Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and in the section titled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), as updated by the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Vroom is an innovative, end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles. We are deeply committed to creating an exceptional experience for our customers.
We are driving enduring change in the industry on a national scale. 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 have expanded 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 and performance 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.
Based on data from Cox Automotive, there were an estimated 37.2 million used vehicle transactions in 2020. The U.S. used automotive market is also highly fragmented, with over 42,000 dealers and millions of peer-to-peer transactions across the country. 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. 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.
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Table of Contents
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 a licensed dealer. As the largest segment in our business, Ecommerce revenue grew 216.4% from the three months ended September 30, 2020 to the three months ended September 30, 2021 and 170.2% from the nine months ended September 30, 2020 to the nine months ended September 30, 2021, 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 channels, which provide a revenue source for vehicles that do not meet our Vroom retail sales criteria. Additionally, we generate revenue through the retail sale of used vehicles and value-added products at Houston-based Texas Direct Auto, or TDA.
Our Ecommerce, Wholesale and TDA segments represented 78.2%, 14.6%, and 6.8%, respectively, of our total revenue for the three months ended September 30, 2021 and represented 75.7%, 16.8%, and 7.1%, respectively, of our total revenue for the nine months ended September 30, 2021.
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 finance and protection 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:
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. Currently, we generate additional revenue streams without directly underwriting vehicle financing or protection products; however, our planned acquisition of United Auto Credit Corporation ("UACC") will establish captive financing capabilities and a platform that brings with it non-prime financing expertise, as well as extensive application processing, underwriting, securitization, and servicing capabilities. 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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Table of Contents
Inventory Sourcing
We source our vehicle inventory from a variety of channels, including consumers, auctions, rental car companies, OEMs and dealers. Because the quality of vehicles and associated gross margin profile vary across each channel, the mix of inventory sources has an impact on our profitability. We continually evaluate the optimal mix of sourcing channels to generate the highest sales margins and shortest inventory turns, both of which contribute to increased gross profit per unit. We generate a vast set of predictive data derived from market demand, pricing dynamics, vehicle acquisitions and subsequent sales, and we leverage that data to optimize future vehicle acquisitions, which we believe has been enhanced by the acquisition of CarStory and integration of its advanced data analytics. 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 are also exploring and testing third-party inventory strategies, which offers the possibility of expanding our sourcing channels through third-party sellers while offering us attractive revenue models in an asset light, debt free structure. See “—Other Key Factors and Trends Affecting our Operating Results—Ability to utilize data science to drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory.”
Vehicle Reconditioning
Before a vehicle is listed for retail sale on our platform, it undergoes a thorough reconditioning process in order to meet our Vroom retail sales criteria. The efficiency of this reconditioning process is a key element in our ability to 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, and we intend to continue to expand our network of third-party and Vroom owned VRCs. Utilizing this hybrid approach, we have increased our total reconditioning capacity to approximately 3,200 units per week as of September 30, 2021, with approximately three-fourths from our 29 third-party VRCs. As we are increasing the number of vehicles in our inventory and expanding our reconditioning capacity, we expect that reconditioning costs and inbound shipping costs per unit will continue to decrease as we benefit from economies of scale and operating leverage in reconditioning costs. See “—Other 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 throughout the 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 enhanced the flexibility, agility and speed of our growth while reducing the need for additional capital commitments as we scaled our business. Since the start of the COVID-19 pandemic, we have experienced a reduced supply of carriers combined with increased demand for carriers from competitors, resulting in increased shipping prices and delays. In response to these disruptions, and to further enhance the quality of our logistics operations and our customer experience, we have been accelerating our strategy to optimize our hybrid approach by expanding our proprietary logistics network. Initially we prioritized investment in our last mile delivery operations where we can have the greatest impact on the customer experience. We also have invested in short-haul vehicles to make regional deliveries from our last mile hubs, and are investing in line-haul vehicles for hub-to-hub shipments. Consistent with our hybrid approach, as we scale our business, we continue 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 “—Other Key Factors and Trends Affecting our Operating Results—Ability to expand and develop our logistics network.”
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Table of Contents
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 vehicle service contracts, GAP protection and tire and wheel coverage. As we scale our business, we intend to introduce additional value-added products that will be attractive to our customers and drive revenue and profitable growth. We expect that both expanded product offerings and increased attachment rates in value-added product sales will have a positive impact on our profitability. We entered into a definitive agreement to acquire UACC, which we expect to accelerate our strategic objective to establish captive financing capabilities to support sales growth, improve unit economics and create long-term value for our shareholders. See “—Other 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 (78.2% and 75.7% of total revenue for the three and nine months ended September 30, 2021, respectively): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales.
Wholesale (14.6% and 16.8% of total revenue for the three and nine months ended September 30, 2021, respectively): The Wholesale segment represents sales of used vehicles through wholesale channels.
TDA (6.8% and 7.1% of total revenue for the three and nine months ended September 30, 2021, respectively): 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.
Gross profit is defined as revenue less cost of sales for each segment. Reflected below is a summary of segment revenue and segment gross profit for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020 (1)
|
|
|
2021
|
|
|
2020 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecommerce
|
|
$
|
701,678
|
|
|
$
|
221,761
|
|
|
$
|
1,703,649
|
|
|
$
|
630,501
|
|
Wholesale
|
|
|
131,306
|
|
|
|
63,972
|
|
|
|
377,438
|
|
|
|
170,469
|
|
TDA
|
|
|
60,582
|
|
|
|
36,955
|
|
|
|
158,928
|
|
|
|
149,858
|
|
All Other
|
|
|
3,190
|
|
|
|
317
|
|
|
|
9,749
|
|
|
|
1,043
|
|
Total revenue
|
|
$
|
896,756
|
|
|
$
|
323,005
|
|
|
$
|
2,249,764
|
|
|
$
|
951,871
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecommerce
|
|
$
|
50,383
|
|
|
$
|
19,304
|
|
|
$
|
131,859
|
|
|
$
|
40,789
|
|
Wholesale
|
|
|
2,103
|
|
|
|
3,343
|
|
|
|
10,337
|
|
|
|
1,506
|
|
TDA
|
|
|
3,805
|
|
|
|
2,675
|
|
|
|
9,743
|
|
|
|
8,799
|
|
All Other
|
|
|
1,798
|
|
|
|
123
|
|
|
|
5,454
|
|
|
|
345
|
|
Total gross profit
|
|
$
|
58,089
|
|
|
$
|
25,445
|
|
|
$
|
157,393
|
|
|
$
|
51,439
|
|
(1)
We reclassified other revenue and other gross profit related to the vehicle repair service at TDA from the TDA reportable segment to the “All Other” category to conform to current year presentation.
31
Table of Contents
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Ecommerce units sold
|
|
|
19,683
|
|
|
|
8,823
|
|
|
|
53,455
|
|
|
|
23,466
|
|
Vehicle Gross Profit per ecommerce unit
|
|
$
|
1,315
|
|
|
$
|
1,302
|
|
|
$
|
1,360
|
|
|
$
|
865
|
|
Product Gross Profit per ecommerce unit
|
|
|
1,245
|
|
|
|
886
|
|
|
|
1,107
|
|
|
|
873
|
|
Total Gross Profit per ecommerce unit
|
|
$
|
2,560
|
|
|
$
|
2,188
|
|
|
$
|
2,467
|
|
|
$
|
1,738
|
|
Average monthly unique visitors
|
|
|
2,236,168
|
|
|
|
928,277
|
|
|
|
1,845,302
|
|
|
|
958,397
|
|
Listed vehicles
|
|
|
16,997
|
|
|
|
12,302
|
|
|
|
16,997
|
|
|
|
12,302
|
|
Ecommerce average days to sale
|
|
|
68
|
|
|
|
52
|
|
|
|
73
|
|
|
|
62
|
|
Ecommerce Units Sold
Ecommerce units sold is defined as the number of vehicles sold and shipped to customers through our ecommerce platform, net of returns under our Vroom 7-Day Return Program. Ecommerce units sold excludes sales of vehicles through the TDA and Wholesale segments. As we continue to expand our ecommerce business, we expect that ecommerce units sold will continue to 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 through wholesale channels.
Vehicle Gross Profit per Ecommerce Unit
Vehicle Gross Profit per ecommerce unit, which we refer to as Vehicle GPPU, for a given period is defined as the aggregate retail sales price and delivery charges for all vehicles sold through our Ecommerce segment less the aggregate costs to acquire those vehicles, the aggregate costs of inbound transportation to the VRCs and the aggregate costs of reconditioning those vehicles in that period, divided by the number of ecommerce units sold in that period. As we continue to expand our ecommerce business, we believe Vehicle GPPU will be a key driver of our long-term profitability.
32
Table of Contents
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 continue to introduce initiatives to increase the attachment rates of value-added products and expand our offerings of value-added products which will grow our Product GPPU. We also entered into a definitive agreement to acquire UACC, which we expect to accelerate our strategic objective to establish captive financing capabilities to support sales growth, improve unit economics and create long-term value for our shareholders.
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 Google Analytics. The computation of average monthly unique visitors excludes individuals who access our platform multiple times within a calendar month, counting such individuals only one time for purposes of the calculation. If an individual accesses our ecommerce platform using different devices or different browsers on the same device within a given month, the first access through each such device or browser is counted as a separate monthly unique visitor.
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 vehicles that are available for sale, pending sale and “coming soon”. 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.
33
Table of Contents
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, 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 are supplemental performance measures that our management uses to assess our operating performance and the operating leverage in our business. Because EBITDA, Adjusted EBITDA, Adjusted loss from operations, Non-GAAP net loss, Non-GAAP net loss per share and Non-GAAP net loss per share, as adjusted facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes.
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, the one-time, IPO related non-cash revaluation of a preferred stock warrant, and costs related to our acquisition of UACC. 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(98,122
|
)
|
|
$
|
(37,850
|
)
|
|
$
|
(241,118
|
)
|
|
$
|
(142,137
|
)
|
Adjusted to exclude the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,028
|
|
|
|
2,259
|
|
|
|
14,720
|
|
|
|
6,382
|
|
Interest income
|
|
|
(2,930
|
)
|
|
|
(1,289
|
)
|
|
|
(7,288
|
)
|
|
|
(3,960
|
)
|
Provision for income taxes
|
|
|
29
|
|
|
|
33
|
|
|
|
379
|
|
|
|
138
|
|
Depreciation and amortization expense
|
|
|
3,469
|
|
|
|
1,196
|
|
|
|
9,497
|
|
|
|
3,255
|
|
EBITDA
|
|
$
|
(90,526
|
)
|
|
$
|
(35,651
|
)
|
|
$
|
(223,810
|
)
|
|
$
|
(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
|
|
Acquisition related costs
|
|
|
3,412
|
|
|
|
—
|
|
|
|
3,412
|
|
|
|
—
|
|
Adjusted EBITDA
|
|
$
|
(87,114
|
)
|
|
$
|
(35,651
|
)
|
|
$
|
(220,398
|
)
|
|
$
|
(114,590
|
)
|
34
Table of Contents
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 and costs related to our acquisition of UACC. The following table presents a reconciliation of Adjusted loss from operations to loss from operations, which is the most directly comparable U.S. GAAP measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Loss from operations
|
|
$
|
(94,005
|
)
|
|
$
|
(36,873
|
)
|
|
$
|
(233,365
|
)
|
|
$
|
(119,218
|
)
|
Add: One-time IPO related acceleration of non-cash stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,262
|
|
Add: Acquisition related costs
|
|
|
3,412
|
|
|
|
—
|
|
|
|
3,412
|
|
|
|
—
|
|
Adjusted loss from operations
|
|
$
|
(90,593
|
)
|
|
$
|
(36,873
|
)
|
|
$
|
(229,953
|
)
|
|
$
|
(117,956
|
)
|
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, the one-time, IPO related non-cash revaluation of a preferred stock warrant and costs related to our acquisition of UACC. 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 comparable U.S. GAAP measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in thousands, except share and per share amounts)
|
|
Net loss
|
|
$
|
(98,122
|
)
|
|
$
|
(37,850
|
)
|
|
$
|
(241,118
|
)
|
|
$
|
(142,137
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(98,122
|
)
|
|
$
|
(37,850
|
)
|
|
$
|
(241,118
|
)
|
|
$
|
(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
|
|
Add: Acquisition related costs
|
|
|
3,412
|
|
|
|
—
|
|
|
|
3,412
|
|
|
|
—
|
|
Non-GAAP net loss
|
|
$
|
(94,710
|
)
|
|
$
|
(37,850
|
)
|
|
$
|
(237,706
|
)
|
|
$
|
(120,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted
|
|
|
136,766,015
|
|
|
|
121,123,472
|
|
|
|
136,256,901
|
|
|
|
53,731,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.72
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.77
|
)
|
|
$
|
(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
|
|
Impact of acquisition related costs
|
|
|
0.02
|
|
|
|
—
|
|
|
|
0.03
|
|
|
|
—
|
|
Non-GAAP net loss per share, basic and diluted
|
|
$
|
(0.70
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(2.25
|
)
|
Non-GAAP net loss per share, as adjusted, basic and diluted(a)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(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, (ii) the automatic conversion of all outstanding shares of redeemable convertible preferred stock into
35
Table of Contents
shares of common stock that occurred upon the consummation of our IPO and (iii) the shares of common stock issued in connection with our follow-on public offering. The computation of Non-GAAP net loss per share, as adjusted is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in thousands, except share and per share amounts)
|
|
Non-GAAP net loss
|
|
$
|
(94,710
|
)
|
|
$
|
(37,850
|
)
|
|
$
|
(237,706
|
)
|
|
$
|
(120,405
|
)
|
Non-GAAP net loss, as adjusted
|
|
$
|
(94,710
|
)
|
|
$
|
(37,850
|
)
|
|
$
|
(237,706
|
)
|
|
$
|
(120,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted
|
|
|
136,766,015
|
|
|
|
121,123,472
|
|
|
|
136,256,901
|
|
|
|
53,731,475
|
|
Add: unweighted adjustment for common stock issued in connection with IPO
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,437,500
|
|
Add: unweighted adjustment for conversion of redeemable convertible preferred stock in connection with IPO
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
85,533,394
|
|
Add: unweighted adjustment for common stock issued in connection with follow-on public offering
|
|
|
—
|
|
|
|
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
|
|
|
136,766,015
|
|
|
|
130,162,603
|
|
|
|
136,256,901
|
|
|
|
129,604,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss per share, as adjusted, basic and diluted
|
|
$
|
(0.70
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(0.93
|
)
|
Recent Events
Definitive Agreement to Acquire UACC
On October 11, 2021, we entered into a definitive agreement to acquire 100% of Unitas Holdings Corp., the parent corporation of UACC, a leader in automotive finance. Following the acquisition, UACC will become an indirect wholly-owned subsidiary of Vroom and will continue to operate under the UACC name. This acquisition is expected to accelerate our strategic objective to establish captive financing capabilities to support sales growth, improve unit economics and create long-term value for our shareholders. The UACC platform brings with it non-prime financing expertise, as well as extensive application processing, underwriting, securitization, and servicing capabilities. UACC will join our existing lineup of lenders available through our ecommerce platform as we work to integrate UACC’s services and develop our captive financing operation. UACC also will remain committed to maintaining and expanding its network of dealership customers.
The purchase price is approximately $300.0 million, subject to certain customary purchase price adjustments, and will be paid using our cash on hand. The transaction is expected to close either late in the fourth quarter of 2021 or early in the first quarter of 2022, subject to receipt of required regulatory approvals and satisfaction of customary closing conditions.
We believe that, over time, the UACC platform will unlock the benefits of our captive finance strategy and enable us to increase ecommerce unit sales, expand our penetration into non-prime sales, accelerate total revenue growth, enhance aggregate gross profit and GPPU, and leverage our fixed cost base. In addition, utilizing UACC’s securitization expertise, we expect all loans originated by UACC post-closing to be funded through existing warehouse lines and sold via forward flow arrangements and off-balance sheet securitization transactions. This originate-to-sell strategy is designed to achieve the benefits of a captive financing operation while maintaining an asset-light funding strategy.
Update on the Impact of the COVID-19 Pandemic
The COVID-19 pandemic and measures implemented by governmental authorities around the world to reduce the spread of COVID-19 disrupted our operations and adversely affected our financial performance beginning late in the first quarter of 2020. After the initial disruption, the used vehicle market began to recover and consumer demand for used vehicles increased and now exceeds pre-pandemic levels. This recovery has been bolstered by the introduction of COVID-19 vaccines nationwide.
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Table of Contents
We believe the COVID-19 pandemic has reinforced our business model. However, the future impact of the COVID-19 pandemic on our operational and financial performance is currently uncertain and will depend on many factors outside our control, including the severity and duration of the COVID-19 pandemic and the effectiveness of actions taken to contain the spread of COVID-19 or treat its impact. We have begun modifying our policies and practice regarding in-person work and intend to begin re-opening additional offices and instituting return-to-office policies on a modified basis for some employees who have been working remotely throughout the pandemic. All actions will be taken in accordance with updated state and local health and safety guidance and requirements for in-office work. Nevertheless, the unpredictable nature of the virus, its treatment and worker sentiment may further delay routine in-person work and reduce the effectiveness of efforts aimed at improving employee retention; there can be no assurance that there will not be future material disruptions in our workforce. The various workforce health and safety measures we have taken have led to increased operating expenses and future health and safety measures may lead to further increases. We will continue to monitor and assess the impact of the COVID-19 pandemic on our business and our results of operations and financial condition as the pandemic continues to evolve. See Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading “Risk Factors” for more information.
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 utilize data science 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.
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 generate predictive data analytics that fine-tune our supply and sourcing models. We believe the acquisition of CarStory has enhanced our predictive market data capabilities. 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. Our data analytics are complex models that incorporate numerous assumptions and predictions about consumer and industry dynamics. As with all predictions, the output of our data analytics is subject to inherent uncertainty and reflects judgment and expertise when providing data-driven decisions based on those analytics.
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. Our ability to continue to benefit from this trend will be an important driver of our future performance.
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Table of Contents
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 significantly increased over time 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 and source vehicles from consumers
The quality of the customer experience on our ecommerce platform is critical to our ability to attract new visitors to our platform, convert such visitors into customers and increase repeat customers, as well as our ability to acquire vehicles directly from consumers. Our ability to drive higher customer conversion and increased consumer sourcing depends on our ability to make our platform a compelling choice for consumers based on our functionalities and consumer offerings.
Data analytics and experimentation drive decision making across all of our conversion and sourcing efforts. By analyzing the data generated by the millions of visitors and tens of thousands of transactions on our platform, and continually testing strategies to maximize conversion rates, we form a better understanding of consumer preferences and try to create a more tailored ecommerce experience for consumers looking to purchase vehicles. Similarly, for consumers looking to sell vehicles to us, we use a vast set of data and data analytics, including the advanced data capabilities from our acquisition of CarStory, to provide an automated pricing platform that delivers real time, market-driven appraisals, and continually experiments and tests in order to further refine our approach to enhance the customer experience and drive increased vehicle purchases.
Increased conversion and consumer sourcing also depends on our ability to provide the necessary customer service and sales support to respond to increased demand. Our ongoing investment in our sales and sales support operations includes investments in people, processes and technology. We are continuing to invest in (1) people, to mitigate bottlenecks; (2) in our processes, to remove friction and increase transaction flow; and (3) in technology, to automate and improve our customer experience and drive conversion and consumer sourcing. We have continued to expand our sales and sales support team and expect to continue expanding these capabilities commensurate with our expected sales growth and consumer sourcing expectations throughout the remainder of 2021. As we continue to invest in our brand and improve the customer experience, we expect that we will attract more visitors, improve conversion, drive greater sales and increase the percentage of vehicles sourced from consumers.
Total Ecommerce transactions, defined as ecommerce vehicle purchases directly from consumers, including both trade-ins and straight buys, plus ecommerce units sold, increased over 190% in the third quarter of 2021 as compared to 2020. Total Ecommerce transactions represented approximately 24,500, 34,000, and 38,000 for the first, second and third quarter of 2021, respectively, compared to 10,000, 8,000, and 13,000 for the first, second, and third quarter of 2020, respectively. The increase was primarily driven by the increase in the percentage of vehicles sourced from consumers, amplified marketing campaigns, and expanded reconditioning capacity.
Ability to optimize the mix of inventory sources to drive increased gross profit and improvements to our unit economics
We strategically source inventory from consumers, auctions, rental car companies, OEMs and dealers. For the three months ended September 30, 2021, vehicles sourced from consumers represent approximately 81% of our retail inventory sold. For the nine months ended September 30, 2021, vehicles sourced from consumers and auctions represent approximately 67% and 23% of our retail inventory sold, 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 have strategically increased the percentage of vehicle sales that we source from consumers. Throughout 2021, we have experienced unprecedented market conditions, caused in part by the shortage of microchips and delays in new car manufacturing, which increased demand for used vehicles, putting downward pressure on supply and upward pressure on used vehicle pricing, and making consumer sourcing even more favorable. We also expect that our increased ability to inspect consumer sourced
38
Table of Contents
vehicles and make real time adjustments to acquisition pricing as a result of our scaling proprietary logistics operation will provide improvements to our overall wholesale gross profit per unit over time.
In order to continue to source vehicles directly from consumers, we continue to expand our national marketing efforts that are focused on our Sell Us Your Car® proposition.
We are also exploring and testing third-party inventory strategies, which offers the possibility of expanding 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 continue 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.
As we continue to grow our business, we intend to continue to increase reconditioning capacity and operational efficiency through third-party VRC locations and additional Vroom VRCs. 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. However, we are currently experiencing reconditioning and logistics constraints due to labor shortages and elevated demand at third-party supply chain partners, which negatively affects our cost structure and throughput. Proprietary VRCs enable us to have increased control over our reconditioning operations, increase capacity as we scale, and introduce additional operating efficiencies. Consistent with our hybrid model, as we scale, we will seek to optimize the combination of strategic, geographically dispersed, proprietary and third-party VRCs.
We have continued to expand our third-party VRC operations and, as of September 30, 2021, have a total of 29 third-party VRCs throughout the U.S. We leverage our data analytics and deep industry experience to strategically select VRC locations where we believe there is the highest supply and demand for our vehicles. We expect that the continued increase in reconditioning capacity and investment in technology will lower our reconditioning costs per unit and drive greater operational efficiency, higher gross profit per unit and improved unit economics over time.
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 a smaller number of carriers in dedicated operating regions. We expect that these enhanced logistics operations, combined with the expansion of strategically located VRCs, will drive efficiency in our logistics operations. Our VRCs also serve as pooling points to aggregate acquired vehicles and we are using certain VRCs as hubs for staging vehicles for last mile delivery to customers, which we expect to provide an improved experience for customers. As of September 30, 2021, we had 30 hubs and we delivered 41% of our ecommerce units sold with our proprietary last mile service during the third quarter of 2021. Recently, as a result of the continued prevalence of the COVID-19 pandemic, we have experienced a reduced supply of carriers combined with increased demand for carriers from competitors, resulting in increased shipping prices and delays. In response to these disruptions, and to further enhance the quality of our logistics operations and our customer experience, 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. We also have invested in short-haul vehicles to make regional deliveries from our last mile hubs, and are investing in line-haul vehicles for 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 continue 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,
39
Table of Contents
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. We have entered into strategic partnerships with lenders such as Chase, Ally, 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 to the revenue we generate on such sales. As a result, such sales help drive total gross profit per unit. As we scale our business, we intend to increase the breadth and variety of value-added products offered to customers and improve attachment rates to our vehicle sales. We have also entered into a definitive agreement to acquire UACC, which we expect to accelerate our strategic objective to establish captive financing capabilities to support sales growth, improve unit economics and create long-term value for our shareholders.
Seasonality
Used vehicle sales have historically been seasonal. The used vehicle industry typically experiences an increase in sales early in the calendar year and reaches its highest point late in the first quarter and early in the second quarter. Vehicle sales then level off through the rest of the year, with the lowest level of sales in the fourth quarter. This seasonality has historically corresponded with the timing of income tax refunds, which are an important source of funding for vehicle purchases. Additionally, used vehicles depreciate at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year. Given the current strong market demand for used vehicles and our rapid growth, our gross profit per unit has not been in line with these macro trends in the most recent historical periods. See “Risk Factors—Risks Related to Our Financial Condition and Results of Operations—We may experience seasonal and other fluctuations in our quarterly results of operations, which may not fully reflect the underlying performance of our business” in our Annual Report.
Components of Results of Operations
Revenue
Retail vehicle revenue
We sell retail vehicles through both our ecommerce platform and TDA. Revenue from vehicle sales, including any delivery charges, 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 vehicle market prices, our average days to sale and our reconditioning and logistics costs.
As a data-driven company, we acquire inventory based upon demand predicted by our data analytics. Our ASP increased significantly during the third quarter of 2021 primarily due to market appreciation, and we expect ASP to fluctuate in the short-term as a result of market conditions, however, our long-term strategy continues to move us towards lower-priced inventory, which we expect will result in a lower ASP.
40
Table of Contents
Wholesale vehicle revenue
We sell vehicles that do not meet our Vroom retail sales criteria through wholesale channels. Vehicles sold through wholesale channels are acquired from customers who trade-in their vehicles when making a purchase from us, from customers who sell their vehicle to us in 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 vehicle service contracts, GAP protection and tire and wheel 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.
Other revenue
Other revenue consists of labor and parts revenue earned by us for vehicle repair services at TDA and, commencing in the first quarter of 2021, revenue from CarStory.
See Note 3—Revenue Recognition to our consolidated 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.
41
Table of Contents
We expect that our SG&A expenses will increase in the future as we expand our operations, including our proprietary logistics operations, integrate and invest in UACC, hire additional employees and continue to increase our marketing spend. We have continued to expand our sales and sales support team, processes and technology and expect to continue to expand these capabilities commensurate with our expected sales growth throughout the remainder of 2021. We also will continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, consulting, regulatory and tax-related services associated with maintaining compliance with SEC and Nasdaq 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 and company vehicles; amortization related to intangible assets in acquired businesses; and capitalized internal use software costs incurred in the development of our platform and website applications. Depreciation expense related to our Vroom VRC and the portion of deprecation expense for our proprietary logistics vehicles related to inbound transportation is included in cost of sales in the condensed consolidated statements of operations.
Interest expense
Our interest expense includes interest expense related to our vehicle floorplan facility with Ally Bank and Ally Financial (the “2020 Vehicle Floorplan Facility”), as discussed below, which is used to finance our inventory as well as interest expense on our Convertible Senior Notes.
Interest Income
Interest income primarily represents interest credits earned on cash deposits maintained in relation to our 2020 Vehicle Floorplan Facility as well as interest earned on cash and cash equivalents.
Results of Operations
The following table presents our consolidated results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
% Change
|
|
|
|
2021
|
|
|
|
2020
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail vehicle, net
|
|
$
|
|
735,716
|
|
|
$
|
|
249,518
|
|
|
|
194.9
|
%
|
|
$
|
|
1,798,155
|
|
|
$
|
|
754,380
|
|
|
|
138.4
|
%
|
Wholesale vehicle
|
|
|
|
131,306
|
|
|
|
|
63,972
|
|
|
|
105.3
|
%
|
|
|
|
377,438
|
|
|
|
|
170,469
|
|
|
|
121.4
|
%
|
Product, net
|
|
|
|
26,544
|
|
|
|
|
9,198
|
|
|
|
188.6
|
%
|
|
|
|
64,422
|
|
|
|
|
25,979
|
|
|
|
148.0
|
%
|
Other
|
|
|
|
3,190
|
|
|
|
|
317
|
|
|
|
906.3
|
%
|
|
|
|
9,749
|
|
|
|
|
1,043
|
|
|
|
834.7
|
%
|
Total revenue
|
|
|
|
896,756
|
|
|
|
|
323,005
|
|
|
|
177.6
|
%
|
|
|
|
2,249,764
|
|
|
|
|
951,871
|
|
|
|
136.4
|
%
|
Cost of sales
|
|
|
|
838,667
|
|
|
|
|
297,560
|
|
|
|
181.8
|
%
|
|
|
|
2,092,371
|
|
|
|
|
900,432
|
|
|
|
132.4
|
%
|
Total gross profit
|
|
|
|
58,089
|
|
|
|
|
25,445
|
|
|
|
128.3
|
%
|
|
|
|
157,393
|
|
|
|
|
51,439
|
|
|
|
206.0
|
%
|
Selling, general and administrative expenses
|
|
|
|
148,718
|
|
|
|
|
61,127
|
|
|
|
143.3
|
%
|
|
|
|
381,482
|
|
|
|
|
167,418
|
|
|
|
127.9
|
%
|
Depreciation and amortization
|
|
|
|
3,376
|
|
|
|
|
1,191
|
|
|
|
183.5
|
%
|
|
|
|
9,276
|
|
|
|
|
3,239
|
|
|
|
186.4
|
%
|
Loss from operations
|
|
|
|
(94,005
|
)
|
|
|
|
(36,873
|
)
|
|
|
154.9
|
%
|
|
|
|
(233,365
|
)
|
|
|
|
(119,218
|
)
|
|
|
95.7
|
%
|
Interest expense
|
|
|
|
7,028
|
|
|
|
|
2,259
|
|
|
|
211.1
|
%
|
|
|
|
14,720
|
|
|
|
|
6,382
|
|
|
|
130.6
|
%
|
Interest income
|
|
|
|
(2,930
|
)
|
|
|
|
(1,289
|
)
|
|
|
127.3
|
%
|
|
|
|
(7,288
|
)
|
|
|
|
(3,960
|
)
|
|
|
84.0
|
%
|
Revaluation of stock warrant
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
|
—
|
|
|
|
|
20,470
|
|
|
|
(100.0
|
)%
|
Other income, net
|
|
|
|
(10
|
)
|
|
|
|
(26
|
)
|
|
|
(61.5
|
)%
|
|
|
|
(58
|
)
|
|
|
|
(111
|
)
|
|
|
(47.7
|
)%
|
Loss before provision for income taxes
|
|
|
|
(98,093
|
)
|
|
|
|
(37,817
|
)
|
|
|
159.4
|
%
|
|
|
|
(240,739
|
)
|
|
|
|
(141,999
|
)
|
|
|
69.5
|
%
|
Provision for income taxes
|
|
|
|
29
|
|
|
|
|
33
|
|
|
|
(12.1
|
)%
|
|
|
|
379
|
|
|
|
|
138
|
|
|
|
174.6
|
%
|
Net loss
|
|
$
|
|
(98,122
|
)
|
|
$
|
|
(37,850
|
)
|
|
|
159.2
|
%
|
|
$
|
|
(241,118
|
)
|
|
$
|
|
(142,137
|
)
|
|
|
69.6
|
%
|
42
Table of Contents
Segments
We manage and report operating results through three reportable segments:
Ecommerce (78.2% and 75.7% of total revenue for the three and nine months ended September 30, 2021, respectively): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales.
Wholesale (14.6% and 16.8% of total revenue for the three and nine months ended September 30, 2021, respectively): The Wholesale segment represents sales of used vehicles through wholesale channels.
TDA (6.8% and 7.1% of total revenue for the three and nine months ended September 30, 2021, respectively): 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.
Three Months Ended September 30, 2021 and 2020
Ecommerce
The following table presents our Ecommerce segment results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except unit
data and average days to sale)
|
|
|
|
|
|
|
|
|
Ecommerce units sold
|
|
|
|
19,683
|
|
|
|
|
8,823
|
|
|
|
|
10,860
|
|
|
|
123.1
|
%
|
Ecommerce revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle revenue
|
|
$
|
|
677,170
|
|
|
$
|
|
213,943
|
|
|
$
|
|
463,227
|
|
|
|
216.5
|
%
|
Product revenue
|
|
|
|
24,508
|
|
|
|
|
7,818
|
|
|
|
|
16,690
|
|
|
|
213.5
|
%
|
Total ecommerce revenue
|
|
$
|
|
701,678
|
|
|
$
|
|
221,761
|
|
|
$
|
|
479,917
|
|
|
|
216.4
|
%
|
Ecommerce gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit
|
|
$
|
|
25,875
|
|
|
$
|
|
11,486
|
|
|
$
|
|
14,389
|
|
|
|
125.3
|
%
|
Product gross profit
|
|
|
|
24,508
|
|
|
|
|
7,818
|
|
|
|
|
16,690
|
|
|
|
213.5
|
%
|
Total ecommerce gross profit
|
|
$
|
|
50,383
|
|
|
$
|
|
19,304
|
|
|
$
|
|
31,079
|
|
|
|
161.0
|
%
|
Average vehicle selling price per ecommerce unit
|
|
$
|
|
34,404
|
|
|
$
|
|
24,248
|
|
|
$
|
|
10,156
|
|
|
|
41.9
|
%
|
Gross profit per ecommerce unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit per ecommerce unit
|
|
$
|
|
1,315
|
|
|
$
|
|
1,302
|
|
|
$
|
|
13
|
|
|
|
1.0
|
%
|
Product gross profit per ecommerce unit
|
|
|
|
1,245
|
|
|
|
|
886
|
|
|
|
|
359
|
|
|
|
40.5
|
%
|
Total gross profit per ecommerce unit
|
|
$
|
|
2,560
|
|
|
$
|
|
2,188
|
|
|
$
|
|
372
|
|
|
|
17.0
|
%
|
Ecommerce average days to sale
|
|
|
|
68
|
|
|
|
|
52
|
|
|
|
|
16
|
|
|
|
30.8
|
%
|
Ecommerce units
Ecommerce units sold increased 10,860, or 123.1%, from 8,823 for the three months ended September 30, 2020 to 19,683 for the three months ended September 30, 2021. This increase was attributable to higher inventory levels, strong national brand recognition driven by our national advertising campaign and increased marketing spend, and increased demand due to growing consumer acceptance of our business model. The increase was also attributable to strong market demand generally for used vehicles, caused in part by the shortage of microchips and delays in new car manufacturing. Average monthly unique visitors to our website grew from 928,277 for the three months ended September 30, 2020 to 2,236,168 for the three months ended September 30, 2021, representing year over year growth of 140.9%. 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.
Ecommerce average days to sale increased from 52 days for the three months ended September 30, 2020 to 68 days for the three months ended September 30, 2021. In the third quarter of 2020, ecommerce average days to sale was positively impacted by a significant reduction of our aged inventory during the initial phase of the COVID-19 pandemic. As a result, the average number of days to sale for the newly acquired inventory decreased during the third quarter of 2020.
43
Table of Contents
Vehicle Revenue
Ecommerce vehicle revenue increased $463.3 million, or 216.5%, from $213.9 million for the three months ended September 30, 2020 to $677.2 million for the three months ended September 30, 2021. The increase in ecommerce vehicle revenue was primarily attributable to the 10,860 increase in ecommerce units sold, which increased vehicle revenue by $263.4 million, as well as a higher ASP per unit, which increased from $24,248 for the three months ended September 30, 2020 to $34,404 for the three months ended September 30, 2021, and increased vehicle revenue by $199.9 million. The increase in ASP per unit was primarily attributable to market appreciation. Although we expect ASP to fluctuate in the short-term as a result of market conditions, our long-term strategy continues to move us toward lower-priced inventory, which we expect will result in a lower ASP.
Product Revenue
Ecommerce product revenue increased $16.7 million, or 213.5%, from $7.8 million for the three months ended September 30, 2020 to $24.5 million for the three months ended September 30, 2021. The increase in ecommerce product revenue was primarily attributable to the 10,860 increase in ecommerce units sold, which increased product revenue by $9.6 million as well as an increase in product revenue per unit of $359, which increased product revenue by $7.1 million. Product revenue per unit increased from $886 for the three months ended September 30, 2020 to $1,245 for the three months ended September 30, 2021, primarily due to higher attachment rates and an increase in the average loan size as a result of higher ASP. We expect ecommerce product revenue will continue to grow driven by increases in ecommerce units sold, introduction of new value added products, and increased attachment rates.
Vehicle Gross Profit
Ecommerce vehicle gross profit increased $14.4 million, or 125.3%, from $11.5 million for the three months ended September 30, 2020 to $25.9 million for the three months ended September 30, 2021. The increase in vehicle gross profit was primarily attributable the 10,860 increase in ecommerce units sold, which increased vehicle gross profit by $14.1 million. Vehicle gross profit per unit increased slightly from $1,302 for the three months ended September 30, 2020 to $1,315 for the three months ended September 30, 2021, primarily driven by improvements in reconditioning costs, partially offset by lower sales margins (sales price less purchase price of vehicles sold) as a result of higher purchase prices of vehicle acquisitions.
As we continue to mature our infrastructure, increase and optimize our network of VRCs, and optimize our logistics operations, we expect ecommerce vehicle gross profit per unit to increase in the future driven by optimizing our acquisition strategy and reducing costs in logistics and reconditioning.
Product Gross Profit
Ecommerce product gross profit increased $16.7 million, or 213.5%, from $7.8 million for the three months ended September 30, 2020 to $24.5 million for the three months ended September 30, 2021. The increase in ecommerce product gross profit was primarily attributable to the 10,860 increase in ecommerce units sold which increased product gross profit by $9.6 million, as well as an increase in product gross profit per unit of $359, which increased product gross profit by $7.1 million. Product gross profit per unit increased from $886 for the three months ended September 30, 2020 to $1,245 for the three months ended September 30, 2021, primarily due to higher attachment rates and an increase in the average loan size as a result of higher ASP. We expect ecommerce product gross profit will continue to grow driven by increases in ecommerce units sold, introduction of new value added products, and increased attachment rates.
44
Table of Contents
Wholesale
The following table presents our Wholesale segment results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except unit data)
|
|
|
|
|
|
Wholesale units sold
|
|
|
9,760
|
|
|
6,166
|
|
|
3,594
|
|
58.3%
|
Wholesale revenue
|
|
$
|
131,306
|
|
$
|
63,972
|
|
$
|
67,334
|
|
105.3%
|
Wholesale gross profit
|
|
$
|
2,103
|
|
$
|
3,343
|
|
$
|
(1,240)
|
|
(37.1)%
|
Average selling price per unit
|
|
$
|
13,453
|
|
$
|
10,375
|
|
$
|
3,078
|
|
29.7%
|
Wholesale gross profit per unit
|
|
$
|
215
|
|
$
|
542
|
|
$
|
(327)
|
|
(60.3)%
|
Wholesale Units
Wholesale units sold increased 3,594, or 58.3%, from 6,166 for the three months ended September 30, 2020 to 9,760 for the three months ended September 30, 2021, primarily driven by an increase in wholesale units purchased from consumers, a higher number of trade-in vehicles associated with the increase in the number of ecommerce units sold and strong wholesale market demand for used vehicles.
Wholesale Revenue
Wholesale revenue increased $67.3 million, or 105.3%, from $64.0 million for the three months ended September 30, 2020 to $131.3 million for the three months ended September 30, 2021. The increase was primarily attributable to the 3,594 increase in wholesale units sold, which increased wholesale revenue by $37.3 million as well as a higher ASP per wholesale unit, which increased from $10,375 for the three months ended September 30, 2020 to $13,453 for the three months ended September 30, 2021 and increased wholesale revenue by $30.0 million. The increase in ASP per unit was primarily attributable to market appreciation.
Wholesale Gross Profit
Wholesale gross profit decreased $1.2 million, or 37.1%, from $3.3 million for the three months ended September 30, 2020 to $2.1 million for the three months ended September 30, 2021. The decrease was primarily attributable to a $327 decrease in wholesale gross profit per unit, which decreased gross profit by $3.1 million, partially offset by the 3,594 increase in wholesale units sold, which increased gross profit by $1.9 million. Gross profit per unit decreased from $542 for the three months ended September 30, 2020 to $215 for the three months ended September 30, 2021 as a result of sales margin compression due to unfavorable wholesale price movements, which declined during the first half of the third quarter of 2021.
45
Table of Contents
TDA
The following table presents our TDA segment results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020 (1)
|
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except unit
data and average days to sale)
|
|
|
|
|
|
|
|
|
TDA units sold
|
|
|
|
1,749
|
|
|
|
|
1,463
|
|
|
|
|
286
|
|
|
|
19.5
|
%
|
TDA revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle revenue
|
|
$
|
|
58,546
|
|
|
$
|
|
35,575
|
|
|
$
|
|
22,971
|
|
|
|
64.6
|
%
|
Product revenue
|
|
|
|
2,036
|
|
|
|
|
1,380
|
|
|
|
|
656
|
|
|
|
47.5
|
%
|
Total TDA revenue
|
|
$
|
|
60,582
|
|
|
$
|
|
36,955
|
|
|
$
|
|
23,627
|
|
|
|
63.9
|
%
|
TDA gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit
|
|
$
|
|
1,769
|
|
|
$
|
|
1,295
|
|
|
$
|
|
474
|
|
|
|
36.6
|
%
|
Product gross profit
|
|
|
|
2,036
|
|
|
|
|
1,380
|
|
|
|
|
656
|
|
|
|
47.5
|
%
|
Total TDA gross profit
|
|
$
|
|
3,805
|
|
|
$
|
|
2,675
|
|
|
$
|
|
1,130
|
|
|
|
42.2
|
%
|
Average vehicle selling price per TDA unit
|
|
$
|
|
33,474
|
|
|
$
|
|
24,316
|
|
|
$
|
|
9,158
|
|
|
|
37.7
|
%
|
Gross profit per TDA unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit per TDA unit
|
|
$
|
|
1,011
|
|
|
$
|
|
885
|
|
|
$
|
|
126
|
|
|
|
14.2
|
%
|
Product gross profit per TDA unit
|
|
|
|
1,164
|
|
|
|
|
943
|
|
|
|
|
221
|
|
|
|
23.4
|
%
|
Total gross profit per TDA unit
|
|
$
|
|
2,175
|
|
|
$
|
|
1,828
|
|
|
$
|
|
347
|
|
|
|
19.0
|
%
|
TDA average days to sale
|
|
|
|
44
|
|
|
|
|
32
|
|
|
|
|
12
|
|
|
|
37.5
|
%
|
(1)
We reclassified other revenue and gross profit related to the vehicle repair service at TDA from the TDA reportable segment to the “All Other” category to conform to current year presentation.
TDA units
TDA units sold increased 286, or 19.5%, from 1,463 for the three months ended September 30, 2020 to 1,749 for the three months ended September 30, 2021, primarily due to strong market demand generally for used vehicles and higher inventory levels.
Vehicle Revenue
TDA vehicle revenue increased $22.9 million, or 64.6%, from $35.6 million for the three months ended September 30, 2020 to $58.5 million for the three months ended September 30, 2021. The increase in TDA vehicle revenue was primarily due to a higher ASP per unit primarily due to market appreciation, which increased from $24,316 for the three months ended September 30, 2020 to $33,474 for the three months ended September 30, 2021 and increased revenue by $16.0 million and the 286 increase in TDA units sold, which increased TDA vehicle revenue by $6.9 million.
Product Revenue
TDA product revenue increased $0.6 million, or 47.5%, from $1.4 million for the three months ended September 30, 2020 to $2.0 million for the three months ended September 30, 2021. The increase in TDA product revenue was primarily attributable to an increase in product revenue per unit, which increased revenue by $0.4 million as well as the 286 increase in TDA units sold, which increased TDA product revenue by $0.2 million. The increase in product revenue per unit was primarily due to an increase in the average loan size as a result of higher ASP.
Vehicle Gross Profit
TDA vehicle gross profit increased $0.5 million, or 36.6%, from $1.3 million for the three months ended September 30, 2020 to $1.8 million for the three months ended September 30, 2021. The increase in vehicle gross profit was primarily attributable to the 286 increase in TDA units sold, which increased TDA vehicle gross profit by $0.3 million as well as a $126 increase in TDA vehicle gross profit per unit, which increased vehicle gross profit by $0.2 million. Vehicle gross profit per unit increased from $885 for the three months ended September 30, 2020 to $1,011 for the three
46
Table of Contents
months ended September 30, 2021, primarily attributable to improvements in inbound logistics costs, partially offset by higher reconditioning costs.
Product Gross Profit
TDA product gross profit increased $0.6 million, or 47.5% from $1.4 million for the three months ended September 30, 2020 to $2.0 million for the three months ended September 30, 2021. The increase in TDA product gross profit was primarily attributable to an increase in product gross profit per unit, which increased gross profit by $0.4 million as well as the 286 increase in TDA units sold, which increased TDA product gross profit by $0.2 million. The increase in product gross profit per unit was primarily due to an increase in the average loan size as a result of higher ASP.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Compensation & benefits
|
|
$
|
|
53,900
|
|
|
$
|
|
22,881
|
|
|
$
|
31,019
|
|
|
|
135.6
|
%
|
Marketing expense
|
|
|
|
35,214
|
|
|
|
|
15,341
|
|
|
|
19,873
|
|
|
|
129.5
|
%
|
Outbound logistics (1)
|
|
|
|
22,717
|
|
|
|
|
8,500
|
|
|
|
14,217
|
|
|
|
167.3
|
%
|
Occupancy and related costs
|
|
|
|
4,635
|
|
|
|
|
2,610
|
|
|
|
2,025
|
|
|
|
77.6
|
%
|
Professional fees
|
|
|
|
7,694
|
|
|
|
|
1,773
|
|
|
|
5,921
|
|
|
|
334.0
|
%
|
Other
|
|
|
|
24,558
|
|
|
|
|
10,022
|
|
|
|
14,536
|
|
|
|
145.0
|
%
|
Total selling, general & administrative expenses
|
|
$
|
|
148,718
|
|
|
$
|
|
61,127
|
|
|
$
|
87,591
|
|
|
|
143.3
|
%
|
(1)
Outbound logistics primarily includes third-party transportation fees as well as cost related to operating our proprietary logistics network, including fuel, tolls, and maintenance expenses. Inbound transportation costs, from the point of acquisition to the relevant reconditioning facility, are included in cost of sales.
SG&A expenses increased $87.6 million, or 143.3%, from $61.1 million for the three months ended September 30, 2020 to $148.7 million for the three months ended September 30, 2021. The increase was primarily due to:
a $31.0 million increase in compensation and benefits as a result of an increase in headcount and an increase in variable fees for third-party sales and sales support providers as a result of an increase in units sold;
a $19.9 million increase in marketing expense as we expanded our national broad-reach brand advertising, produced new commercials, and increased performance and online marketing as we continue to grow our listed inventory;
a $14.2 million increase in outbound logistics costs attributable to the growth in ecommerce units sold, which increased outbound logistics costs by $10.5 million, and increases in market rates of logistics providers, which increased outbound logistics costs by $3.7 million;
a $5.9 million increase in professional fees primarily related to acquisition related costs incurred in connection with the definitive agreement to acquire UACC as well as increased consulting expenses primarily in the marketing and engineering departments; and
a $14.5 million increase in other SG&A expenses primarily related to volume-based fees for software licenses and other variable expenses as our business continues to scale as well as additional insurance costs associated with being a publicly traded company and growing inventory.
Total SG&A expenses per total ecommerce transaction, defined as ecommerce vehicle purchases directly from consumers plus ecommerce units sold, decreased from $4,702 for the three months ended September 30, 2020 to $3,914 for the three months ended September 30, 2021, primarily due to operating leverage as our business continues to scale, partially offset by increases in market rates of logistics providers and acquisition related costs incurred in connection with the definitive agreement to acquire UACC.
We expect SG&A expenses to increase in the future as we continue to scale our business, integrate and invest in UACC, invest in and improve our customer experience, and continue expanding our proprietary logistics and reconditioning networks.
47
Table of Contents
Depreciation and amortization
Depreciation and amortization expenses increased $2.2 million, or 183.5%, from $1.2 million for the three months ended September 30, 2020 to $3.4 million for the three months ended September 30, 2021. The increase was primarily due to amortization expense of intangible assets acquired as part of the acquisition of the CarStory business on January 7, 2021, depreciation of the short-haul and long-haul vehicles acquired for our proprietary logistics network and increased depreciation expense as we continue to develop our internal use software.
Interest expense
Interest expense increased $4.7 million, or 211.1%, from $2.3 million for the three months ended September 30, 2020 to $7.0 million for the three months ended September 30, 2021. The increase was primarily attributable to a higher outstanding balance of the 2020 Vehicle Floorplan Facility due to the increase in vehicle inventory levels as the business continues to scale, which increased interest expense $2.7 million, and interest expense incurred on the Notes, which increased interest expense $2.0 million.
Interest income
Interest income increased $1.6 million, or 127.3%, from $1.3 million for the three months ended September 30, 2020 to $2.9 million for the three months ended September 30, 2021. The increase in interest income was primarily driven by higher cash and cash equivalent balances for the three months ended September 30, 2021 as compared to September 30, 2020, as a result of the issuance of the Notes.
Nine Months Ended September 30, 2021 and 2020
Ecommerce
The following table presents our Ecommerce segment results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Change
|
|
|
% Change
|
|
|
|
(in thousands, except unit
data and average days to sale)
|
|
|
|
|
|
|
|
|
Ecommerce units sold
|
|
|
|
53,455
|
|
|
|
|
23,466
|
|
|
|
|
29,989
|
|
|
|
127.8
|
%
|
Ecommerce revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle revenue
|
|
$
|
|
1,644,494
|
|
|
$
|
|
610,008
|
|
|
$
|
|
1,034,486
|
|
|
|
169.6
|
%
|
Product revenue
|
|
|
|
59,155
|
|
|
|
|
20,493
|
|
|
|
|
38,662
|
|
|
|
188.7
|
%
|
Total ecommerce revenue
|
|
$
|
|
1,703,649
|
|
|
$
|
|
630,501
|
|
|
$
|
|
1,073,148
|
|
|
|
170.2
|
%
|
Ecommerce gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit
|
|
$
|
|
72,704
|
|
|
$
|
|
20,296
|
|
|
$
|
|
52,408
|
|
|
|
258.2
|
%
|
Product gross profit
|
|
|
|
59,155
|
|
|
|
|
20,493
|
|
|
|
|
38,662
|
|
|
|
188.7
|
%
|
Total ecommerce gross profit
|
|
$
|
|
131,859
|
|
|
$
|
|
40,789
|
|
|
$
|
|
91,070
|
|
|
|
223.3
|
%
|
Average vehicle selling price per ecommerce unit
|
|
$
|
|
30,764
|
|
|
$
|
|
25,995
|
|
|
$
|
|
4,769
|
|
|
|
18.3
|
%
|
Gross profit per ecommerce unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit per ecommerce unit
|
|
$
|
|
1,360
|
|
|
$
|
|
865
|
|
|
$
|
|
495
|
|
|
|
57.2
|
%
|
Product gross profit per ecommerce unit
|
|
|
|
1,107
|
|
|
|
|
873
|
|
|
|
|
234
|
|
|
|
26.8
|
%
|
Total gross profit per ecommerce unit
|
|
$
|
|
2,467
|
|
|
$
|
|
1,738
|
|
|
$
|
|
729
|
|
|
|
41.9
|
%
|
Ecommerce average days to sale
|
|
|
|
73
|
|
|
|
|
62
|
|
|
|
|
11
|
|
|
|
17.7
|
%
|
48
Table of Contents
Ecommerce units
Ecommerce units sold increased 29,989, or 127.8%, from 23,466 for the nine months ended September 30, 2020 to 53,455 for the nine months ended September 30, 2021. This increase was attributable to higher inventory levels, strong national brand recognition driven by our national advertising campaign and increased marketing spend, and increased demand due to growing consumer acceptance of our business model. The increase was also attributable to strong market demand generally for used vehicles, caused in part by the shortage of microchips and delays in new car manufacturing. Average monthly unique visitors to our website increased from 958,397 for the nine months ended September 30, 2020 to 1,845,302 for the nine months ended September 30, 2021. 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.
Ecommerce average days to sale increased from 62 days for the nine months ended September 30, 2020 to 73 days for the nine months ended September 30, 2021. In the third quarter of 2020, ecommerce average days to sale was positively impacted by the significant reduction of our aged inventory during the initial phase of the COVID-19 pandemic. As a result, the average number of days to sale for the newly acquired inventory decreased during the third quarter of 2020. The increase was also driven by constraints experienced in sales support in response to accelerating demand and the sale of aged inventory during the first quarter of 2021. Average days to sale returned to normalized levels during the second quarter of 2021.
Vehicle Revenue
Ecommerce vehicle revenue increased $1,034.5 million, or 169.6%, from $610.0 million for the nine months ended September 30, 2020 to $1,644.5 million for the nine months ended September 30, 2021. The increase in ecommerce vehicle revenue was primarily attributable to the 29,989 increase in ecommerce units sold, which increased revenue by $779.6 million, as well as a higher ASP per unit, which increased from $25,995 for the nine months ended September 30, 2020 to $30,764 for the nine months ended September 30, 2021 and increased revenue by $254.9 million. The increase in ASP per unit was primarily attributable to market appreciation. Although we expect ASP to fluctuate in the short-term as a result of market conditions, our long-term strategy continues to move us toward lower-priced inventory, which we expect will result in a lower ASP.
Product Revenue
Ecommerce product revenue increased $38.7 million, or 188.7%, from $20.5 million for the nine months ended September 30, 2020 to $59.2 million for the nine months ended September 30, 2021. The increase was attributable to the 29,989 increase in ecommerce units sold which increased product revenue by $26.2 million and the increase in product revenue per unit of $234, which increased product revenue by $12.5 million. Product revenue per unit increased from $873 for the nine months ended September 30, 2020 to $1,107 for the nine months ended September 30, 2021, primarily due to higher attachment rates and an increase in the average loan size as a result of higher ASP. We expect ecommerce product revenue will continue to grow driven by increases in ecommerce units sold, introduction of new value added products, and increased attachment rates.
Vehicle Gross Profit
Ecommerce vehicle gross profit increased $52.4 million, or 258.2%, from $20.3 million for the nine months ended September 30, 2020 to $72.7 million for the nine months ended September 30, 2021. The increase was attributable to a higher vehicle gross profit per unit, which increased vehicle gross profit by $26.5 million and the 29,989 increase in ecommerce units sold which increased vehicle gross profit by $25.9 million. Vehicle gross profit per unit increased by $495 from $865 for the nine months ended September 30, 2020 to $1,360 for the nine months ended September 30, 2021, primarily attributable to improvements in reconditioning costs and higher sales margins. Strong sales margin per unit was partially driven by a record retail pricing environment during the first half of 2021 as well as an increase in vehicles sourced directly from consumers and further improvements in our pricing methodologies. Additionally, in 2020, our sales margin was negatively impacted by a strategic decision to reduce vehicle pricing in order to sell pre-COVID-19 inventory.
As we continue to mature our infrastructure and increase and optimize our network of VRCs, we expect ecommerce vehicle gross profit per unit to increase in the future driven by optimizing our acquisition strategy and reducing costs in logistics and reconditioning.
49
Table of Contents
Product Gross Profit
Ecommerce product gross profit increased $38.7 million, or 188.7%, from $20.5 million for the nine months ended September 30, 2020 to $59.2 million for the nine months ended September 30, 2021. The increase was attributable to the 29,989 increase in ecommerce units sold which increased product gross profit by $26.2 million and the increase in product gross profit per unit of $234, which increased product gross profit by $12.5 million. Product gross profit per unit increased from $873 for the nine months ended September 30, 2020 to $1,107 for the nine months ended September 30, 2021, primarily due to higher attachment rates and an increase in the average loan size as a result of higher ASP. We expect ecommerce product gross profit will continue to grow driven by increases in ecommerce units sold, introduction of new value added products, and increased attachment rates.
Wholesale
The following table presents our Wholesale segment results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Change
|
|
|
% Change
|
|
|
|
(in thousands, except unit data)
|
|
|
|
|
|
|
|
|
Wholesale units sold
|
|
|
|
28,421
|
|
|
|
|
14,110
|
|
|
|
|
14,311
|
|
|
|
101.4
|
%
|
Wholesale revenue
|
|
$
|
|
377,438
|
|
|
$
|
|
170,469
|
|
|
$
|
|
206,969
|
|
|
|
121.4
|
%
|
Wholesale gross profit
|
|
$
|
|
10,337
|
|
|
$
|
|
1,506
|
|
|
$
|
|
8,831
|
|
|
|
586.4
|
%
|
Average selling price per unit
|
|
$
|
|
13,280
|
|
|
$
|
|
12,081
|
|
|
$
|
|
1,199
|
|
|
|
9.9
|
%
|
Wholesale gross profit per unit
|
|
$
|
|
364
|
|
|
$
|
|
107
|
|
|
$
|
|
257
|
|
|
|
240.2
|
%
|
Wholesale Units
Wholesale units sold increased 14,311, or 101.4%, from 14,110 for the nine months ended September 30, 2020 to 28,421 for the nine months ended September 30, 2021, primarily driven by an increase in wholesale units purchased from consumers, a higher number of trade-in vehicles associated with the increase in the number of ecommerce units sold and strong wholesale market demand for used vehicles.
Wholesale Revenue
Wholesale revenue increased $206.9 million, or 121.4%, from $170.5 million for the nine months ended September 30, 2020 to $377.4 million for the nine months ended September 30, 2021. The increase in wholesale revenue was attributable to the 14,311 increase in wholesale units sold, which increased wholesale revenue by $172.8 million, as well as a higher ASP per unit, which increased from $12,081 million for the nine months ended September 30, 2020 to $13,280 for the nine months ended September 30, 2021 and increased revenue by $34.1 million. The increase in ASP per unit was primarily attributable to market appreciation.
Wholesale Gross Profit
Wholesale gross profit increased $8.8 million, or 586.4%, from $1.5 million for the nine months ended September 30, 2020 to $10.3 million for the nine months ended September 30, 2021. The increase was primarily attributable to a $257 increase in wholesale gross profit per unit, which increased gross profit by $7.3 million, as well as the 14,311 increase in wholesale units sold, which increased gross profit by $1.5 million. The increase in our sales margin was primarily driven by favorable wholesale market conditions for the nine months ended September 30, 2021 as compared to 2020. Additionally, in the first half of 2020, our sales margin was negatively impacted by the sale of retail vehicles through wholesale channels to reduce our inventory levels at the beginning of the COVID-19 pandemic.
50
Table of Contents
TDA
The following table presents our TDA segment results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020 (1)
|
|
|
|
Change
|
|
|
% Change
|
|
|
|
(in thousands, except unit
data and average days to sale)
|
|
|
|
|
|
|
|
|
TDA units sold
|
|
|
|
5,107
|
|
|
|
|
5,608
|
|
|
|
|
(501
|
)
|
|
|
(8.9
|
)%
|
TDA revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle revenue
|
|
$
|
|
153,661
|
|
|
$
|
|
144,372
|
|
|
$
|
|
9,289
|
|
|
|
6.4
|
%
|
Product revenue
|
|
|
|
5,267
|
|
|
|
|
5,486
|
|
|
|
|
(219
|
)
|
|
|
(4.0
|
)%
|
Total TDA revenue
|
|
$
|
|
158,928
|
|
|
$
|
|
149,858
|
|
|
$
|
|
9,070
|
|
|
|
6.1
|
%
|
TDA gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit
|
|
$
|
|
4,476
|
|
|
$
|
|
3,313
|
|
|
$
|
|
1,163
|
|
|
|
35.1
|
%
|
Product gross profit
|
|
|
|
5,267
|
|
|
|
|
5,486
|
|
|
|
|
(219
|
)
|
|
|
(4.0
|
)%
|
Total TDA gross profit
|
|
$
|
|
9,743
|
|
|
$
|
|
8,799
|
|
|
$
|
|
944
|
|
|
|
10.7
|
%
|
Average vehicle selling price per TDA unit
|
|
$
|
|
30,088
|
|
|
$
|
|
25,744
|
|
|
$
|
|
4,344
|
|
|
|
16.9
|
%
|
Gross profit per TDA unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle gross profit per TDA unit
|
|
$
|
|
876
|
|
|
$
|
|
591
|
|
|
$
|
|
285
|
|
|
|
48.2
|
%
|
Product gross profit per TDA unit
|
|
|
|
1,031
|
|
|
|
|
978
|
|
|
|
|
53
|
|
|
|
5.4
|
%
|
Total gross profit per TDA unit
|
|
$
|
|
1,907
|
|
|
$
|
|
1,569
|
|
|
$
|
|
338
|
|
|
|
21.5
|
%
|
TDA average days to sale
|
|
|
|
46
|
|
|
|
|
42
|
|
|
|
|
4
|
|
|
|
9.5
|
%
|
(1)
We reclassified other revenue and gross profit related to the vehicle repair service at TDA from the TDA reportable segment to the “All Other” category to conform to current year presentation.
TDA units
TDA units sold decreased 501, or 8.9%, from 5,608 for the nine months ended September 30, 2020 to 5,107 for the nine months ended September 30, 2021. Despite the strong market demand for used vehicles experienced in 2021, the first quarter of 2021 had a decrease in units as a result of reduced inventory at the TDA location as the ecommerce business continues to scale.
Vehicle Revenue
TDA vehicle revenue increased $9.3 million, or 6.4%, from $144.4 million for the nine months ended September 30, 2020 to $153.7 million for the nine months ended September 30, 2021. The increase was driven by a higher ASP per unit, which increased from $25,744 for the nine months ended September 30, 2020 to $30,088 for the nine months ended September 30, 2021 and increased vehicle revenue by $22.2 million, primarily due to market appreciation, partially offset by the 501 decrease in TDA units sold, which decreased vehicle revenue by $12.9 million.
Product Revenue
TDA product revenue decreased $0.2 million, or 4.0%, from $5.5 million for the nine months ended September 30, 2020 to $5.3 million for the nine months ended September 30, 2021. The decrease was primarily driven by the 501 decrease in TDA units sold.
Vehicle Gross Profit
TDA vehicle gross profit increased $1.2 million, or 35.1%, from $3.3 million for the nine months ended September 30, 2020 to $4.5 million for the nine months ended September 30, 2021. The increase was attributable to an increase in TDA vehicle gross profit per unit of $285, which increased vehicle gross profit by $1.5 million, partially offset by the 501 decrease in TDA units sold, which decreased vehicle gross profit by $0.3 million. Vehicle gross profit per unit increased from $591 for the nine months ended September 30, 2020 to $876 for the nine months ended September 30, 2021, primarily attributable to improvements in inbound logistics and reconditioning costs as well as a higher inventory reserve in 2020 due to the start of the COVID-19 pandemic.
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Product Gross Profit
TDA product gross profit decreased $0.2 million, or 4.0%, from $5.5 million for the nine months ended September 30, 2020 to $5.3 million for the nine months ended September 30, 2021. The decrease was primarily driven by the 501 decrease in TDA units sold.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Compensation & benefits
|
|
$
|
|
145,580
|
|
|
$
|
|
63,821
|
|
|
$
|
81,759
|
|
|
|
128.1
|
%
|
Marketing expense
|
|
|
|
88,267
|
|
|
|
|
44,829
|
|
|
|
43,438
|
|
|
|
96.9
|
%
|
Outbound logistics (1)
|
|
|
|
57,987
|
|
|
|
|
19,762
|
|
|
|
38,225
|
|
|
|
193.4
|
%
|
Occupancy and related costs
|
|
|
|
12,599
|
|
|
|
|
7,574
|
|
|
|
5,025
|
|
|
|
66.3
|
%
|
Professional fees
|
|
|
|
15,951
|
|
|
|
|
5,697
|
|
|
|
10,254
|
|
|
|
180.0
|
%
|
Other
|
|
|
|
61,098
|
|
|
|
|
25,735
|
|
|
|
35,363
|
|
|
|
137.4
|
%
|
Total selling, general & administrative expenses
|
|
$
|
|
381,482
|
|
|
$
|
|
167,418
|
|
|
$
|
214,064
|
|
|
|
127.9
|
%
|
(1)
Outbound logistics primarily includes third-party transportation fees as well as cost related to operating our proprietary logistics network, including fuel, tolls, and maintenance expenses. Inbound transportation costs, from the point of acquisition to the relevant reconditioning facility, are included in cost of sales.
SG&A expenses increased $214.1 million, or 127.9%, from $167.4 million for the nine months ended September 30, 2020 to $381.5 million for the nine months ended September 30, 2021. The increase was primarily due to:
a $81.8 million increase in compensation and benefits as a result of an increase in headcount and an increase in variable fees for third-party sales and sales support providers as a result of an increase in units sold;
a $43.4 million increase in marketing expense as we expanded our national broad-reach brand advertising, aired our first Super Bowl commercial, produced new commercials, and increased performance and online marketing as we continue to grow our listed inventory;
a $38.2 million increase in outbound logistics costs attributable to the growth in ecommerce units sold, which increased outbound logistics costs by $25.3 million, and increases in market rates of logistics providers, which increased outbound logistics costs by $12.9 million;
a $10.3 million increase in professional fees primarily related to acquisition related costs incurred in connection with the definitive agreement to acquire UACC as well as increased consulting expenses primarily in the marketing and engineering departments; and
a $35.4 million increase in other SG&A expenses primarily related to volume-based fees for software licenses and other variable expenses as our business continues to scale as well as additional insurance costs associated with being a publicly traded company and growing inventory.
Total SG&A expenses per total ecommerce transaction, defined as ecommerce vehicle purchases directly from consumers plus ecommerce units sold, decreased from $5,401 for the nine months ended September 30, 2020 to $3,953 for the nine months ended September 30, 2021, primarily due to operating leverage as our business continues to scale, partially offset by increases in market rates of logistics providers and acquisition related costs incurred in connection with the definitive agreement to acquire UACC.
We expect SG&A expenses to increase in the future as we continue to scale our business, integrate and invest in UACC, invest in and improve our customer experience, and continue expanding our proprietary logistics and reconditioning networks.
Depreciation and amortization
Depreciation and amortization expenses increased $6.1 million, or 186.4%, from $3.2 million for the nine months ended September 30, 2020 to $9.3 million for the nine months ended September 30, 2021. The increase was primarily due to amortization expense of intangible assets acquired as part of the acquisition of the CarStory business on January
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7, 2021, depreciation of short-haul and long-haul vehicles acquired for our proprietary logistics network and increased depreciation expense as we continue to develop our internal use software.
Interest expense
Interest expense increased $8.3 million, or 130.6%, from $6.4 million for the nine months ended September 30, 2020 to $14.7 million for the nine months ended September 30, 2021. The increase was primarily attributable to a higher outstanding balance of the 2020 Vehicle Floorplan Facility due to the increase in vehicle inventory levels as the business continues to scale, which increased interest expense $6.0 million and interest expense incurred on the Notes, which increased interest expense $2.3 million.
Interest Income
Interest income increased $3.3 million, or 84.0%, from $4.0 million for the nine months ended September 30, 2020 to $7.3 million for the nine months ended September 30, 2021. The increase in interest income was primarily driven by higher cash and cash equivalent balances as a result of the issuance of the Notes.
Liquidity and Capital Resources
On June 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. On September 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. On June 18, 2021, we issued $625.0 million aggregate principal amount of the Notes for net proceeds of $608.9 million. As of September 30, 2021, we had cash and cash equivalents of $1,326.5 million.
We anticipate that our existing cash and cash equivalents and the 2020 Vehicle Floorplan Facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months from the date of this Quarterly Report on Form 10-Q. For the three and nine months ended September 30, 2021, we generated a net loss. We have not been profitable since our inception in 2012 and we expect to incur additional losses in the future.
We historically have funded vehicle inventory purchases primarily through our floorplan financing arrangements. 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, integration and investment costs for the planned UACC acquisition, the expansion of our inventory, sales and marketing activities, investment in our reconditioning, logistics, and customer experience operations, enhancements to our ecommerce platform, and increased hiring efforts. 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.
Convertible Senior Notes
On June 18, 2021, we issued $625.0 million aggregate principal amount of the Notes pursuant to an indenture between us and U.S. Bank National Association, as trustee (the “Indenture”).
The Notes bear interest at a rate of 0.75% per annum, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2022. The Notes will mature on July 1, 2026, subject to earlier repurchase, redemption or conversion. The total net proceeds from the offering, after deducting commissions paid to the initial purchasers and debt issuance costs paid to third-parties, were approximately $608.9 million.
Each $1,000 principal amount of the Notes will initially be convertible into 17.8527 shares of our common stock, which is equivalent to an initial conversion price of approximately $56.01 per share, subject to adjustment upon the occurrence of specified events. The Notes are convertible, at the option of the noteholders, on or after April 1, 2026. Prior to April 1, 2026, the Notes are convertible only under certain circumstances:
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During any fiscal quarter commencing after the fiscal quarter ending on September 30, 2021 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day;
During the five consecutive business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate of the Notes on such trading day;
If we call any or all of the Notes for redemption; or
Upon the occurrence of specific corporate events such as a change in control or certain beneficial distributions to common stockholders (as set forth in the Indenture).
We may settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
We may not redeem the Notes prior to July 6, 2024. On or after July 6, 2024, we may redeem all or any portion of the Notes for cash equal to 100% of the principal amount of the Notes being redeemed plus any accrued and unpaid interest if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
If we undergo a fundamental change (as defined in the Indenture), subject to certain conditions, holders of the Notes may require us to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date or if we issue a notice of redemption, we will increase the conversion rate by pre-defined amounts for a holder who elects to convert their Notes in connection with such a corporate event. During the nine months ended September 30, 2021, the conditions allowing holders of the Notes to convert were not met.
Vehicle Financing
As of September 30, 2021, we finance our inventory primarily through a vehicle floorplan facility (the “2020 Vehicle Floorplan Facility”) with Ally Bank and Ally Financial (together, "Ally"), which provides a committed credit line of up to $450.0 million.
The amount of credit available to us under the 2020 Vehicle Floorplan Facility is determined on a monthly basis based on a calculation that considers average outstanding borrowings and vehicle units paid off by us within the three immediately preceding months. Approximately $8.5 million was available under this facility as of September 30, 2021. The maturity date of the 2020 Vehicle Floorplan Facility is September 30, 2022. We are required to pay an availability fee on the average unused capacity from the prior quarter if it was greater than 50% of the calculated floorplan allowance, as defined. We are subject to financial covenants that require us to maintain a certain level of equity in the vehicles that are financed, to maintain at least 7.5% of the credit line in cash and cash equivalents and to maintain 10% of the monthly daily floorplan principal balance outstanding on deposit with Ally Bank.
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. We are party to a Credit Balance Agreement that permits us to deposit cash with Ally for the purpose of reducing the amount of interest payable for borrowings under the 2020 Vehicle Floorplan Facility.
We are currently in discussions with lenders regarding an increase to our committed credit line and other adjustments to accommodate our anticipated growth and the acquisition of UACC.
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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, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
|
(325,459
|
)
|
|
$
|
|
(182,874
|
)
|
Net cash used in investing activities
|
|
|
|
(94,661
|
)
|
|
|
|
(5,057
|
)
|
Net cash provided by financing activities
|
|
|
|
726,198
|
|
|
|
|
1,157,667
|
|
Net increase in cash and cash equivalents and restricted cash
|
|
|
|
306,078
|
|
|
|
|
969,736
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
|
1,090,039
|
|
|
|
|
219,587
|
|
Cash and cash equivalents and restricted cash at end of period
|
|
$
|
|
1,396,117
|
|
|
$
|
|
1,189,323
|
|
Operating Activities
Net cash flows used in operating activities changed by $142.6 million from $182.9 million for the nine months ended September 30, 2020 to $325.5 million for the nine months ended September 30, 2021. The change is primarily attributable to $105.0 million in incremental net loss after reconciling adjustments for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 as well as an increase in working capital, resulting in an increase in the use of cash of $37.6 million.
We finance substantially all our inventories with the 2020 Vehicle Floorplan Facility. In accordance with U.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 $89.6 million, from $5.1 million for the nine months ended September 30, 2020 to $94.7 million for the nine months ended September 30, 2021, primarily as a result of the acquisition of the CarStory business on January 7, 2021 which resulted in cash outflow of $75.9 million and the acquisition of short-haul and long-haul vehicles for our proprietary logistics network.
Financing Activities
Net cash flows provided by financing activities decreased $431.5 million from $1,157.7 million for the nine months ended September 30, 2020 to $726.2 million for the nine months ended September 30, 2021. The decrease was primarily related to net proceeds of $569.3 million received upon completion of the follow-on public offering, $497.2 million received upon completion of the IPO, and $21.7 million related to the net issuance of Series H preferred stock in 2020. The decrease was partially offset by net proceeds of $608.9 million received upon issuance of the Notes as well as a net increase of $37.9 million related to our Vehicle Floorplan for the nine months ended September 30, 2021.
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 Annual Report.
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.
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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.
Due to the evolving and uncertain nature of the COVID-19 pandemic, it is reasonably possible that it could materially impact our estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions we may face.
The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include those described in Note 2—Summary of Significant Accounting Policies and Note 3—Revenue Recognition to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report.
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 our Annual Report on Form 10-K for the year ended December 31, 2020.
Recently Issued and Adopted Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report.