Vroom(US:VRM)2023-03-01 16:00Part I Business Vroom, Inc. is an end-to-end e-commerce platform for buying and selling used vehicles, implementing a Business Realignment Plan in 2022 to prioritize unit economics and maximize liquidity - Vroom is an e-commerce platform for buying and selling used vehicles, operating through its Vroom, Texas Direct Auto (TDA), and CarStory brands It also owns United Auto Credit Corporation (UACC) for vehicle financing2325 - In May 2022, the company adopted a Business Realignment Plan to slow unit sales growth and focus on improving unit economics, reducing costs, and maximizing liquidity and profitability32 - The company's long-term strategy focuses on four key initiatives: building efficient transaction processes, optimizing vehicle pricing and supply chain, establishing a regional operating model, and developing a captive finance offering through UACC3435 - The acquisition of UACC in February 2022 is a critical component of the strategy to create a captive financing arm, Vroom Financial Services, to serve customers across the credit spectrum and improve unit economics50 Employee Distribution as of December 31, 2022 | Company | Total Employees | Full-Time Employees | Notes | | :--- | :--- | :--- | :--- | | Vroom | 1,323 | 1,322 | 1,157 in the US, 166 in Serbia. Excludes UACC. | | UACC | 683 | 671 | Acquired on Feb 1, 2022. | - The company is subject to extensive U.S. federal, state, and local regulations governing vehicle sales, financing, transportation, titling, and e-commerce operations UACC's financing operations are also regulated by agencies like the CFPB7782 Risk Factors The company faces substantial risks, including a history of significant net losses ($451.9 million in 2022) and the potential need for additional capital, alongside operational challenges from UACC integration, supply chain reliance, and extensive regulation - The company has a history of losses, with an accumulated deficit of approximately $1.6 billion as of December 31, 2022, and may not achieve profitability in the future95 - Vroom may need to raise additional capital to achieve its business objectives, and there is no assurance that financing will be available on acceptable terms, if at all94 - The integration of the UACC business and its development into a captive lending operation presents significant challenges and may not yield the anticipated benefits154155 - Operational challenges from prior rapid growth have led to backlogs and delays in titling and registering vehicles, adversely affecting customer experience and brand reputation118152 - The business is highly dependent on access to desirable vehicle inventory and its ability to correctly appraise and price vehicles Obstacles to acquiring inventory could materially harm operations182221 - The company operates in a highly competitive and regulated industry Failure to comply with the wide range of federal, state, and local laws could result in material adverse effects188203 - A goodwill impairment charge of $201.7 million was recorded in 2022 due to a decline in the company's stock price and other factors100 Unresolved Staff Comments Not applicable The company reports no unresolved staff comments - Not Applicable307 Properties The company leases all its primary facilities, including its corporate headquarters and TDA dealership near Houston, Texas, as well as UACC's headquarters in Newport Beach, California, and its servicing center in Fort Worth, Texas Key Leased Properties | Facility | Location | Size (sq. ft.) | Lease Expiration | | :--- | :--- | :--- | :--- | | Vroom HQ | Houston, TX | ~102,492 | Nov 2024 | | TDA Dealership / Vroom VRC | Houston, TX | ~58,000 | Sep 2024 | | UACC HQ | Newport Beach, CA | ~20,058 | Mar 2024 | | UACC Servicing Center | Fort Worth, TX | ~106,500 | Sep 2031 | Legal Proceedings Vroom is involved in several significant legal matters, including a consolidated securities class action lawsuit, multiple shareholder derivative lawsuits, and a lawsuit filed by the Attorney General of Texas regarding vehicle marketing, titling, and registration - A consolidated securities class action lawsuit alleges violations of the Exchange Act and Securities Act against the company, certain officers, directors, and underwriters The company has filed a motion to dismiss314 - Multiple shareholder derivative lawsuits have been filed based on similar allegations as the securities class action These cases are currently stayed pending the resolution of the main securities litigation315316317 - In April 2022, the Attorney General of Texas filed a lawsuit alleging violations of the Texas Deceptive Trade Practices Act, citing deficiencies in marketing, titling, and registration of vehicles Vroom is working cooperatively towards a resolution318 Mine Safety Disclosures Not applicable The company has no mine safety disclosures - Not applicable320 Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Vroom's common stock has been trading on the Nasdaq Global Select Market under the ticker symbol "VRM" since its IPO on June 9, 2020, with no cash dividends paid or anticipated as earnings are retained for business growth - The company's common stock began trading on the Nasdaq Global Select Market under the ticker "VRM" on June 9, 2020338 - The company has not declared or paid any cash dividends and does not anticipate paying any in the foreseeable future340 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Vroom's total revenue decreased by 38.8% to $1.95 billion from $3.18 billion in 2021, driven by a 47.4% decline in e-commerce units sold, while total gross profit increased by 21.1% to $244.8 million and total gross profit per e-commerce unit rose 15.4% to $2,545, resulting in a net loss of $451.9 million including a $201.7 million goodwill impairment charge Key Financial Results (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,948.9 million | $3,184.3 million | (38.8)% | | Total Gross Profit | $244.8 million | $202.1 million | 21.1% | | Net Loss | ($451.9 million) | ($370.9 million) | 21.8% | | Ecommerce Units Sold | 39,278 | 74,698 | (47.4)% | | Total GPPU | $2,545 | $2,206 | 15.4% | - The company implemented a Business Realignment Plan in May 2022, resulting in approximately $8.5 million in severance costs and $6.5 million in lease impairment charges for the year355356 - In 2022, the company repurchased $254.3 million of its convertible notes for $90.2 million, recognizing a gain on debt extinguishment of $164.7 million365481 - The acquisition of UACC on February 1, 2022, established a new Retail Financing segment, which generated $152.5 million in revenue and $138.4 million in gross profit in 2022368472473 - As of December 31, 2022, the company had $398.9 million in cash and cash equivalents and believes it has sufficient liquidity to support operations for at least the next twelve months490491 Results of Operations Ecommerce Segment Performance (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Units Sold | 39,278 | 74,698 | (47.4)% | | Total Revenue | $1,364.2 million | $2,442.4 million | (44.1)% | | Total Gross Profit | $99.97 million | $164.75 million | (39.3)% | | Vehicle GPPU | $1,033 | $1,108 | (6.8)% | | Product GPPU | $1,512 | $1,098 | 37.7% | | Total GPPU | $2,545 | $2,206 | 15.4% | Wholesale Segment Performance (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Units Sold | 20,876 | 37,163 | (43.8)% | | Revenue | $293.5 million | $499.0 million | (41.2)% | | Gross (Loss) Profit | ($10.6 million) | $18.1 million | (158.6)% | | Gross (Loss) Profit per Unit | ($509) | $488 | (204.3)% | Retail Financing Segment Performance (2022) | Metric | 2022 (in millions) | | :--- | :--- | | Revenue | $152.5 million | | Gross Profit | $138.4 million | - Selling, general and administrative (SG&A) expenses increased by 3.4% to $566.4 million in 2022, primarily due to the inclusion of UACC's SG&A, higher compensation and benefits, and increased legal and IT costs, partially offset by significant reductions in marketing and outbound logistics476477486 - The company recorded impairment charges of $211.9 million in 2022, consisting of a $201.7 million goodwill write-down, $6.5 million in lease impairments, and $3.7 million for long-lived assets480 Liquidity and Capital Resources - As of December 31, 2022, the company had $398.9 million in cash and cash equivalents and $73.1 million in restricted cash490 - Net cash used in operating activities decreased significantly to $109.1 million in 2022 from $568.7 million in 2021, mainly due to proceeds from the sale of finance receivables and a decrease in working capital from lower inventory levels510511 - The company's vehicle inventory is financed through a 2022 Vehicle Floorplan Facility with a credit line of up to $500.0 million, maturing in March 2024 As of year-end 2022, $277.0 million was outstanding499707 - UACC has four senior secured warehouse credit facilities with an aggregate borrowing limit of $850.0 million to fund finance receivables As of year-end 2022, $229.5 million was outstanding507 Critical Accounting Policies and Estimates - Key estimates include those related to income taxes, inventory realizability, stock-based compensation, revenue reserves, and impairment of goodwill and long-lived assets516 - Business combinations are accounted for using the acquisition method, requiring significant estimates for the fair value of assets acquired and liabilities assumed, particularly for intangible assets like technology and customer relationships519 - Goodwill is tested for impairment annually or when triggering events occur A quantitative interim test as of March 31, 2022, resulted in a goodwill impairment charge of $201.7 million due to a sustained decline in the company's stock price524 Quantitative and Qualitative Disclosure About Market Risk The company's primary market risk is interest rate risk associated with its variable-rate debt, including the 2020 Vehicle Floorplan Facility and the UACC Warehouse Credit Facilities, where a hypothetical 10% change in interest rates during 2022 would have resulted in a $2.7 million change in interest expense - The company's primary market risk is interest rate risk from its variable-rate debt facilities used to finance vehicle inventory and finance receivables527 - A hypothetical 10% change in interest rates in 2022 would have changed interest expense by $2.7 million528 Financial Statements and Supplementary Data The consolidated financial statements for the year ended December 31, 2022, show total assets of $1.62 billion, a decrease from $2.37 billion in 2021, and a net loss of $451.9 million, with PricewaterhouseCoopers LLP providing an unqualified opinion on the financial statements and internal controls, excluding the newly acquired UACC from the internal control assessment Consolidated Balance Sheet Summary (As of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $398,915 | $1,132,325 | | Inventory | $320,648 | $726,384 | | Total Assets | $1,619,027 | $2,366,750 | | Liabilities & Equity | | | | Vehicle floorplan | $276,988 | $512,801 | | Long term debt, net | $402,154 | $610,618 | | Total Liabilities | $1,143,786 | $1,451,556 | | Total Stockholders' Equity | $475,241 | $915,194 | Consolidated Statement of Operations Summary (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenue | $1,948,901 | $3,184,255 | | Total Gross Profit | $244,787 | $202,099 | | Loss from Operations | ($571,763) | ($358,615) | | Net Loss | ($451,910) | ($370,911) | - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements and internal controls over financial reporting as of December 31, 2022536 - The auditor's report identified the valuation of purchased technology and customer relationships intangible assets from the UACC acquisition as a critical audit matter due to the significant management judgment involved544545 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable The company reports no changes in or disagreements with its accountants - Not applicable838 Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022, with the assessment excluding the newly acquired UACC business - Management concluded that disclosure controls and procedures were effective as of December 31, 2022841 - Management's assessment of internal control over financial reporting concluded that controls were effective as of December 31, 2022842 - The assessment of internal controls excluded the newly acquired UACC business, which will be included in the assessment for the year ending December 31, 2023843 Other Information Not applicable The company reports no other information - Not applicable846 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable - Not applicable847 Part III Directors, Executive Officers, and Corporate Governance This section provides information about the company's directors and executive officers, incorporating by reference detailed disclosures from the forthcoming 2023 Proxy Statement, and notes the adoption of a Code of Business Conduct and Ethics - Information regarding directors, executive officers, and corporate governance is primarily incorporated by reference from the company's definitive proxy statement for the 2023 annual meeting of stockholders850 - The company has adopted a "Code of Business Conduct and Ethics" that applies to all directors, officers, and employees, which is available on its investor relations website849 Executive Compensation Information required for this item concerning executive compensation is incorporated by reference from Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders - The information required by this item is incorporated by reference to Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders851 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required for this item concerning security ownership is incorporated by reference from Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders - The information required by this item is incorporated by reference to Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders852 Certain Relationships and Related Transactions, and Director Independence Information required for this item concerning related party transactions and director independence is incorporated by reference from Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders - The information required by this item is incorporated by reference to Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders853 Principal Accounting Fees and Services Information required for this item concerning principal accounting fees and services is incorporated by reference from Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders - The information required by this item is incorporated by reference to Vroom's Proxy Statement for its 2023 Annual Meeting of Stockholders854 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including consolidated financial statements and an index of exhibits, noting the omission of all financial statement schedules as not applicable - This item includes the Consolidated Financial Statements of Vroom, Inc. as set forth in Part II, Item 8858 - All financial statement schedules have been omitted because they are not applicable, not material, or the required information is included elsewhere in the report858 - An index of exhibits is provided, listing documents such as the merger agreement for UACC, corporate governance documents, debt indentures, and various material contracts857 Form 10-K Summary None The company has not provided a summary for its Form 10-K - None867