Professional fees 9,378 5,697 (3,681 ) (39.3 )%
Other 18,131 25,735 7,604 41.9 %
Total selling, general & administrative
expenses $ 131,209 $ 167,418 $ 36,209 27.6 %
Selling, general and administrative expenses increased $36.2 million , or 27.6%,
from $131.2 million for the nine months ended September 30, 2019 to $167.4
million for the nine months ended September 30, 2020 . The increase was primarily
due to an $11.8 million increase in compensation and benefits partially due to
an increase in employee headcount throughout the organization as our business
scales, as well as a $3.6 million increase in stock-based compensation included
within compensation and benefits, a $10.6 million increase in outbound logistics
costs attributable to the growth in our ecommerce business, a $10.4 million
increase in advertising and marketing efforts as we expanded our national
broad-reach advertising, and a $7.6 million increase in other selling, general
and administrative expenses, primarily related to increases in volume-based
subscription fees as our business continues to scale and additional insurance
costs associated with being a publicly traded company. The increases were
partially offset by a $3.7 million decrease in professional services due to a
reduction in consulting expenses, primarily in the finance and reconditioning
departments, as a result of completion of certain process improvement projects
and hiring more employees.
Depreciation and amortization
Depreciation and amortization expenses decreased$1.4 million , or 28.8%, from$4.6 million for the nine months endedSeptember 30, 2019 to$3.2 million for the nine months endedSeptember 30, 2020 . The decrease was primarily due to reduced amortization expense as certain intangible assets were fully amortized.
Interest expense
Interest expense decreased$3.5 million , or 35.6%, from$9.9 million for the nine months endedSeptember 30, 2019 to$6.4 million for the nine months endedSeptember 30, 2020 . The decrease was primarily attributable to the repayment of our term loan facility inDecember 2019 as well as lower interest rates for the 2020 Vehicle Floorplan Facility as a result of decreases in the 1-Month LIBOR rate. Interest Income Interest income decreased$0.5 million , or 11.1%, from$4.5 million for the nine months endedSeptember 30, 2019 to$4.0 million for the nine months endedSeptember 30, 2020 . The decrease in interest income was primarily driven decreases in deposits withAlly Bank , lower interest rate yields, and decreases in the LIBOR rate. 48
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Revaluation of preferred stock warrant
The increase in revaluation of preferred stock warrant of$20.0 million from the nine months endedSeptember 30, 2019 to the nine months endedSeptember 30, 2020 was related to the revaluation of the warrant to purchase Series F preferred stock which was converted to the warrant to purchase common stock upon the IPO and subsequently exercised inJune 2020 . Liquidity and Capital Resources Our operations historically have been financed primarily from the sale of redeemable convertible preferred stock and borrowings under our Vehicle Floorplan Facility. OnJune 11, 2020 , we completed our IPO in which we sold 24,437,500 shares of our common stock, which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an over-allotment option to purchase additional shares, for proceeds of$504.0 million , net of the underwriting discount and before deducting offering expenses of$7.5 million . OnSeptember 15, 2020 , we completed our follow-on public offering in which we sold 10,800,000 shares of common stock for proceeds of$569.5 million , net of the underwriting discount and before deducting offering expenses of$1.5 million . As ofSeptember 30, 2020 , we had cash and cash equivalents of$1,161.4 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 Form 10-Q. For the nine months endedSeptember 30, 2020 , we had negative cash flow from operations of approximately$182.9 million . We generated a net loss of approximately$37.9 million and$142.1 million for the three and nine months endedSeptember 30, 2020 , respectively. We have not been profitable since our inception in 2012 and had an accumulated deficit of approximately$717.2 million as ofSeptember 30, 2020 . We expect to incur additional losses in the future. We historically have funded vehicle inventory purchases primarily through our Vehicle Floorplan Facility. Our cash flows from operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts. The timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received. Our future capital requirements will depend on many factors, including our rate of revenue growth, our efforts to reduce costs per unit, the expansion of our inventory and sales and marketing activities, investment in our reconditioning and logistics operations, and enhancements to our ecommerce platform. 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. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations, our business, results of operations and financial condition could be adversely affected.
Vehicle Financing
As of
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 immediately preceding months. Approximately$12.1 million was available under this facility as ofSeptember 30, 2020 . InOctober 2020 , we amended our 2020 Vehicle Floorplan Facility to extend the maturity date toSeptember 30, 2022 . The amendment requires us 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 credit line availability 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 2020 Vehicle Floorplan Facility bears interest at a rate equal to the 1-Month LIBOR rate applicable in the immediately preceding month plus a spread of 425 basis points.
49
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Cash Flows from Operating, Investing, and Financing Activities
The following table summarizes our cash flows for the nine months ended
September 30, 2019 and 2020:
Nine Months Ended
September 30,
2019 2020 Change % Change
(in thousands)
Net cash used in operating activities
$ (2,846 ) 1.6 % Net cash used in investing activities (2,024 ) (5,057 ) (3,033 ) 149.9 % Net cash provided by financing activities 87,652 1,157,667 1,070,015 1220.7 % Net (decrease) increase in cash and cash equivalents and restricted cash (94,400 ) 969,736 1,064,136 (1,127.3 )% Cash and cash equivalents and restricted cash at beginning of period 163,509 219,587 56,078 34.3 % Cash and cash equivalents and restricted cash at end of period$ 69,109 $ 1,189,323 $ 1,120,214 1620.9 % Operating Activities Net cash flows used in operating activities increased from$180.0 million for the nine months endedSeptember 30, 2019 to$182.9 million for the nine months endedSeptember 30, 2020 . The increase is primarily attributable to$16.9 million in incremental net loss after reconciling adjustments for the nine months endedSeptember 30, 2020 , as compared to nine months endedSeptember 30, 2019 offset by changes in working capital. We finance substantially all our inventories with the 2020 Vehicle Floorplan Facility. In accordance withU.S. GAAP relating to the statement of cash flows, we report all cash flows arising in connection with the 2020 Vehicle Floorplan Facility, as a financing activity in our statement of cash flows.
Investing Activities
Net cash flows used in investing activities increased$3.1 million , from$2.0 million for the nine months endedSeptember 30, 2019 to$5.1 million for the nine months endedSeptember 30, 2020 , primarily as a result of an increase in capitalization of software development costs.
Financing Activities
Net cash flows provided by financing activities increased$1,070.0 million from$87.7 million for the nine months endedSeptember 30, 2019 to$1,157.7 million for the nine months endedSeptember 30, 2020 . The increase was primarily related to$497.2 million of net proceeds received upon completion of the IPO net of cash paid for offering expenses related to the IPO,$569.3 million of net proceeds received upon completion of the follow-on public offering net of cash paid for offering expenses related to the follow-on public offering, and the issuance of$21.7 million of Series H preferred stock, net of issuance costs paid. These increases were partially offset by a net decrease in cash of$17.9 million related to our Vehicle Floorplan Facility. Proceeds from and payments for our Vehicle Floorplan Facility decreased from a net cash inflow of$93.4 million for the nine months endedSeptember 30, 2019 to$75.5 million for the nine months endedSeptember 30, 2020 . Contractual Obligations and Commitments
There have been no material changes to our contractual obligations or
commitments outside of the ordinary course of business as compared to those
described in our Prospectus (File No. 333-248655) filed pursuant to Rule
424(b)(4) on
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements, as defined by applicable
regulations of the SEC , that are reasonably likely to have a current or future
material effect on our financial condition, results of operations, liquidity,
capital expenditures or capital resources.
50
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. In preparing the condensed consolidated
financial statements, we 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.
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" of the notes to our condensed
consolidated financial statements in the section titled "-Summary of Significant
Accounting Policies" in Part I, Item 1 of this Quarterly Report on Form 10-Q and
in the Prospectus.
Except as described in Note 2 to our condensed consolidated financial statements, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the Prospectus.
Recently Issued and Adopted Accounting Pronouncements
See "Note 2-Summary of Significant Accounting Policies-Adoption of New
Accounting Standards" in Part I, Item 1 of 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.
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