Vroom(VRM) - 2023 Q1 - Quarterly Report

Part I - Financial Information Financial Statements Q1 2023 financial statements reflect significant revenue contraction and a $75.0 million net loss, with increased cash used in operations Condensed Consolidated Balance Sheets Total assets rose to $1.65 billion due to finance receivables, while liabilities increased to $1.25 billion and equity declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $316,714 | $398,915 | | Inventory | $212,982 | $320,648 | | Finance receivables at fair value (net) | $536,270 | $153,174 | | Total assets | $1,651,636 | $1,619,027 | | Liabilities & Equity | | | | Vehicle floorplan | $147,428 | $276,988 | | Total liabilities | $1,249,398 | $1,143,786 | | Total stockholders' equity | $402,238 | $475,241 | Condensed Consolidated Statements of Operations Q1 2023 revenue declined 78.7% to $196.5 million, resulting in a $75.0 million net loss, an improvement from prior year Q1 2023 vs. Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenue | $196,467 | $923,775 | | Total gross profit | $38,805 | $81,640 | | Selling, general and administrative expenses | $96,537 | $187,994 | | Impairment charges | $0 | $201,703 | | Loss from operations | $(68,263) | $(315,913) | | Net loss | $(75,044) | $(310,459) | | Net loss per share, basic and diluted | $(0.54) | $(2.26) | - The company recognized a gain on debt extinguishment of $8.7 million in Q1 2023 from repurchasing convertible senior notes[21] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $85.0 million, while investing activities provided $46.8 million, reversing prior trends Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(85,021) | $(15,078) | | Net cash provided by (used in) investing activities | $46,818 | $(211,963) | | Net cash used in financing activities | $(45,099) | $(190,204) | | Net decrease in cash, cash equivalents and restricted cash | $(83,302) | $(417,245) | Notes to Condensed Consolidated Financial Statements Notes detail restructuring, debt repurchase gains, a Nasdaq delisting notice, and re-evaluation of reportable segments - The company has three reportable segments: Ecommerce, Wholesale, and Retail Financing. The former TDA segment is now included in the "All Other" category[32][224] - In January 2023, the company executed a reduction in force of approximately 275 employees, incurring severance costs of approximately $4.1 million[219] - During Q1 2023, the company repurchased $14.6 million in principal of its Convertible Senior Notes for $5.9 million, recognizing a gain on debt extinguishment of $8.7 million[58][153] - Subsequent to the quarter end, on April 14, 2023, the company received a Nasdaq delisting notice for failing to meet the $1.00 minimum bid price requirement[242] - On April 26, 2023, the company implemented another reduction in force, cutting approximately 120 employees with expected severance costs of $2.0 million in Q2 2023[247] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2023 revenue and unit sales decline to strategic shifts, focusing on unit economics and long-term operational improvements Key Operating and Financial Metrics Q1 2023 metrics show a 79.8% drop in Ecommerce units, negative vehicle gross profit, but increased total gross profit per unit from product financing Key Operating Metrics Comparison | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Ecommerce units sold | 3,933 | 19,473 | | Vehicle gross (loss) profit per ecommerce unit | $(151) | $595 | | Product gross profit per ecommerce unit | $2,703 | $1,168 | | Total gross profit per ecommerce unit | $2,552 | $1,763 | | Ecommerce average days to sale | 279 | 91 | Results of Operations Total revenue declined 78.7% YoY across all segments, while SG&A expenses were significantly reduced by 48.6% through cost-cutting measures - Ecommerce units sold decreased 79.8% YoY, driven by the strategic decision to prioritize unit economics over volume and a reduction in sales support staff[357] - Ecommerce vehicle gross profit per unit turned negative to ($151) from $595 in the prior year, primarily due to lower sales margins on aged inventory and higher reconditioning costs[362] - Ecommerce product gross profit per unit increased 131.4% to $2,703, driven by higher interest income from finance receivables originated by UACC[364] - SG&A expenses decreased by $91.5 million (48.6%) YoY, reflecting significant cuts in outbound logistics ($24.7M), compensation & benefits ($23.9M), and marketing ($22.3M)[374] Liquidity and Capital Resources The company held $316.7 million in cash and believes existing liquidity is sufficient for the next twelve months, supported by cost reductions and debt repurchases - The company had $316.7 million in cash and cash equivalents and $72.0 million in restricted cash as of March 31, 2023[385] - Management believes existing cash and credit facilities will be sufficient to support operations for at least the next twelve months[386] - The company is pursuing cost savings through reductions in force, with an expected $27.0 million in annualized savings from the January 2023 action and $15.0 million from the April 2023 action[387] Quantitative and Qualitative Disclosure About Market Risk The company faces interest rate risk from variable-rate debt, including $147.4 million on its Vehicle Floorplan Facility and $124.2 million on Warehouse Credit Facilities - The company is exposed to interest rate risk from its variable-rate Vehicle Floorplan Facility ($147.4M outstanding) and Warehouse Credit Facilities ($124.2M outstanding)[417] - A hypothetical 10% change in interest rates in Q1 2023 would have changed interest expense by $0.6 million[417] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[421] - No material changes were made to the internal control over financial reporting during the first quarter of 2023[422] Part II - Other Information Legal Proceedings The company faces multiple legal proceedings, including a securities class action, shareholder derivative lawsuits, and a Texas AG petition on deceptive trade practices - The company is defending against a consolidated securities class action lawsuit (In re: Vroom, Inc. Securities Litigation) alleging violations of the Exchange Act and Securities Act[424] - The Attorney General of Texas filed a petition against the company alleging violations of the Texas Deceptive Trade Practices Act related to marketing, titling, and registration of vehicles[427] - Multiple shareholder derivative lawsuits have been filed and are currently stayed pending the resolution of the main securities litigation[425][426] Risk Factors Key risks include a Nasdaq delisting notice for failing the $1.00 minimum bid price, substantial indebtedness, and challenges related to the UACC acquisition - The company received a notice from Nasdaq for its stock price closing below $1.00 for 30 consecutive days, creating a risk of delisting from the Nasdaq Global Select Market[431] - A delisting would constitute a 'fundamental change' under the indenture for its convertible notes, allowing holders to require the company to repurchase the notes at par[433][435] - Risks related to the UACC acquisition include potential failure to realize anticipated benefits, inability to sell automotive finance receivables on favorable terms, and exposure to increasing credit losses, particularly in the sub-prime sector[442][445][448] Unregistered Sales of Equity Securities and Use of Proceeds No material change has occurred in the planned use of proceeds from the company's June 2020 Initial Public Offering - There has been no material change in the planned use of proceeds from the company's June 2020 IPO[454] Defaults Upon Senior Securities The company reports no defaults upon its senior securities during the reporting period - None[455] Exhibits This section lists exhibits filed with the Form 10-Q, including required certifications and interactive data files