Vroom, Inc. 10-K

Item 7. 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 consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those incorporated by reference into the section titled "Risk Factors" in Part I Item 1A of this Annual Report on Form 10-K. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Recent Events Value Maximization Plan On January 22, 2024, we announced that our Board had approved the Value Maximization Plan, pursuant to which we discontinued our ecommerce operations and are in the process of winding down our used vehicle dealership business in order to preserve liquidity and enable us to maximize stakeholder value through our remaining businesses. We have suspended transactions through vroom.com, completed transactions for customers who had previously contracted with us to purchase or sell a vehicle, halted purchases of additional vehicles, sold substantially all of our used vehicle inventory through wholesale channels and paid off our 2022 Vehicle Floorplan Facility. We continue to take other actions to maximize the value of our remaining ecommerce assets, reduce our outstanding commitments and preserve our liquidity, and have been executing a reduction-in-force commensurate with our reduced operations. Although we expect the ecommerce wind down to be substantially complete by the end of the first quarter of 2024, we may incur additional wind-down costs through the end of 2024. We also own and operate UACC, a leading automotive finance company that offers vehicle financing to its customers through third-party dealers under the UACC brand, and CarStory, an artificial intelligence-powered analytics and digital services platform for automotive retail. The UACC and CarStory businesses will continue to serve their third-party customers, with their operations substantially unaffected by Vroom’s ecommerce wind-down. We will seek to grow and enhance the profitability of the UACC and CarStory businesses going forward. As a result of the Value Maximization Plan, we estimate that we will incur total cash charges of approximately $16.5 million for severance and other personnel-related costs and approximately $15.0 million in contract and lease termination costs. As part of a planned reduction-in-force under the Value Maximization Plan, we anticipate that approximately 800 employees will be impacted upon substantial completion of the wind-down, resulting in a reduction of approximately 93% of the employees not engaged in UACC’s or CarStory’s ongoing operations. We determined a triggering event existed as of December 31, 2023, resulting in long–lived asset impairment charges of $47.4 million. The impairment charges consist of $23.9 million related to "Property and equipment, net", $22.2 million related to "Operating lease right-of-use assets", and $1.3 million related to "Other assets" on our consolidated balance sheet. Refer to Note 7 — Property and Equipment, Net and Note 12 — Leases in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion. Repayment of 2022 Vehicle Floorplan Facility On January 19, 2024, we amended our 2022 Vehicle Floorplan Facility. As a result of the amendment, borrowings under the 2022 Vehicle Floorplan Facility were suspended for future vehicle purchases and we were required to maintain 40% of our outstanding borrowings in cash. In addition, all other financial covenants were eliminated. As a result of the liquidation of our vehicle inventory, we repaid the remaining outstanding balance related to the 2022 Vehicle Floorplan Facility in full and the agreement has been terminated. Nasdaq Notice and Reverse Stock Split On December 21, 2023, we received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the $1.00 per share 51 Table of Contents minimum bid price requirement for continued inclusion on the Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Minimum Bid Price Requirement"). On February 13, 2024, after obtaining stockholder approval, we effected a 1-for-80 reverse stock split (the "Reverse Stock Split"), and our stock began trading on a post-split adjusted basis on February 14, 2024. On February 29, 2024, we were notified by the Nasdaq Listing Qualifications staff that the closing bid price of our common stock had been at $1.00 per share or greater for 11 consecutive business days, from February 14, 2024 to February 28, 2024. Accordingly, the Company has regained compliance with Nasdaq Listing Rule 5450(a)(1) and this matter is now closed. If our common stock again closes below the $1.00 per share minimum bid price required by Nasdaq for 30 consecutive business days, we would again receive another notice of non-compliance with Nasdaq's listing standards and face the risk of delisting. All shares of the Company’s common stock, stock-based instruments, and per-share data included in this Annual Report on Form 10-K have been retroactively adjusted as though the Reverse Stock Split has been effected prior to all periods presented. Overview During the fiscal year ended December 31, 2023, the period covered by this Annual Report on Form 10-K, Vroom operated an end-to-end ecommerce platform to buy and sell used vehicles. Vroom also owns United Auto Credit Corporation, a leading automotive finance company that offers vehicle financing to its customers through third-party dealers under the UACC brand, and the CarStory business, a leader in AI-powered analytics and digital services for automotive retail. Former Ecommerce Operations Vroom's ecommerce platform combined automotive ecommerce, vehicle operations and data science and experimentation to bring all phases of the car buying and selling process to consumers wherever they are, offering an extensive selection of used vehicles, transparent pricing, competitive financing, and at-home pick-up and delivery. Vroom’s ecommerce platform offered thousands of vehicles that had undergone detailed inspections, met proprietary reconditioning standards and were backed by a Vroom 90-day limited warranty. The platform provided comprehensive and transparent information on each of the vehicles we sold and provided buyers with a personalized, intuitive interface with specific sorting, searching and filtering functionality. The platform offered integrated, real-time financing solutions through strategic partnerships with automotive finance lenders and through our subsidiary, UACC. For consumers looking to sell their vehicles, the platform offered the ease of online submission of basic vehicle information to receive an on-demand appraisal. Vroom’s vehicle operations encompassed a vertically integrated approach to sourcing, transporting, reconditioning, delivering, and picking up vehicles. Data science and experimentation was at the core of Vrooms operations, and we relied on data science, machine learning and A/B and multivariate testing to continually drive optimization and operating leverage across our ecommerce and vehicle operations. Pursuant to the Value Maximization Plan described above, we are conducting an orderly wind-down of our ecommerce business starting in 2024. Although we expect the ecommerce wind down to be substantially complete by the end of the first quarter of 2024, we may incur additional wind-down costs through the end of 2024. UACC UACC, which Vroom acquired in February 2022, is an indirect lender that offers vehicle financing to consumers through third-party dealers under the UACC brand, focusing primarily on the non-prime market. Prior to Vroom’s wind-down of its ecommerce operations, UACC also offered vehicle financing to Vroom’s customers through its ecommerce platform. UACC, which has been engaged in automotive finance since 1996, currently offers financing services to a nationwide network of thousands of manufacturer-franchised and independent motor vehicle dealers in 49 states, and we seek to expand that network over time. UACC enables these dealers to finance their customers' purchases of new and used automobiles, medium and light duty trucks and vans with competitive financing terms. The credit programs offered by UACC are primarily designed to serve consumers who have limited access to traditional motor vehicle financing. In addition to its financing expertise, the UACC platform brings with it extensive application processing, underwriting, and servicing capabilities. UACC services the retail installment sales contracts it originates or purchases and 52 Table of Contents will continue to service the contracts it originated or purchased for customers of Vroom’s former ecommerce business. Because UACC focuses primarily on the non-prime market, it generally sustains a higher level of delinquencies and credit losses than that experienced by traditional motor vehicle financing sources. As of December 31, 2023, UACC serviced a portfolio of approximately 79,000 retail installment sales contracts with an aggregate principal outstanding balance of $1.1 billion. Loss before provision for income taxes for UACC on a standalone basis was $41.2 million and $16.2 million for the years ended December 31, 2023 and 2022, respectively, including intercompany eliminations of $17.7 million and $6.2 million, respectively. CarStory CarStory is a leader in AI-powered analytics and digital services for automotive retail. CarStory offers its digital retailing services to dealers, automotive financial services companies and others in the automotive industry, which use CarStory’s solutions to enhance their customer experience and drive increased vehicle purchases. CarStory drives automotive retail innovation by aggregating, optimizing and distributing data from thousands of automotive sources. CarStory tracks over three and a half million unique vehicle identification numbers ("VINs") listed for sale every day. This data is aggregated with demand insights from millions of consumer sessions and VIN data from CarStory's proprietary VIN database to generate accurate price and sales predictions. CarStory helps dealers optimize their pricing by leveraging data science models for retail pricing that provide predictive pricing for marketing, buying, selling and VIN-level features. In addition to its data analytics and digital services, CarStory powers white labeled storefronts for automotive marketplaces and finance companies. In developing its white label capabilities, CarStory also has developed a variety of consumer-focused functions designed to enhance the customer experience and drive conversion. CarStory's data and data science assets create significant opportunity for automotive AI product development, with over 200 million VINs, over three billion photos and price and price elasticity models. Our Segments In the year ended December 31, 2023 and prior periods, we managed and reported operating results through three reportable segments: • Ecommerce (64.5% of 2023 revenue; 70.0% of 2022 revenue): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform, revenue earned on vehicle financing originated by UACC or our third-party financing sources and sales of value-added products associated with those vehicles sales. • Wholesale (11.7% of 2023 revenue; 15.1% of 2022 revenue): The Wholesale segment represents sales of used vehicles through wholesale channels. • Retail Financing (17.6% of 2023 revenue; 7.8% of 2022 revenue): The Retail Financing segment represents UACC’s operations with its network of third-party dealership customers. As a result of the Value Maximization Plan and the wind-down of our ecommerce operations, we will discontinue reporting our results through our Ecommerce and Wholesale segments starting in the first quarter of 2024. 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 years ended December 31, 2023 and 2022: 53 Table of Contents Year Ended December 31, 2023 2022 (in thousands) Revenue: Ecommerce $ 576,170 $ 1,364,195 Wholesale 104,119 293,528 Retail Financing 156,938 152,542 All Other 55,976 138,636 Total revenue $ 893,203 $ 1,948,901 Gross profit (loss): Ecommerce $ 59,231 $ 99,973 Wholesale (34,353 ) (10,620 ) Retail Financing 125,610 138,381 All Other 11,459 17,053 Total gross profit $ 161,947 $ 244,787 Key Operating and Financial Metrics Prior to the wind-down of our ecommerce operations, including the periods presented in this Annual Report on Form 10-K, we regularly reviewed 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 were 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 consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We focused heavily on metrics related to unit economics as improved gross profit per unit was a key element of our growth and profitability strategies. As a result of the Value Maximization Plan and the wind-down of our ecommerce operations, we have discontinued evaluating our business using these key operating and financial metrics in the first quarter of 2024. 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. Year Ended December 31, 2023 2022 Ecommerce units sold 17,401 39,278 Vehicle gross profit per ecommerce unit $ 594 $ 1,033 Product gross profit per ecommerce unit 2,809 1,512 Total gross profit per ecommerce unit $ 3,403 $ 2,545 Average monthly unique visitors 2,060,804 1,866,197 Ecommerce average days to sale 217 131 Inventory turnover 3.02 3.05 Inventory days to supply 121 120 54 Table of Contents 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 exclude on-site sales of vehicles at Texas Direct Auto ("TDA") and through the Wholesale segment. Each vehicle sale through our ecommerce platform also created the opportunity to leverage such sale to provide vehicle financing, sell value-added products and acquire trade-in vehicles from our customers, which we could 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 vehicle reconditioning centers ("VRCs") and the aggregate costs of reconditioning those vehicles in that period, divided by the number of ecommerce units sold in that period. 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 third-party vehicle financing and 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 were paid fees on the vehicle financing and value-added products we sold, our gross profit was equal to the revenue we generated from the sale of such products. Starting in 2022, Product Gross Profit also included (i) interest income earned on finance receivables from Vroom customers to finance vehicle sales that we originated through UACC before the contracts are sold, (ii) interest income on finance receivables held in consolidated VIEs less the interest expense incurred on securitization debt, and when applicable (iii) gain on sales of securitized finance receivables, divided by the number of ecommerce units sold in that period. 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. 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. 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. 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 on-site at TDA and through the Wholesale segment. 55 Table of Contents Inventory turnover We calculate inventory turnover for a given period as total retail and wholesale cost of sales for the respective period annualized and divided by average inventory (computed using the current and immediately preceding quarter-end balances). Inventory days to supply We calculate inventory days to supply for a given period by dividing average inventory by total retail and wholesale cost of sales per day for the respective period. 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, and Adjusted EBITDA excluding securitization gain. These non-GAAP financial measures have limitations as analytical tools in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. Because of these limitations, these non-GAAP financial measures should be considered along with other operating and financial performance measures presented in accordance with U.S. GAAP. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. We have reconciled all non-GAAP financial measures with the most directly comparable U.S. GAAP financial measures. EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain are supplemental performance measures that our management uses to assess our operating performance and the operating leverage in our business. Because EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes. EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain We calculate EBITDA as net loss before interest expense, interest income, income tax expense and depreciation and amortization expense. We calculate Adjusted EBITDA as EBITDA adjusted to exclude severance costs, gain on debt extinguishment, severe weather-related costs, long-lived asset impairment charges, goodwill impairment charge, realignment costs, acquisition related costs, and the acceleration of non-cash stock-based compensation. Changes in fair value of financial instruments can fluctuate significantly from period to period and were previously related primarily to historical finance receivables and debt that have been securitized, and were acquired on February 1, 2022 from UACC. As a result of market conditions at the time, the financial instruments related to the 2022-2 and 2023-1 securitization transactions are recognized on balance-sheet and accounted for under the fair value option. See Note 17 — Financial Instruments and Fair Value Measurements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As a result, the majority of our finance receivables are now carried at fair value and a significant portion of the risk of loss associated with these finance receivables have been retained by UACC. We therefore have determined we will no longer make any adjustments for such fluctuations in fair value to our Adjusted EBITDA results. We have recast the prior periods presented to conform to current period presentation. We may account for future securitizations as on balance sheet transactions depending on market conditions. We calculate Adjusted EBITDA excluding securitization gain as Adjusted EBITDA adjusted to exclude the securitization gain from the sale of UACC's finance receivables as it provides a useful perspective on the underlying operating results and trends as well as a means to compare our period-over-period results. 56 Table of Contents The following table presents a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain to net loss, which is the most directly comparable U.S. GAAP measure: Year Ended December 31, 2023 2022 (in thousands) Net loss $ (365,540 ) $ (451,910 ) Adjusted to exclude the following: Interest expense 45,445 40,693 Interest income (21,158 ) (19,363 ) Provision (benefit) for income taxes 615 (19,680 ) Depreciation and amortization 43,476 38,707 EBITDA $ (297,162 ) $ (411,553 ) Severance costs $ 6,703 $ — Gain on debt extinguishment (37,878 ) (164,684 ) Hail storm costs 2,353 — Long-lived asset impairment charges 48,748 5,806 Goodwill impairment charge — 201,703 Realignment costs — 15,025 Acquisition related costs — 5,653 Acceleration of non-cash stock-based compensation — 2,439 Adjusted EBITDA $ (277,236 ) $ (345,611 ) Securitization gain — (45,589 ) Adjusted EBITDA excluding securitization gain $ (277,236 ) $ (391,200 ) 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 expand our dealer network to increase vehicle finance offerings We intend to grow our automotive financing business. UACC will continue to provide financing services to its existing dealer network and will seek to expand its network over time. UACC provides funding that allows manufacturer-franchised and independent motor vehicle dealers to finance new and used vehicles. Currently, UACC serves a nationwide network of thousands of dealers in 49 states. UACC's credit programs are primarily designed to serve consumers who have limited access to traditional vehicle financing, although UACC intends to expand its offerings across a broader range of the credit spectrum going forward. As of December 31, 2023, automobile contracts originated from Vroom customers or purchased from Vroom represented approximately 30% of UACC's total serviced loan portfolio. If UACC is unable to replace the volume of automobile contracts it previously received from the Vroom ecommerce business, our business, financial condition, and results of operations could be materially adversely affected. 57 Table of Contents Ability to manage credit losses and enhance profitability at UACC While credit losses are inherent in the automotive finance receivables business, several variables have affected UACC’s recent loss and delinquency rates, including rising interest rates, the current inflationary environment and vehicle depreciation. UACC is currently experiencing higher loss severity and higher losses on its finance receivables, which has negatively impacted the fair value of our finance receivables and the losses recognized for the year ended December 31, 2023. Higher than anticipated credit losses contributed to a pre-tax net loss at UACC of approximately $41.2 million for the year ended December 31, 2023, and are expected to continue to negatively impact our business in 2024, especially because UACC primarily operates in the non-prime sector of the market which is expected to have more volatility. Certain advance rates available to UACC on borrowings from the Warehouse Credit Facilities have decreased as a result of the increasing credit losses in UACC's portfolio and overall rising interest rates. Any future decreases on available advance rates may have an adverse impact on our liquidity. Ability to securitize UACC's loan portfolio The success of UACC's business is highly dependent on the ability to securitize and sell the automotive finance receivables that it underwrites or acquires. As a result of high interest rates, the current inflationary environment and vehicle depreciation in the used automotive industry, UACC is experiencing higher loss severity. As a result, UACC may not be able to securitize its loan portfolio on favorable terms, or may not be able to sell the subordinate notes or residual certificates issued in its securitizations at a favorable price or at all. If UACC fails to sell the subordinate notes or the residual interests, it will preclude us from recognizing the sale and result in the securitization trust being consolidated and therefore remaining on balance sheet. In January 2023, UACC completed the 2023-1 securitization transaction, selling the investment grade rated asset-backed securities, and in April 2023, UACC sold the non-investment grade rated securities. As a result of market conditions at the time, which led to unfavorable pricing, UACC retained the residual interests and we accounted for the 2023-1 securitization transaction as secured borrowings. The related finance receivables and securitization debt remain on balance sheet. In the future, we may account for UACC securitizations as on balance sheet transactions depending on the market conditions. In addition, due to the increased loss severity, UACC elected to waive monthly servicing fees related to the 2022-2 securitization transaction in the first quarter of 2023. The waiver of monthly servicing fees related to the 2022-2 securitization transaction resulted in consolidation of the related finance receivables and securitization debt on our financial statements. Waiver of monthly servicing fees also resulted in reduced servicing income. 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 typically 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. However, the past few years have not followed typical depreciation trends and there remains continued uncertainty surrounding market trends. Consistent with market trends, UACC generally experiences increased funding activity during the first quarter through tax season. Delinquencies also tend to be lower during the first quarter through tax season and higher during the latter half of the year. 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. Macroeconomic Factors Both the United States and global economies are experiencing a sustained inflationary environment and the Federal Reserve’s efforts to tame inflation have led to increased interest rates, which affects automotive finance rates, reducing discretionary spending and making vehicle financing more costly and less accessible to many consumers. In December 2023, the Federal Reserve announced that it expects to cut interest rates in 2024; however it is too soon to know the degree to which rates may be cut and the impact it may have on the economy. Moreover, geopolitical conflicts and war, including those in Europe and the Middle East, have increased global economic and political uncertainty, which has caused dramatic fluctuations in global financial markets. A significant escalation or expansion of economic disruption 58 Table of Contents could continue to impact consumer spending, broaden inflationary costs, and could have a material adverse effect on our results of operations. We will continue to actively monitor and develop responses to these disruptions, but depending on duration and severity, these trends could continue to negatively impact our business in 2024. Components of Results of Operations Revenue In connection with the Value Maximization Plan, in January 2024 we started to wind-down our ecommerce operations, including both retail and wholesale vehicle sales which also reduced associated product revenue. Therefore, each of the retail vehicle revenue, wholesale vehicle revenue, and the associated product revenue described below will not be applicable to our results of operations going forward. Retail vehicle revenue Historically, we sold retail vehicles through both our ecommerce platform and TDA. Revenue from vehicle sales, including any delivery charges, was recognized when vehicles were 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 were the primary factors impacting our retail revenue stream. Wholesale vehicle revenue Historically, we sold vehicles that do not meet our Vroom retail sales criteria through wholesale channels. Vehicles sold through wholesale channels were acquired from customers who traded-in their vehicles when making a purchase from us, from customers who sold 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 were the primary drivers of wholesale revenue. Product revenue Historically, we generated revenue by financing vehicle sales through UACC, earning fees on sales of third-party financing, and sales of value-added products to our customers in connection with vehicle sales, such as vehicle service contracts, GAP protection and tire and wheel coverage. We generate ecommerce product revenue from receivables generated by financing provided to Vroom customers through UACC. We earn interest income on such finance receivables before the contracts are sold, interest income on finance receivables held in consolidated VIEs, and, when applicable, gain on the sales of securitized finance receivables. We account for sales of finance receivables in accordance with ASC Topic 860, Transfers and Servicing of Financial Assets ("ASC 860") . Refer to "Finance revenue" below for further details. We also earned fees on third-party financing and value-added products pursuant to arrangements with the third parties that sold and administered these products. For accounting purposes, we were an agent for these transactions and, as a result, we recognized fees on a net basis when the customer entered into an arrangement to purchase these products or obtain third-party financing, which was typically at the time of a vehicle sale. Our gross profit on product revenue is equal to the revenue we generate. Product revenue was 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 consisted of estimated profit-sharing amounts to which we were entitled based on the performance of third-party protection products once a required claims period has passed. A portion of the fees we received was subject to chargeback in the event of early termination, default, or prepayment of the contracts by our customers. We recognized product revenue net of reserves for estimated chargebacks. Finance revenue Our finance revenue is related to finance receivables originated or acquired by UACC through its network of third-party dealership customers and consists of interest income earned on finance receivables before the contracts are sold, 59 Table of Contents interest income earned on finance receivables held in consolidated VIEs, and, when applicable, gains on the sale of securitized finance receivables. UACC acquires and services finance receivables from its network of third-party dealership customers and generates revenue through the sales of these financing receivables. We account for sales of finance receivables in accordance with ASC Topic 860, Transfers and Servicing of Financial Assets ("ASC 860"). In order for transfers of the finance receivables to qualify as sales, the finance receivables being transferred must be legally isolated, may not be constrained by restrictions from further transfer, and must be deemed to be beyond our control. For any securitization transactions that are accounted for as secured borrowings, we recognize interest income, which includes finance charges and servicing fees in accordance with the terms of the related customer agreements. In February 2022, UACC completed the 2022-1 securitization transaction, which qualified as a sale, therefore we recorded a gain on the sale of the finance receivables. The amount of the gain is equal to the fair value of the net proceeds received less the carrying amount of the finance receivables. In July 2022, UACC sold a pool of finance receivables in the 2022-2 securitization transaction. Originally, we concluded that we were not the primary beneficiary of the 2022-2 securitization trust, and therefore we did not consolidate the 2022-2 trust. From January to March 2023, although not contractually required, UACC elected to waive its servicing fee on the 2022-2 securitization, due to higher-than-expected losses. Since UACC has the power to direct the significant activities of the VIE, as it is the servicer, and additionally it absorbs the risk of loss, we concluded that we are the primary beneficiary of the VIE. In March 2023, we accounted for the transaction as secured borrowings and consolidated the 2022-2 securitization trust. The beneficial interest was then eliminated. In January 2023, UACC completed the 2023-1 securitization transaction, selling the investment grade rated asset-backed securities, and in April 2023, UACC sold the non-investment grade rated securities. As a result of market conditions at the time, which led to unfavorable pricing, UACC retained the residual interests and we accounted for the 2023-1 securitization transaction as secured borrowings. The related finance receivables and securitization debt remain on the balance sheet. We may account for future securitizations as on balance sheet transactions depending on the market conditions. Servicing income represents the annual fees earned on the outstanding principal balance of the finance receivables serviced. Fees are earned monthly at an annual rate of approximately 4% for the 2022-1 securitization transaction and 3.25% for the 2022-2 and 2023-1 securitization transactions of the outstanding principal balance of the finance receivables serviced. As a result of high interest rates, the current inflationary environment and vehicle depreciation in the used automotive industry, UACC is experiencing higher loss severity. The increased loss severity could lead to reduced servicing income if UACC elects to waive monthly servicing fees going forward as it did in the first quarter of 2023. See “Note 3—Revenue Recognition” and "Note 4 – Variable Interest Entities and Securitizations" to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 60 Table of Contents Cost of sales In connection with the Value Maximization Plan, we started to wind-down our ecommerce operations in January 2024. Therefore, each of the retail cost of sales, wholesale cost of sales, and the associated product cost of sales described below will not be applicable to our results of operations going forward. Retail cost of sales Retail cost of sales primarily included the costs to acquire vehicles, inbound transportation costs and direct and indirect reconditioning costs associated with preparing vehicles for sale. Costs to acquire vehicles were primarily driven by the inventory source, vehicle mix and general supply and demand conditions of the used vehicle market. Inbound transportation costs included costs to transport the vehicle to our VRCs. Reconditioning costs included parts, labor and third-party reconditioning costs directly attributable to the vehicle and allocated overhead costs. Cost of sales also included any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value. Wholesale cost of sales Wholesale cost of sales primarily included costs to acquire vehicles sold through wholesale channels as well as any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value. Product cost of sales Product cost of sales consists of interest expense incurred on securitization debt related to finance receivables originated by UACC for Vroom customers. Finance cost of sales Finance cost of sales consists of interest expense incurred on securitization debt originated by UACC for its network of third-party dealership customers and collection expenses related to servicing finance receivables. 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, historically consisted primarily of advertising and marketing expenses, outbound transportation costs, employee compensation, occupancy costs of our facilities, professional fees for accounting, auditing, tax, legal and consulting services and software and IT costs. Going forward, we expect our SG&A expenses to decrease significantly as a result of the wind-down of our ecommerce operations. Depreciation and amortization Our depreciation and amortization expense primarily includes: depreciation related to our leasehold improvements and logistics fleet; amortization related to intangible assets in acquired businesses; and capitalized internal use software costs incurred in the development of our platform and website applications. Depreciation expense related to our Vroom VRC and the portion of depreciation expense for our proprietary logistics fleet related to inbound transportation is included in cost of sales in the consolidated statements of operations. Impairment Charges Impairment charges represent charges to write down the carrying amount of goodwill and other long-lived assets to fair value as well as lease impairment charges related to closing physical office locations and Sell Us Your Car® centers. 61 Table of Contents Gain on debt extinguishment Gain on debt extinguishment represents the gain recognized from the repurchase of a portion of our outstanding Convertible Senior Notes due 2026 (the "Notes") in open-market transactions. Interest expense Our interest expense primarily includes (i) interest expense related to our 2022 Vehicle Floorplan Facility, which was used to finance our inventory, (ii) interest expense on our Notes, (iii) interest expense on UACC's Warehouse Credit Facilities, which are used to fund our finance receivables, and (iv) interest expense on UACC's financing of beneficial interests in securitizations. Interest Income Interest income primarily represents interest credits earned on cash deposits maintained in relation to our 2022 Vehicle Floorplan Facility as well as interest earned on cash and cash equivalents. Other Loss, net Other loss, net primarily represents realized and unrealized losses on finance receivables, securitization debt and beneficial interests in securitizations as well as recoveries from losses previously recognized on finance receivables. Results of Operations The following table presents our consolidated results of operations for the periods indicated: Year Ended December 31, 2023 2022 % Change (in thousands) Revenue: Retail vehicle, net $ 565,972 $ 1,425,842 (60.3 )% Wholesale vehicle 104,119 293,528 (64.5 )% Product, net 52,253 62,747 (16.7 )% Finance 156,938 152,542 2.9 % Other 13,921 14,242 (2.3 )% Total revenue 893,203 1,948,901 (54.2 )% Cost of sales: Retail vehicle 553,565 1,382,005 (59.9 )% Wholesale vehicle 138,472 304,148 (54.5 )% Product 3,337 — 100.0 % Finance 31,328 14,161 121.2 % Other 4,554 3,800 19.8 % Total cost of sales 731,256 1,704,114 (57.1 )% Total gross profit 161,947 244,787 (33.8 )% Selling, general and administrative expenses 340,657 566,387 (39.9 )% Depreciation and amortization 42,769 38,290 11.7 % Impairment charges 48,748 211,873 (77.0 )% Loss from operations (270,227 ) (571,763 ) 52.7 % Gain on debt extinguishment (37,878 ) (164,684 ) 77.0 % Interest expense 45,445 40,693 11.7 % Interest income (21,158 ) (19,363 ) 9.3 % Other loss (income), net 108,289 43,181 150.8 % Loss before provision (benefit) for income taxes (364,925 ) (471,590 ) 22.6 % Provision (benefit) for income taxes 615 (19,680 ) 103.1 % Net loss $ (365,540 ) $ (451,910 ) 19.1 % 62 Table of Contents Segments We have historically managed and reported operating results through three reportable segments: • Ecommerce (64.5% of 2023 revenue; 70.0% of 2022 revenue): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform, revenue earned on vehicle financing originated by UACC or our third-party financing sources and sales of value-added products associated with those vehicles sales. • Wholesale (11.7% of 2023 revenue; 15.1% of 2022 revenue): The Wholesale segment represents sales of used vehicles through wholesale channels. • Retail Financing (17.6% of 2023 revenue; 7.8% of 2022 revenue): The Retail Financing segment represents UACC’s operations with its network of third-party dealership customers. As a result of the Value Maximization Plan and the wind-down of our ecommerce operations, we will discontinue reporting our results through our Ecommerce and Wholesale segments starting in the first quarter of 2024. Years Ended December 31, 2023 and 2022 Ecommerce The following table presents our Ecommerce segment results of operations for the periods indicated: Year Ended December 31, 2023 2022 Change % Change (in thousands, except unit data and average days to sale) Ecommerce units sold 17,401 39,278 (21,877 ) (55.7 )% Ecommerce revenue: Vehicle revenue $ 523,945 $ 1,304,797 $ (780,852 ) (59.8 )% Product revenue 52,225 59,398 (7,173 ) (12.1 )% Total ecommerce revenue $ 576,170 $ 1,364,195 $ (788,025 ) (57.8 )% Ecommerce gross profit: Vehicle gross profit $ 10,343 $ 40,575 $ (30,232 ) (74.5 )% Product gross profit 48,888 59,398 (10,510 ) (17.7 )% Total ecommerce gross profit $ 59,231 $ 99,973 $ (40,742 ) (40.8 )% Average vehicle selling price per ecommerce unit $ 30,110 $ 33,220 $ (3,110 ) (9.4 )% Product revenue per ecommerce unit 3,001 1,512 1,489 98.5 % Gross profit per ecommerce unit: Vehicle gross profit per ecommerce unit $ 594 $ 1,033 $ (439 ) (42.5 )% Product gross profit per ecommerce unit 2,809 1,512 1,297 85.8 % Total gross profit per ecommerce unit $ 3,403 $ 2,545 $ 858 33.7 % Ecommerce average days to sale 217 131 86 65.6 % Ecommerce units Ecommerce units sold decreased 21,877, or 55.7%, from 39,278 for the year ended December 31, 2022 to 17,401 for the year ended December 31, 2023. This decrease was driven by our strategic decision to prioritize unit economics over unit sales volume starting in the second quarter of 2022, our decision to reduce vehicle acquisitions during the fourth quarter of 2023, pressure on servicing our demand as a result of reducing third-party sales support staff and scaling our internal sales team, as well as macroeconomic factors. Ecommerce average days to sale increased from 131 days for the year ended December 31, 2022 to 217 days for the year ended December 31, 2023. We undertook various initiatives to address the operational challenges created by our prior rapid growth from 2020 through the first quarter of 2022, in particular with titling and registration processes. While these initiatives were designed to improve our transaction processing, enhance our customer experience, and 63 Table of Contents reduce our regulatory risk, they resulted in delays in listing vehicles for sale and caused a higher portion of our unit sales throughout 2023 to be from aged inventory, which increased the number of days between our acquisition of vehicles and the final delivery of such vehicles to customers. Vehicle Revenue Ecommerce vehicle revenue decreased $780.9 million, or 59.8%, from $1,304.8 million for the year ended December 31, 2022 to $523.9 million for the year ended December 31, 2023. The decrease in ecommerce vehicle revenue was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased vehicle revenue by $726.8 million, and a decrease in ASP per unit, which decreased from $33,220 for the year ended December 31, 2022 to $30,110 for the year ended December 31, 2023 and decreased vehicle revenue by $54.1 million. The decrease in ASP per unit was primarily due to significant market appreciation in the first half of 2022. Product Revenue Ecommerce product revenue decreased $7.2 million, or 12.1%, from $59.4 million for the year ended December 31, 2022 to $52.2 million for the year ended December 31, 2023. The decrease in ecommerce product revenue was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased product revenue by $33.1 million, partially offset by an increase in product revenue per unit, which increased from $1,512 for the year ended December 31, 2022 to $3,001 for the year ended December 31, 2023 and increased product revenue by $25.9 million. The increase in product revenue per unit was primarily due to an increase in interest income earned on finance receivables from Vroom customers originated or serviced by UACC as compared to the year ended December 31, 2022. Vehicle Gross Profit Ecommerce vehicle gross profit decreased $30.3 million, or 74.5%, from $40.6 million for the year ended December 31, 2022 to $10.3 million for the year ended December 31, 2023. The decrease in vehicle gross profit was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased vehicle gross profit by $22.7 million. Additionally, vehicle gross profit per unit decreased $439 from $1,033 for the year ended December 31, 2022 to $594 for year ended December 31, 2023, which decreased vehicle gross profit by $7.6 million. The decrease was primarily driven by lower sales margin on aged inventory and higher reconditioning costs per unit related to an increased mix of higher mileage and aged vehicles along with significant parts inflation. The decreases were partially offset by a lower inventory reserve as a result of a decrease in inventory levels as we continued to sell through our aged inventory. As we made progress on our initiatives to address the operational challenges created by our prior rapid growth from 2020 through the first quarter of 2022, a higher portion of our unit sales in 2023 was from aged inventory, which negatively impacted our sales margin and GPPU. Product Gross Profit Ecommerce product gross profit decreased $10.5 million, or 17.7%, from $59.4 million for the year ended December 31, 2022 to $48.9 million for the year ended December 31, 2023. The decrease in ecommerce product gross profit was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased product gross profit by $33.1 million, partially offset by a $1,297 increase in product gross profit per unit, which increased product gross profit by $22.6 million. Product gross profit per unit increased from $1,512 for the year ended December 31, 2022 to $2,809 for the year ended December 31, 2023, primarily due to an increase in interest income earned, partially offset by interest expense on securitization debt related to Vroom customers' finance receivables originated or serviced by UACC. 64 Table of Contents Wholesale The following table presents our Wholesale segment results of operations for the periods indicated: Year Ended December 31, 2023 2022 Change % Change (in thousands, except unit data) Wholesale units sold 7,094 20,876 (13,782 ) (66.0 )% Wholesale revenue $ 104,119 $ 293,528 $ (189,409 ) (64.5 )% Wholesale gross loss $ (34,353 ) $ (10,620 ) $ (23,733 ) 223.5 % Average selling price per unit $ 14,677 $ 14,061 $ 616 4.4 % Wholesale gross loss per unit $ (4,843 ) $ (509 ) $ (4,334 ) 851.5 % Wholesale Units Wholesale units sold decreased 13,782, or 66.0%, from 20,876 for the year ended December 31, 2022 to 7,094 for the year ended December 31, 2023, primarily driven by a decrease in wholesale units purchased from consumers and a lower number of trade-in vehicles associated with the decrease in the number of ecommerce units sold. Wholesale Revenue Wholesale revenue decreased $189.4 million, or 64.5%, from $293.5 million for the year ended December 31, 2022 to $104.1 million for the year ended December 31, 2023. The decrease was primarily attributable to a 13,782 decrease in wholesale units sold, which decreased wholesale revenue by $193.8 million, partially offset by a higher ASP per wholesale unit, which increased wholesale revenue by $4.4 million. Wholesale Gross Loss Wholesale gross loss increased $23.8 million, or 223.5%, from $10.6 million for the year ended December 31, 2022 to $34.4 million for the year ended December 31, 2023. The change was primarily attributable to a $4,334 increase in wholesale gross loss per unit from $509 for the year ended December 31, 2022 to $4,843 for the year ended December 31, 2023, which increased wholesale gross loss by $30.8 million, partially offset by a 13,782 decrease in wholesale units sold, which decreased wholesale gross loss by $7.0 million. The increase in wholesale gross loss per unit was primarily driven by lower sales margins as a result of wholesale liquidations for aged inventory and vehicles damaged by hail storms in the second and third quarter of 2023 and a higher inventory reserve. Retail Financing The following table presents our Retail Financing segment results of operations for the periods indicated: Year Ended December 31, 2023 2022 Change % Change (in thousands) Retail Financing revenue $ 156,938 $ 152,542 $ 4,396 2.9 % Retail Financing gross profit $ 125,610 $ 138,381 $ (12,771 ) (9.2 )% Retail Financing Revenue Retail Financing revenue increased $4.4 million, or 2.9%, from $152.5 million for the year ended December 31, 2022 to $156.9 million for the year ended December 31, 2023. The increase was primarily driven by an increase in interest and discount income from $78.6 million for the year ended December 31, 2022 to $140.6 million for the year ended December 31, 2023 related to income earned on finance receivables with third-party dealership customers as a result of new originations and the consolidation of the 2022-2 and 2023-1 securitization transactions. The increase was 65 Table of Contents partially offset by the gain on sale of finance receivables of $45.6 million for the year ended December 31, 2022 related to the 2022-1 and 2022-2 securitization transactions. Retail Financing Gross Profit Retail Financing gross profit decreased $12.8 million, or 9.2%, from $138.4 million for the year ended December 31, 2022 to $125.6 million for the year ended December 31, 2023. The decrease was primarily driven by the gain on sale of finance receivables of $45.6 million for the year ended December 31, 2022 related to the 2022-1 and 2022-2 securitization transactions. Additionally, the decrease was a result of an increase in collection expenses related to servicing finance receivables originated or acquired by UACC and an increase in interest expense on securitization debt from $3.4 million for the year ended December 31, 2022 to $18.6 million for the year ended December 31, 2023. The decrease was partially offset by an increase in interest and discount income earned on finance receivables with third-party dealership customers as a result of new originations and the consolidation of the 2022-2 and 2023-1 securitization transactions, as described above. Selling, general and administrative expenses Year Ended December 31, 2023 2022 Change % Change (in thousands) Compensation & benefits $ 166,056 $ 251,153 $ (85,097 ) (33.9 )% Marketing expense 48,440 79,670 (31,230 ) (39.2 )% Outbound logistics (1) 8,466 39,023 (30,557 ) (78.3 )% Occupancy and related costs 18,010 23,363 (5,353 ) (22.9 )% Professional fees 20,129 33,455 (13,326 ) (39.8 )% Software and IT costs 36,466 44,570 (8,104 ) (18.2 )% Other 43,090 95,153 (52,063 ) (54.7 )% Total selling, general & administrative expenses $ 340,657 $ 566,387 $ (225,730 ) (39.9 )% (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 associated with vehicle deliveries. Inbound transportation costs, from the point of acquisition to the relevant reconditioning facility, are included in cost of sales. SG&A expenses decreased $225.7 million, or 39.9%, from $566.4 million for the year ended December 31, 2022 to $340.7 million for the year ended December 31, 2023. The total decrease was primarily caused by: • a $85.1 million decrease in compensation and benefits primarily as a result of workforce reductions; • a $31.2 million decrease in marketing expense contemplated by our long-term roadmap, our previous business strategy for our ecommerce business; • a $30.6 million decrease in outbound logistics costs attributable to the decrease in ecommerce units sold as well as a decrease in outbound logistics cost per ecommerce unit; • a $13.3 million decrease in professional fees primarily related to costs incurred in connection with the UACC Acquisition during the first quarter of 2022 as well as a decrease in legal and other consulting fees; • a $8.1 million decrease in software and IT costs primarily related to volume-based fees as a result of reduced headcount and more efficient targeted software use; • a $5.4 million decrease in occupancy expense primarily as a result of physical office location closures from the second quarter of 2022 through the second quarter of 2023; and • a $52.1 million decrease in other SG&A expenses primarily due to a decrease in our non-recurring costs, including legal settlements and rental car expenses, as we worked to address our operational challenges created by our rapid growth from 2020 through the first quarter of 2022 as well as reduced fixed and variable costs contemplated by our long-term roadmap. 66 Table of Contents We expect SG&A expenses to decrease in the future driven by further reductions in both fixed and variable cost components as we wind-down our ecommerce business and complete our announced workforce reduction. Depreciation and amortization Depreciation and amortization expenses increased $4.5 million, or 11.7%, from $38.3 million for the year ended December 31, 2022 to $42.8 million for the year ended December 31, 2023. The increase was primarily due to an additional month of amortization expense of intangible assets acquired as part of the UACC Acquisition for the year ended December 31, 2023 and amortization related to our capitalized internal use software costs incurred in the development of our platform and website applications. Impairment Charges Impairment charges of $48.7 million for the year ended December 31, 2023 primarily consist of $47.4 million long–lived asset impairment charges as a result of a triggering event as of December 31, 2023. Impairment charges of $211.9 million for the year ended December 31, 2022 represent an impairment charge to write down the carrying amount of the goodwill to fair value, lease impairment charges related to closing physical office locations, Stafford reconditioning facility and Sell Us Your Car® centers, and impairment of long-lived assets no longer in use. Gain on debt extinguishment Gain on debt extinguishment represents a gain of $37.9 million and $164.7 million for the years ended December 31, 2023 and 2022, respectively, related to the repurchase of $74.2 million and $254.3 million in aggregate principal balance of the Notes, net of deferred issuance costs, for $36.5 million and $90.2 million, respectively. Interest expense Interest expense increased $4.7 million, or 11.7%, from $40.7 million for the year ended December 31, 2022 to $45.4 million for the year ended December 31, 2023. Interest expense incurred on UACC's Warehouse Credit Facilities increased as a result of an increase in the outstanding balance. The increase was offset by a decrease in interest expense related to a lower outstanding balance on the 2022 Vehicle Floorplan Facility, as well as a decrease in interest expense on the Notes due to the repurchase of a portion of the Notes during the second half of 2022 and during 2023. Interest income Interest income increased $1.8 million, or 9.3%, from $19.4 million for the year ended December 31, 2022 to $21.2 million for the year ended December 31, 2023. The increase in interest income was primarily driven by higher interest rates earned on cash and cash equivalents. Other loss, net Other loss, net increased $65.1 million, or 150.8%, from $43.2 million for the year ended December 31, 2022 to $108.3 million for the year ended December 31, 2023. The increase in other loss was primarily driven by an increase in realized and unrealized losses on finance receivables as a result of a larger loan portfolio as well as higher loss rates on our overall portfolio as of December 31, 2023 as compared to December 31, 2022. Liquidity and Capital Resources As of December 31, 2023, we had cash and cash equivalents of $135.6 million and restricted cash of $73.2 million. Restricted cash primarily includes restricted cash required under UACC's securitization transactions and Warehouse Credit Facilities of $49.1 million and cash deposits required under our 2022 Vehicle Floorplan Facility of $22.7 million. Prior to the wind-down of our ecommerce operations, our primary source of liquidity was cash generated through financing activities. Additionally, we had excess borrowing capacity of $56.9 million under UACC's Warehouse Credit Facilities as of December 31, 2023. On January 19, 2024, we amended our 2022 Vehicle Floorplan Facility. As a result of the amendment, borrowings under the 2022 Vehicle Floorplan Facility were suspended for future vehicle purchases and we were required to maintain 40% of our outstanding borrowings in cash. In addition, all other financial covenants were eliminated. As a result of the 67 Table of Contents liquidation of our vehicle inventory, we repaid all amounts outstanding under the 2022 Vehicle Floorplan Facility in full and the agreement has been terminated. We expect to use our cash and cash equivalents to finance our future capital requirements and UACC’s Warehouse Credit Facilities to fund our finance receivables. Certain advance rates available to UACC on borrowings from the Warehouse Credit Facilities have decreased as a result of the increasing credit losses in UACC's portfolio and overall rising interest rates. Any future decreases on available advance rates may have an adverse impact on our liquidity. As of February 29, 2024, we had cash and cash equivalents of approximately $94.0 million. We anticipate that our existing cash and cash equivalents and UACC's Warehouse Credit Facilities will be sufficient to support the Company for at least the next twelve months from the date of this Annual Report on Form 10-K. In addition to our ongoing cash requirements, our liquidity will also be used to fund costs related to the announced wind-down of our ecommerce operations, primarily in relation to severance and early contract and lease termination payments. Such payments could be significant and have a material effect on our cash flows from operations. Our future capital requirements will depend on many factors, including our ability to successfully implement the Value Maximization Plan and realize its benefits, available advance rates on our Warehouse Credit Facilities, our ability to complete additional securitization transactions at terms favorable to us, and our future credit losses. We have no significant debt maturities due until July 2026 and the payments on our securitization debt are funded by cashflows on the finance receivables within the securitization trusts. 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, were approximately $608.9 million. During the year ended December 31, 2023, the conditions allowing holders of the Notes to convert were not met. During the year ended December 31, 2023, we repurchased $74.2 million in aggregate principal amount of the Notes, net of deferred issuance costs, for $36.5 million, respectively, in open-market transactions. We recognized a gain on extinguishment of debt of $37.9 million for the year ended December 31, 2023. As a result of these repurchases and repurchases made in 2022, as of December 31, 2023, $286.8 million aggregate principal amount of the Notes remain outstanding, net of deferred issuance costs of $3.7 million. Subject to market conditions and availability, we may continue to opportunistically repurchase Notes from time to time to reduce our outstanding indebtedness at a discount. Refer to Note 13 — Long Term Debt of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for further discussion. Finance Receivables Subject to market conditions, we plan to sell finance receivables originated by UACC through asset-backed securitization transactions. In January 2023, UACC sold approximately $238.7 million of investment grade rated asset-backed securities in the 2023-1 auto loan securitization transaction for proceeds of $237.8 million. On April 19, 2023, UACC sold the non-investment grade rated securities related to the 2023-1 securitization transaction for $23.1 million. The securitization trust is collateralized by finance receivables with an aggregate principal balance of $326.4 million. As a result of market conditions at the time, which led to unfavorable pricing, UACC retained the residual interests, and we accounted for the 2023-1 securitization transaction as secured borrowings. In the year ended December 31, 2022, UACC sold $523.7 million of rated asset-backed securities and $49.6 million of residual certificates in 2022-1 and 2022-2 auto loan securitization transactions for proceeds of $582.9 million. The securitization trusts are collateralized by finance receivables with an aggregate principal balance of $603.5 million and have a carrying value of $534.6 million at the time of sale. 68 Table of Contents Finance receivables are serviced by UACC. UACC retains at least 5% of the notes and residual certificates sold as required by applicable risk retention rules and generally uses the proceeds of the securitization transactions to pay down outstanding debt under its Warehouse Credit Facilities. Depending on market conditions, future securitization transactions may be accounted for as secured borrowings and remain on balance sheet. As a result of high interest rates, the current inflationary environment and vehicle depreciation in the used automotive industry, UACC is experiencing higher loss severity. The increased loss severity could lead to reduced servicing income if UACC elects to waive monthly servicing fees going forward as it did in the first quarter of 2023. The waiver of monthly servicing fees related to the 2022-2 securitization transaction resulted in consolidation of the related finance receivables and securitization debt on our financial statements. Refer to Note 4 — Variable Interest Entities and Securitizations to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for further discussion. UACC Risk Retention Financing Facility On May 3, 2023, UACC entered into a Risk Retention Financing Facility enabling it to finance asset-backed securities issued in its securitization transactions and held by UACC pursuant to applicable risk retention rules. Under this facility, UACC sells such retained interests and agrees to repurchase them at fair value on a future date. In its initial transaction under this facility, UACC pledged $24.5 million of its retained beneficial interests as collateral, and received proceeds of $24.1 million, with expected repurchase dates ranging from March 2025 to September 2029. The securitization trusts will distribute payments related to UACC's pledged beneficial interests in securitizations directly to the lenders, which will reduce the beneficial interests in securitizations and the related debt balance . Warehouse Credit Facilities UACC has four senior secured warehouse facility agreements the (“Warehouse Credit Facilities”) with banking institutions. The Warehouse Credit Facilities are collateralized by eligible finance receivables and available borrowings are computed based on a percentage of eligible finance receivables. The aggregate borrowing limit is $825.0 million with maturities between June 2025 and September 2025. As of December 31, 2023, outstanding borrowings related to the Warehouse Credit Facilities were $421.3 million and we were in compliance with all covenants related to the Warehouse Credit Facilities. Failure to satisfy these and or any other requirements contained within the agreements would restrict access to the Warehouse Credit Facilities and could have a material adverse effect on our financial condition, results of operations and liquidity. Certain breaches of covenants may also result in acceleration of the repayment of borrowings prior to the scheduled maturity. Refer to Note 11 — Warehouse Credit Facilities of Consolidated VIEs to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for further discussion. Operating Leases Prior to the wind-down of our ecommerce operations, we entered into various noncancelable operating lease agreements for office space, the Company’s reconditioning facility, the TDA retail location, the Company’s Sell Us Your Car centers, regional logistics hubs, parking lots, other facilities, and equipment used in the normal course of business, and, as of December 31, 2023 operating lease obligations were $33.9 million, with $10.7 million payable within 12 months. As of December 31, 2023, UACC had an additional operating lease that has not yet commenced with future lease payments of approximately $1.2 million. The lease is expected to commence over the next 12 months with initial lease terms of approximately 7 years. As a result of the Value Maximization Plan, we have been negotiating early terminations of our lease obligations. As of March 8, 2024, we have reduced our aggregate future operating lease obligations by $4.9 million. Our ongoing lease obligations will depend on the outcomes of discussions and negotiations (a number of which are currently ongoing) with counterparties to the leases we still intend to terminate or modify. See "Note 12—Leases,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments. 69 Table of Contents Cash Flows from Operating, Investing, and Financing Activities The following table summarizes our cash flows for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Net cash used in operating activities $ (533,684 ) $ (109,065 ) Net cash provided by (used in) investing activities 173,153 (164,212 ) Net cash provided by (used in) financing activities 97,340 (469,488 ) Net (decrease) increase in cash, cash equivalents and restricted cash (263,191 ) (742,765 ) Cash and cash equivalents and restricted cash at beginning of period 472,010 1,214,775 Cash and cash equivalents and restricted cash at end of period $ 208,819 $ 472,010 Operating Activities Net cash flows used in operating activities increased by $424.6 million, from $109.1 million for the year ended December 31, 2022 to $533.7 million for the year ended December 31, 2023. For the year ended December 31, 2022, the cash used in operating activities was partially offset by the proceeds from the sale of finance receivables held for sale related to the 2021-2 and 2022-2 securitization transactions of $509.6 million. The remaining increase in net cash used in operating activities is due to a change in working capital of $155.1 million, primarily related to the change in inventory levels. The increases were partially offset by a $149.3 million decrease in net loss after reconciling adjustments for the year ended December 31, 2023, as compared to the year ended December 31, 2022, a decrease of originations of finance receivables held for sale of $43.4 million, and an increase in principal payments received on finance receivables held for sale of $41.3 million As the 2023-1 securitization transaction was accounted for as secured borrowings, the proceeds are included as a financing activity in our consolidated statement of cash flows. We financed a majority of our inventory with the 2022 Vehicle Floorplan Facility. In accordance with U.S. GAAP, we report all cash flows arising in connection with the 2022 Vehicle Floorplan Facility as a financing activity in our consolidated statement of cash flows. Investing Activities Net cash flows from investing activities changed $337.4 million, from net cash used in investing activities of $164.2 million for the year ended December 31, 2022 to net cash provided by investing activities of $173.2 million for the year ended December 31, 2023. The change was primarily a result of the UACC Acquisition in February 2022 which resulted in cash outflow of $267.5 million during the year ended December 31, 2022, a decrease in purchases of finance receivables at fair value of $53.1 million, an increase in principal payments received on finance receivables at fair value of $42.4 million, and the consolidation of the 2022-2 securitization transaction which resulted in a cash inflow of $11.4 million during the year ended December 31, 2023. The changes were partially offset by a decrease in proceeds from the sale of finance receivables at fair value for the 2022-1 and 2022-2 securitization transactions of $43.3 million, which resulted in a cash inflow during the year ended December 31, 2022. Financing Activities Net cash flows from financing activities changed $566.8 million, from net cash used in financing activities of $469.5 million for the year ended December 31, 2022 to net cash provided by financing activities of $97.3 million for the year ended December 31, 2023. The change was primarily related to proceeds from borrowings under secured financing arrangements of $262.0 million, an increase in net cash inflow of $136.0 million related to our Warehouse Credit Facilities, a decrease in net repayments of $110.0 million related to our 2022 Vehicle Floorplan Facility, a decrease in the repurchase of convertible senior notes of $53.7 million, and proceeds from financing beneficial interests in securitizations of $24.5 million for the year ended December 31, 2023. The changes were partially offset by an increase in principal repayments under secured financing agreements and financing beneficial interests in securitizations of $15.6 million and $8.7 million, respectively. 70 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, revenue-related reserves, as well as impairment of goodwill and long-lived assets. We base our estimates on historical experience, market conditions and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates. The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those described in Note 2—Summary of Significant Accounting Policies and Note 3—Revenue Recognition to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Recently Issued and Adopted Accounting Pronouncements Refer to “Note 2—Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report. 71 Table of Contents Item 7A. Quantita tive and Qualitative Disclosure About Market Risk We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 7A. 72 Table of Contents Item 8. Financial Stateme nts and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm PCAOB ID 238 74 Consolidated Balance Sheets as of December 31, 2023 and 2022 76 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 77 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2023 and 2022 78 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 79 Notes to Consolidated Financial Statements 81 73 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Vroom, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Vroom, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of changes in stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in In ternal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Emphasis of Matter As discussed in Note 1 – Value Maximization Plan to the consolidated financial statements, in 2024, the Board of Directors approved a value maximization plan, pursuant to which the Company discontinued its ecommerce operations and is winding down its used vehicle dealership business. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the 74 Table of Contents transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Retail Vehicle, Net Revenues As described in Note 3 to the consolidated financial statements, the Company’s revenue for the year ended December 31, 2023 included retail vehicle, net revenues of $566.0 million. The Company recognizes revenue for used vehicle sales generally at a point in time when the vehicles are delivered to the customer or picked up by the customer. The revenue recognized by the Company includes the agreed upon transaction price, including any delivery charges and document fees stated within the customer contract. The principal consideration for our determination that performing procedures relating to the recognition of retail vehicle, net revenues is a critical audit matter is a high degree of auditor effort in performing procedures related to recognition of the Company’s retail vehicle, net revenues. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the recording of revenue at the transaction price when the used vehicle has been delivered to the customer or picked up by the customer. These procedures also included, among others (i) testing a sample of retail vehicle, net revenue transactions by obtaining and inspecting source documents, such as customer contracts, delivery documents, and cash receipts and (ii) testing the timing of revenue recognition for a sample of retail vehicle, net revenue transactions before December 31, 2023 by obtaining and inspecting source documents, such as customer contracts and delivery documents. /s/ PricewaterhouseCoopers LLP New York, New York March 13, 2024 We have served as the Company’s auditor since 2016. 75 Table of Contents VROOM, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) As of December 31, 2023 2022 ASSETS Current Assets: Cash and cash equivalents $ 135,585 $ 398,915 Restricted cash (including restricted cash of consolidated VIEs of $ 49.1 million and $ 24.7 million, respectively) 73,234 73,095 Accounts receivable, net of allowance of $ 11.2 million and $ 21.5 million, respectively 9,139 13,967 Finance receivables at fair value (including finance receivables of consolidated VIEs of $ 11.8 million and $ 11.5 million, respectively) 12,501 12,939 Finance receivables held for sale, net (including finance receivables of consolidated VIEs of $ 457.2 million and $ 305.9 million, respectively) 503,546 321,626 Inventory 163,250 320,648 Beneficial interests in securitizations 4,485 20,592 Prepaid expenses and other current assets (including other current assets of consolidated VIEs of $ 25.2 million and $ 11.7 million, respectively) 50,899 58,327 Total current assets 952,639 1,220,109 Finance receivables at fair value (including finance receivables of consolidated VIEs of $ 329.6 million and $ 119.6 million, respectively) 336,169 140,235 Property and equipment, net 24,132 50,201 Intangible assets, net 131,892 158,910 Operating lease right-of-use assets 7,063 23,568 Other assets (including other assets of consolidated VIEs of $ 1.8 million and $ 0 million, respectively) 23,527 26,004 Total assets $ 1,475,422 $ 1,619,027 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 26,762 $ 34,702 Accrued expenses (including accrued expenses of consolidated VIEs of $ 4.0 million and $ 1.5 million, respectively) 52,452 76,795 Vehicle floorplan 151,178 276,988 Warehouse credit facilities of consolidated VIEs 421,268 229,518 Current portion of long-term debt (including current portion of securitization debt of consolidated VIEs at fair value of $ 163.5 million and $ 47.2 million, respectively) 172,410 47,239 Deferred revenue 14,025 10,655 Operating lease liabilities, current 8,737 9,730 Other current liabilities 9,974 17,693 Total current liabilities 856,806 703,320 Long-term debt, net of current portion (including securitization debt of consolidated VIEs of $ 150.6 million and $ 32.6 million at fair value, respectively) 454,173 402,154 Operating lease liabilities, excluding current portion 25,183 20,129 Other long-term liabilities (including other long-term liabilities of consolidated VIEs of $ 10.4 million and $ 7.4 million, respectively) 17,109 18,183 Total liabilities 1,353,271 1,143,786 Commitments and contingencies (Note 14) Stockholders’ equity: Common stock, $ 0.001 par value; 500,000,000 shares authorized as of December 31, 2023 and 2022; 1,791,286 and 1,727,525 shares issued and outstanding as of December 31, 2023 and 2022, respectively 2 2 Additional paid-in-capital 2,088,381 2,075,931 Accumulated deficit ( 1,966,232 ) ( 1,600,692 ) Total stockholders’ equity 122,151 475,241 Total liabilities and stockholders’ equity $ 1,475,422 $ 1,619,027 See accompanying notes to these consolidated financial statements . 76 Table of Contents VROOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) Year Ended December 31, 2023 2022 Revenue: Retail vehicle, net $ 565,972 $ 1,425,842 Wholesale vehicle 104,119 293,528 Product, net 52,253 62,747 Finance 156,938 152,542 Other 13,921 14,242 Total revenue 893,203 1,948,901 Cost of sales: Retail vehicle 553,565 1,382,005 Wholesale vehicle 138,472 304,148 Product 3,337 — Finance 31,328 14,161 Other 4,554 3,800 Total cost of sales 731,256 1,704,114 Total gross profit 161,947 244,787 Selling, general and administrative expenses 340,657 566,387 Depreciation and amortization 42,769 38,290 Impairment charges 48,748 211,873 Loss from operations ( 270,227 ) ( 571,763 ) Gain on debt extinguishment ( 37,878 ) ( 164,684 ) Interest expense 45,445 40,693 Interest income ( 21,158 ) ( 19,363 ) Other loss (income), net 108,289 43,181 Loss before provision (benefit) for income taxes ( 364,925 ) ( 471,590 ) Provision (benefit) for income taxes 615 ( 19,680 ) Net loss $ ( 365,540 ) $ ( 451,910 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 209.70 ) $ ( 262.15 ) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 1,743,128 1,723,843 See accompanying notes to these consolidated financial statements. 77 Table of Contents VRO OM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance at December 31, 2021 1,713,662 $ 2 $ 2,063,974 $ ( 1,148,782 ) $ 915,194 Stock-based compensation — $ — $ 11,957 $ — $ 11,957 Vesting of restricted stock units 9,404 — — — — Restricted stock units in accordance with purchase agreement 4,459 — — — — Net loss — — — ( 451,910 ) ( 451,910 ) Balance at December 31, 2022 1,727,525 $ 2 $ 2,075,931 $ ( 1,600,692 ) $ 475,241 Stock-based compensation — $ — $ 10,051 $ — $ 10,051 Vesting of restricted stock units 20,278 — — — — Issuance of common stock related to at-the-market offering, net of offering costs 43,483 — 2,399 — 2,399 Net loss — — — ( 365,540 ) ( 365,540 ) Balance at December 31, 2023 1,791,286 $ 2 $ 2,088,381 $ ( 1,966,232 ) $ 122,151 See accompanying notes to these consolidated financial statements . 78 Table of Contents VROOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 Operating activities Net loss $ ( 365,540 ) $ ( 451,910 ) Adjustments to reconcile net loss to net cash used in operating activities: Impairment charges 48,748 211,873 Gain on debt extinguishment ( 37,878 ) ( 164,684 ) Depreciation and amortization 43,476 38,707 Amortization of debt issuance costs 4,598 4,809 Realized gains on securitization transactions — ( 45,589 ) Deferred taxes — ( 23,855 ) Losses on finance receivables and securitization debt, net 114,702 66,839 Stock-based compensation expense 10,051 11,957 Provision to record inventory at lower of cost or net realizable value ( 2,360 ) 1,812 Provision for bad debt 4,074 13,406 Provision to record finance receivables held for sale at lower of cost or fair value 20,566 6,541 Amortization of unearned discounts on finance receivables at fair value ( 25,954 ) ( 14,593 ) Other, net ( 17,393 ) ( 7,512 ) Changes in operating assets and liabilities: Finance receivables, held for sale Originations of finance receivables held for sale ( 582,170 ) ( 625,575 ) Principal payments received on finance receivables held for sale 105,858 64,521 Proceeds from sale of finance receivables held for sale, net — 509,612 Other ( 1,606 ) ( 7,701 ) Accounts receivable 754 78,060 Inventory 159,758 403,924 Prepaid expenses and other current assets 22,711 4,146 Other assets 3,266 ( 2,546 ) Accounts payable ( 7,940 ) ( 24,281 ) Accrued expenses ( 24,766 ) ( 53,553 ) Deferred revenue 3,370 ( 65,148 ) Other liabilities ( 10,009 ) ( 38,325 ) Net cash used in operating activities ( 533,684 ) ( 109,065 ) Investing activities Finance receivables at fair value Purchases of finance receivables at fair value ( 3,392 ) ( 56,484 ) Principal payments received on finance receivables at fair value 174,748 132,391 Proceeds from sale of finance receivables at fair value, net — 43,262 Consolidation of VIEs 11,409 — Principal payments received on beneficial interests 5,193 8,341 Purchase of property and equipment ( 14,805 ) ( 24,234 ) Acquisition of business, net of cash acquired of $ 47.9 million — ( 267,488 ) Net cash provided by (used in) investing activities 173,153 ( 164,212 ) Financing activities Proceeds from the issuance of common stock in at-the-market offering, net of offering costs 2,399 — Proceeds from borrowings under secured financing agreements 261,991 — Principal repayment under secured financing agreements ( 208,476 ) ( 192,839 ) Proceeds from financing of beneficial interests in securitizations 24,506 — Principal repayments of financing of beneficial interests in securitizations ( 8,698 ) — Proceeds from vehicle floorplan 559,331 1,403,042 Repayments of vehicle floorplan ( 685,141 ) ( 1,638,855 ) Proceeds from warehouse credit facilities 480,100 520,800 Repayments of warehouse credit facilities ( 290,483 ) ( 467,216 ) Repurchases of convertible senior notes ( 36,536 ) ( 90,208 ) Other financing activities ( 1,653 ) ( 4,212 ) Net cash provided by (used in) financing activities 97,340 ( 469,488 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 263,191 ) ( 742,765 ) Cash, cash equivalents and restricted cash at the beginning of period 472,010 1,214,775 Cash, cash equivalents and restricted cash at the end of period $ 208,819 $ 472,010 (Continued on following page) 79 Table of Contents VROOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) Supplemental disclosure of cash flow information: Cash paid for interest $ 59,351 $ 34,907 Cash paid for income taxes $ 5,363 $ 2,409 Supplemental disclosure of non-cash investing and financing activities: Finance receivables from consolidation of 2022-2 securitization transaction $ 180,706 $ — Elimination of beneficial interest from the consolidation of 2022-2 securitization transaction $ 9,811 $ — Securitization debt from consolidation of 2022-2 securitization transaction $ 186,386 $ — Reclassification of finance receivables held for sale to finance receivables at fair value, net $ 248,081 $ — Fair value of beneficial interests received in securitization transactions $ — $ 30,082 See accompanying notes to these consolidated financial statements . 80 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Basis of Presentation Description of Business and Organization Vroom, Inc., and its wholly owned subsidiaries (collectively, the "Company”), was an end-to-end ecommerce platform to buy and sell used vehicles. In December 2015, the Company acquired Houston-based Left Gate Property Holding, LLC (d/b/a Texas Direct Auto and Vroom). The acquisition included the Company's proprietary vehicle reconditioning center, the Texas Direct Auto ("TDA") dealership, and Sell Us Your Car® centers. Left Gate Property Holding, LLC was renamed Vroom Automotive, LLC in March 2021, and was the primary operating entity for the Company's purchases and sales of used vehicles. In January 2021, the Company acquired Vast Holdings, Inc. (d/b/a CarStory). On February 1, 2022 (the "Acquisition Date"), the Company completed the acquisition of Unitas Holdings Corp. (now known as Vroom Finance Corporation), including its wholly owned subsidiaries United PanAm Financial Corp. (now known as Vroom Automotive Financial Corporation) and United Auto Credit Corporation ("UACC"). Starting in 2022, the Company was organized into three reportable segments: Ecommerce, Wholesale and Retail Financing. The Ecommerce reportable segment represented retail sales of used vehicles through the Company’s ecommerce platform, revenue earned on vehicle financing originated by UACC or the Company's third-party financing sources and sales of value-added products associated with those vehicles sales. The Wholesale reportable segment represented sales of used vehicles through wholesale channels. The Retail Financing reportable segment represented UACC’s operations with its network of third-party dealership customers, which primarily consists of the purchases and servicing of vehicle installment contracts, but excludes financing of vehicle sales to Vroom customers. As a result of the Value Maximization Plan and the wind-down of the ecommerce operations, as described below, the Company will discontinue reporting its results through the Ecommerce and Wholesale segments starting in the first quarter of 2024. The Company was incorporated in Delaware on January 31, 2012 under the name BCM Partners III, Corp. On June 25, 2013, the Company changed its name to Auto America, Inc. and on July 9, 2015, the Company changed its name to Vroom, Inc. Value Maximization Plan On January 19, 2024, the Board of Directors of Vroom approved a value maximization plan, pursuant to which the Company discontinued its ecommerce operations and is winding down its used vehicle dealership business in order to preserve liquidity and enable the Company to maximize stakeholder value through its remaining businesses (the “Value Maximization Plan”). The Company has suspended transactions through vroom.com, completed transactions for customers who had previously contracted to purchase or sell a vehicle, halted purchases of additional vehicles, sold all of its used vehicle inventory through wholesale channels and paid off its floorplan financing facility. The Company continues to take other actions to maximize the value of its remaining ecommerce assets, reduce its outstanding commitments and preserve its liquidity, and has been executing a reduction-in-force commensurate with its reduced operations. The Company expects the ecommerce wind down to be substantially complete by the end of the first quarter of 2024, but may incur additional wind-down costs through the end of 2024. The Company also owns and operates UACC, an automotive finance company, and CarStory, an artificial intelligence-powered analytics and digital services platform for automotive retail. The UACC and CarStory businesses will continue to serve their third-party customers, with their operations unaffected by Vroom’s ecommerce wind-down. As a result of the Value Maximization Plan, the Company estimates that it will incur total cash charges of approximately $ 16.5 million for severance and other personnel-related costs and approximately $ 15.0 million in other contract and lease termination costs. As part of a planned reduction-in-force under the Value Maximization Plan, the Company anticipates that approximately 800 employees will be impacted upon substantial completion of the wind-down, resulting in a reduction of approximately 93 % of the employees not engaged in UACC’s or CarStory’s ongoing operations. The Company determined a triggering event existed as of December 31, 2023, resulting in long–lived asset impairment charges of $ 47.4 million. The impairment charges consist of $ 23.9 related to "Property and equipment, net", 81 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $ 22.2 million related to "Operating lease right-of-use assets", and $ 1.3 million related to "Other assets" on the Company's consolidated balance sheets. Refer to Note 7 — Property and Equipment, Net and Note 12 — Leases for further details. Reverse Stock Split On February 13, 2024, the Company effected a 1-for-80 reverse stock split of the Company’s common stock. All shares of the Company’s common stock, stock-based instruments and per-share data included in these consolidated financial statements have been retroactively adjusted as though the stock split has been effected prior to all periods presented. Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain prior year amounts have been reclassified to conform to the current year presentation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, contingencies, revenue-related reserves, fair value measurements and useful lives of property and equipment and intangible assets. The Company bases its estimates on historical experience, market conditions, and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates. Comprehensive Loss The Company did no t have any other comprehensive income or loss for the years ended December 31, 2023, and 2022 . Accordingly, net loss and comprehensive loss are the same for the periods presented. Revenue Recognition Revenue consists of retail used vehicle sales, wholesale used vehicle sales, financing vehicle sales through UACC, fees earned on sales of third-party financing and value-added products to customers in connection with vehicles sales, and other revenues. Refer to Note 3 – Revenue Recognition for a discussion of the Company’s significant accounting policies related to revenue recognition. Cost of sales Cost of sales primarily includes the cost to acquire used vehicles, inbound transportation costs and direct and indirect reconditioning costs associated with preparing vehicles for resale. 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 necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value. As a result of the UACC acquisition, cost of sales also includes interest expense incurred on securitization debt related to finance receivables originated by UACC for Vroom customers as well as interest expense incurred on securitization debt originated by UACC for its network of third-party dealership customers and collection expenses related to servicing finance receivables. 82 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and Cash Equivalents Cash and cash equivalents include cash deposits at financial institutions and highly liquid investments with original maturities of three months or less. Outstanding checks that are in excess of the cash balances at certain financial institutions are included in “Accounts payable” in the consolidated balance sheets and changes in these amounts are reflected in operating cash flows in the consolidated statements of cash flows. Restricted Cash Restricted cash primarily includes cash deposits required under the Company’s 2022 Vehicle Floorplan Facility as explained in Note 10 – Vehicle Floorplan Facility and UACC restricted cash. UACC collects and services receivables under the securitization transactions and warehouse credit facilities. These collections are restricted for use until properly remitted each month under the terms of the servicing agreement. Refer to Note 11 — Warehouse Credit Facilities of Consolidated VIEs and Note 13 — Long Term Debt for further detail. Accounts Receivable, Net Accounts receivable, net of an allowance for doubtful accounts, includes amounts due from customers and from third-party financial institutions related to vehicle purchases. The allowance for doubtful accounts is estimated based upon historical experience, age of the balances, current economic conditions and other factors and is evaluated as of each reporting date. Increases and decreases in the allowance for doubtful accounts are recorded in “Selling, general and administrative expenses” in the consolidated statements of operations. The allowance for doubtful accounts was $ 11.2 million, $ 21.5 million and $ 8.5 million as of December 31, 2023, 2022, and 2021, respectively. For the year ended December 31, 2023, the provision for bad debt was $ 4.1 million and write-offs were $ 14.4 million. For the year ended December 31, 2022, the provision for bad debt was $ 13.4 million and write-offs were immaterial. Finance Receivables Finance receivables consist of installment contracts the Company originates through UACC to finance the vehicles it sells, as well as installment contracts acquired by UACC from its existing network of third-party dealership customers. The Company's finance receivables are generally secured by the vehicles being financed. Finance receivables over 90 days delinquent are considered nonaccrual finance receivables. Interest income is subsequently recognized only to the extent cash payments are received. Finance receivables may be restored to accrual status when a customer settles all delinquency balances and future interest and principal payments are reasonably assured. Finance Receivables Held for Sale, Net Finance receivables that the Company intends to sell and not hold to maturity are classified as held for sale. The Company intends to sell finance receivables through securitization transactions. Finance receivables classified as held for sale are recorded at the lower of cost or fair value. Deferred acquisition costs and any discounts or premiums are deferred until the finance receivables are sold and are then recognized as part of the total gain or loss on sale and recorded in “Finance Revenue” and "Product, net" in the consolidated statements of operations. Refer to Note 3 – Revenue Recognition. The Company records a valuation allowance to report finance receivables at the lower of amortized cost basis or fair value. To determine the valuation allowance, finance receivables are evaluated collectively as they represent a large group of smaller-balance homogeneous loans. To the extent that actual experience differs from estimates, significant adjustments to the Company's valuation allowance may be needed. Fair value adjustments are recorded in "Other loss (income), net" in the consolidated statements of operations. Principal balances of finance receivables are charged-off when the Company is unable to sell the finance receivable and the related vehicle has been repossessed and liquidated or the receivable has otherwise been deemed uncollectible. As of December 31, 2023 and 2022, the valuation allowance 83 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for finance receivables classified as held for sale was $ 33.8 million and $ 10.5 million, respectively. Refer to No te 17 – Financial Instruments and Fair Value Measurements . Finance Receivables at Fair Value Finance receivables at fair value represent finance receivables that the Company does not intend to sell in the immediate future and for which the fair value option was elected. Fair value adjustments are recorded in "Other loss (income), net" in the consolidated statements of operations. Refer to Note 17 – Financial Instruments and Fair Value Measurements. Consolidated CFEs The Company elected the fair value option upon consolidation of the assets and liabilities of its variable interest entities ("VIEs") related to the 2021-1, 2022-2 and 2023-1 securitization transactions. Refer to Note 4 – Variable Interest Entities and Securitizations. These VIEs are consolidated collateralized financing entities (CFEs) and are accounted for using the measurement alternative in accordance with ASU 2014-13, Measuring the Financial Assets and Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13"). During the years ended December 31, 2023 and 2022, the Company recognized the following revenue and expenses associated with these CFEs in the consolidated statements of operations: Year Ended December 31, 2023 2022 Finance revenue $ 82,442 $ 40,869 Product revenue $ 11,966 $ — Finance cost of sales $ ( 18,840 ) $ ( 3,377 ) Product cost of sales $ ( 3,338 ) $ — Other loss, net $ ( 66,968 ) $ ( 20,987 ) The assets and liabilities of the CFEs are presented as part of the current and noncurrent “Finance receivables at fair value”, “Current portion of long term debt”, and "Long term debt, net of current portion", respectively, on the consolidated balance sheets. Refer to Note 4 – Variable Interest Entities and Securitizations and Note 17 – Financial Instruments and Fair Value Measurements for further details. Inventory Inventory consists primarily of used vehicles and parts and accessories and is stated at the lower of cost or net realizable value. Inventory cost is determined by specific identification and includes acquisition cost, direct and indirect reconditioning costs and inbound transportation expenses. Net realizable value represents the estimated selling price less costs to complete, dispose and transport the vehicles. The Company recognizes any necessary adjustments to reflect inventory at the lower of cost or net realizable value through adjustments to “Retail vehicle cost of sales” in the consolidated statements of operations. Property and Equipment, Net Property and equipment are recorded at cost less accumulated depreciation and amortization. Charges for repairs and maintenance that do not improve or extend the life of the respective assets are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are written off and any resulting gains or losses are recorded during the period. 84 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives of the assets: Equipment 3 to 15 years Furniture and fixtures 3 to 15 years Logistics fleet 5 to 7 years Leasehold improvements Lesser of useful life or lease term Internal-use software 1 to 10 years The Company capitalizes direct costs of materials and services utilized in developing or obtaining internal-use software. The Company also capitalizes payroll and payroll-related costs for employees who are directly associated with and who devote time to the development of software products for internal use, to the extent of the time spent directly on the project. Capitalization of costs begins during the application development stage and ends when the software is available for general use. Costs incurred during the preliminary project and post-implementation stages are charged to expense as incurred. Additionally, the Company capitalizes implementation costs incurred in a cloud computing arrangement that is a service contract. The capitalized implementation costs related to a cloud computing arrangement are amortized over the term of the arrangement. Capitalized implementation costs are included in “Other assets” in the consolidated balance sheet and are amortized over the terms of the arrangements, which range between 1 and 10 years. The Company regularly reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. The Company compares the sum of estimated undiscounted future cash flows expected to result from the use of the asset group to the carrying value of the asset group. When the carrying value of the asset group exceeds its estimated undiscounted future cash flows, the Company recognizes an impairment charge for the amount by which the carrying value of the asset group exceeds the fair value of the asset group. Refer to Note 7 — Property and Equipment, Net for further details on impairment tests performed. Goodwill and Intangible Assets Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of October 1 or whenever events or changes in circumstances indicate that an impairment may exist. The Company has three reporting units: Ecommerce, Wholesale and Retail Financing. In performing its goodwill impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing qualitative factors, the Company determines that it is more likely than not that the fair value of a reporting unit is more than its carrying amount, then performing the quantitative test is unnecessary and the Company’s goodwill is not considered to be impaired. However, if based on the qualitative assessment the Company concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the optional qualitative assessment as provided for under U.S. GAAP, the Company proceeds with performing the quantitative impairment test. Refer to Note 8 — Goodwill and Intangible Assets for further details on the impairment tests performed. The Company's intangible assets are amortized on a straight-line basis over the following estimated weighted average useful lives: Developed technology 7 years Trademarks 9 years Customer relationships 8 years The Company periodically reassesses the useful lives of its definite-lived intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate. 85 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leases The Company determines if an arrangement is a lease at inception by evaluating if the asset is explicitly or implicitly identified or distinct, if the Company will receive substantially all of the economic benefit or if the lessor has an economic benefit and the ability to substitute the asset. Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The Company assesses whether the lease is an operating or finance lease at its inception. Operating lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As the rate implicit in the lease is generally not readily determinable for the Company’s operating leases, the discount rates used to determine the present value of the Company’s lease liabilities are based on the Company’s incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset is the initial lease liability adjusted for any prepayments, initial indirect costs incurred by the Company, and lease incentives. The Company's operating leases are included in "Operating lease right-of-use assets," "Operating lease liabilities, current," and "Operating lease liabilities, excluding current portion" on the consolidated balance sheets. The Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement. Additionally, leases with an initial term of 12 months or less are not recorded on the Company’s consolidated balance sheet and expenses for these leases are recognized on a straight-line basis over the lease term. The Company regularly reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. The Company compares the sum of estimated undiscounted future cash flows expected to result from the use of the asset group to the carrying value of the asset group. When the carrying value of the asset group exceeds its estimated undiscounted future cash flows, the Company recognizes an impairment charge for the amount by which the carrying value of the asset group exceeds the fair value of the asset group. Refer to Note 12 — Leases for further details on impairment tests performed. Vehicle Floorplan The vehicle floorplan payable (the “Vehicle Floorplan Facility”) reflects amounts borrowed to finance the purchase of specific vehicle inventories. Portions of the Vehicle Floorplan Facility are settled on a daily basis depending on the Company’s sales and purchasing activity. The Vehicle Floorplan Facility is collateralized by vehicle inventories and certain other assets of the Company. Borrowings and repayments are presented separately and classified as financing activities within the consolidated statements of cash flows. Income Taxes The Company accounts for income taxes under the asset and liability method. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as for operating loss and tax credit carry forwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences. The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax asset. The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. Potential interest and penalties associated with unrecognized tax positions are recognized in income tax expense. Stock-Based Compensation The Company recognizes the cost of employee services received in exchange for stock awards based on the fair value of those awards at the date of grant over the requisite service period. The Company accounts for forfeitures as they 86 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS occur. For awards earned based on performance or upon occurrence of a contingent event, if the award is deemed probable of being earned, related compensation expense is recorded over the estimated service period. If an award is not considered probable of being earned, no amount of stock-based compensation is recognized. To the extent the estimate of awards considered probable of being earned changes, the amount of stock-based compensation recognized will also change. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option pricing model to determine the fair value of its stock options. Estimating the fair value of stock options requires the input of subjective assumptions, including the estimated fair value of the Company’s common stock, the expected life of the options, stock price volatility, which is determined based on the historical volatilities of several publicly listed peer companies as the Company has only a short trading history for its common stock, the risk-free interest rate and expected dividends. The assumptions used in the Company’s Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are inherently subjective. Business Combinations The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company will continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the Company’s consolidated statement of operations. Advertising Advertising costs are expensed as incurred and are included within “Selling, general and administrative expenses” in the consolidated statements of operations. Advertising expenses were $ 48.4 million and $ 79.7 million for the years ended December 31, 2023 and 2022 , respectively. Shipping and Handling Logistics costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility are included in cost of sales when the related used vehicle is sold. Logistics costs not included in cost of sales are accounted for as costs to fulfill contracts with customers and are included in “Selling, general and administrative expenses” in the consolidated statements of operations and were $ 8.5 million and $ 39.0 million for the years ended December 31, 2023 and 2022 , respectively. Concentration of Credit Risk and Significant Customers The Company’s principal financial instruments subject to potential concentration of credit risk are cash and cash equivalents and accounts receivable, which are unsecured. The Company’s cash balances are maintained at various large, reputable financial institutions. Deposits held with financial institutions may at times exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management believes they bear minimal risk. The Company’s cash equivalents primarily consist of money market funds that hold investments in highly liquid U.S. government securities. Concentration of credit risk with respect to accounts receivable is generally mitigated by a large customer base. For the years ended December 31, 2023 and 2022, no customer represented 10% or more of the Company’s revenues and no customer represented more than 10% of the Company’s accounts receivable as of December 31, 2023 and 2022 . 87 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Liquidity As of December 31, 2023, the Company had cash and cash equivalents of $ 135.6 million and restricted cash of $ 73.2 million. Restricted cash primarily includes restricted cash required under UACC's securitization transactions and Warehouse Credit Facilities of $ 49.1 million and cash deposits required under our 2022 Vehicle Floorplan Facility of $ 22.7 million. The Company has historically had negative cash flows and generated losses from operations and the Company’s primary source of liquidity has been cash generated through financing activities. As of February 29, 2024 the Company had cash and cash equivalents of approximately $ 94.0 million. In January 2024, the Company announced its Value Maximization Plan to discontinue its ecommerce operations and wind-down its used vehicle dealership business, refer to Note 1 — Description of Business and Basis of Presentation — Value Maximization Plan. On January 19, 2024, the Company amended its agreement with Ally Bank and Ally Financial Inc. (together, “Ally”) dated November 4, 2022. As a result of the amendment, the floorplan was suspended for future vehicle purchases and the Company was required to maintain 40 % of our outstanding borrowings in cash. In addition, all other financial covenants were eliminated. As a result of the liquidation of the Company's vehicle inventory, the Company repaid all amounts outstanding under the 2022 Vehicle Floorplan Facility in the first quarter of 2024 and the agreement was terminated. In addition to the Company's ongoing cash requirements, the Company's liquidity will also be used to fund the announced wind-down of its ecommerce operations which is expected to result in the payment of $ 16.5 million in severance related benefits and $ 15.0 million in early contract and lease termination costs. UACC has four warehouse credit facilities with an aggregate borrowing limit of $ 825.0 million as of December 31, 2023. As of December 31, 2023 , outstanding borrowings related to the Warehouse Credit Facilities were $ 421.3 million and excess borrowing capacity was $ 56.9 million. As of December 31, 2023, t he Company was in compliance with all covenants related to the Warehouse Credit Facilities. Failure to satisfy these and or any other requirements contained within the agreements would restrict access to the Warehouse Credit Facilities and could have a material adverse effect on the financial condition of the Company, results of operations and liquidity. Certain breaches of covenants may also result in acceleration of the repayment of borrowings prior to the scheduled maturity. Refer to Note 11 – Warehouse Credit Facilities of Consolidated VIEs for further discussion. The Company expects to use cash and cash equivalents to finance future capital requirements and UACC’s Warehouse Credit Facilities to fund finance receivables. Certain advance rates available to UACC on borrowings from the Warehouse Credit Facilities have decreased as a result of the increasing credit losses in UACC’s portfolio and overall rising interest rates. Any future decreases on available advance rates may have an adverse impact on our liquidity. The Company’s future capital requirements will depend on many factors, including the ability to successfully implement the Value Maximization Plan and realize its benefits, available advance rates on the Warehouse Credit Facilities, our ability to complete additional securitization transactions at terms favorable to us, and our future credit losses. The Company anticipates that existing cash and cash equivalents and UACC's Warehouse Credit Facilities will be sufficient to support the Company’s ongoing operations and obligations, inclusive of the wind-down of the ecommerce operations, for at least the next twelve months from the date of issuance of the consolidated financial statements. Net Loss Per Share Attributable to Common Stockholders Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, net loss is attributed to common stockholders and participating securities based on their participation rights. Under the two-class method, the net loss attributable to common stockholders is not allocated to the preferred stock as the holders of the Company’s preferred stock do not have a contractual obligation to share in the Company’s losses. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For periods in which the 88 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Accounting Standards Adopted In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which enhances and simplifies various aspects of the income tax accounting guidance including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The Company adopted the guidance on January 1, 2021 which did no t have a material impact on the Company’s consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the issuer’s accounting for convertible debt instruments and amended certain guidance related to the computation of earnings per share for convertible instruments and contracts in an entity’s own equity. The Company early adopted the new guidance effective January 1, 2021 . There was no impact on the date of adoption. During the year ended December 31, 2021, the Company issued convertible notes. Refer to Note 13 – Long Term Debt for further discussion. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. The Company adopted the guidance on January 1, 2023 , which did no t have a material impact on the Company's consolidated financial statements and related disclosures. Accounting Standards Issued But Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures of significant segment expenses. The guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and requires retrospective application to all periods presented upon adoption, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. The guidance will be effective for fiscal years beginning after December 15, 2024, with early adoption permitted. T he Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. 3. Revenue Recognition The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company may collect sales taxes and other taxes and government fees from customers on behalf of governmental authorities at the time of sale as required. These taxes are accounted for on a net basis and are not included in revenues or cost of sales. The Company’s revenue is disaggregated within the consolidated statements of operations and is generated from customers throughout the United States. 89 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Retail Vehicle Revenue The Company sold used vehicles to its retail customers through its ecommerce platform and TDA retail location. The transaction price for used vehicles is a fixed amount as set forth within the customer contract at the time of sale. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent non-cash consideration which the Company measures at fair value based on external and internal market data for each specific vehicle. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales generally at a point in time when the vehicles are delivered to the customer for ecommerce sales or picked up by the customer for TDA sales. The revenue recognized by the Company includes the agreed upon transaction price, including any delivery charges and document fees stated within the customer contract. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers. The Company receives payment for used vehicle sales directly from the customer at the time of sale or arranges financing within a short period of time following the sale. Payments received prior to delivery of used vehicles are recorded as “Deferred revenue” within the consolidated balance sheets. The Company offers a return program for used vehicle sales and establishes a provision for estimated returns based on historical information and current trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with an asset recorded in “Prepaid expenses and other current assets” and a refund liability recorded in “Other current liabilities.” Wholesale Vehicle Revenue The Company sold vehicles that do not meet its 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 the Company, from customers who sell their vehicles to the Company in direct-buy transactions, and from liquidation of vehicles previously listed for retail sale. The transaction price for wholesale vehicles is a fixed amount. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold. The transaction price is typically due and collected within a short period of time following the vehicle sales. Product Revenue The Company’s product revenue consists of income from financing vehicle sales for Vroom customers through UACC and fees earned on selling third-party financing and value-added products, such as vehicle service contracts, guaranteed asset protection (“GAP”) and tire and wheel coverage. As a result of the UACC Acquisition (as defined below), the Company generates ecommerce product revenue by providing Vroom customers with automotive financing solutions through its captive financing operation. The Company earns interest income on finance receivables before they are sold, interest income on finance receivables held in consolidated VIEs and gains on the sale of finance receivables. Refer to Note 4 – Variable Interest Entities and Securitizations. The Company also sells third-party financing and value-added products pursuant to arrangements with the third parties that provide these products and are responsible for their fulfillment. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. The Company recognizes product revenues on a net basis when the customer enters into an arrangement for the products, which is typically at the time of a used vehicle sale. Customers may enter into a retail installment sales contract to finance the purchase of used vehicles. The Company sells these contracts on a non-recourse basis to various financial institutions. The Company receives a fee from the financial institution based on the difference between the interest rate charged to the customer that purchased the used vehicle and the interest rate set by the financial institution. These fees are recognized upon sale and assignment of the installment sales contract to the financial institution, which occurs concurrently at the time of a used vehicle sale. A portion of the fees earned on third-party financing and value-added products is subject to chargebacks in the event of early termination, default, or prepayment of the contracts by end-customers. The Company’s exposure for these 90 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS events is limited to the fees that it receives. An estimated refund liability for chargebacks against the revenue recognized from sales of these products is recorded in the period in which the related revenue is recognized and is based primarily on the Company’s historical chargeback experience. The Company updates its estimates at each reporting date. As of December 31, 2023 and 2022, the Company’s reserve for chargebacks was $ 6.2 million and $ 8.2 million, respectively, of which $ 3.3 million and $ 4.4 million, respectively, are included within “Accrued expenses” and $ 2.9 million and $ 3.8 million, respectively, are included in “Other long-term liabilities.” The Company also is contractually entitled to receive profit-sharing revenues based on the performance of the vehicle service policies once a required claims period has passed. The Company recognizes profit-sharing revenues to the extent it is probable that it will not result in a significant revenue reversal. The Company estimates the revenue based on historical claims and cancellation data from its customers, as well as other qualitative assumptions. The Company reassesses the estimate at each reporting period with any changes reflected as an adjustment to revenues in the period identified. As of December 31, 2023 and 2022, the Company recognized $ 20.6 million and $ 22.5 million, respectively, related to cumulative profit-sharing payments to which it expects to be entitled, of which $ 2.3 million and $ 1.6 million, respectively, are included within “Prepaid expenses and other current assets” and $ 18.3 million and $ 20.9 million, respectively, are included within “Other assets.” Finance Revenue The Company’s finance revenue is related to finance receivables originated by UACC for its network of third-party dealership customers and consists of interest income earned on finance receivables before they are sold, interest income earned on finance receivables held in consolidated VIEs, and gains on the sale of finance receivables. Refer to Note 4 – Variable Interest Entities and Securitizations. Interest income deemed uncollectible is reversed at the time the finance receivable is charged off. An account is considered delinquent if a scheduled payment has not been received by the date such payment was contractually due. Finance receivables over 90 days delinquent are considered nonaccrual finance receivables. Income is subsequently recognized only to the extent cash payments are received until the borrower is able to make periodic interest and principal payments in accordance with the finance receivable terms. Late charges and other fees are calculated at predetermined amounts or percentages of overdue finance receivable balances and are recorded on a cash basis. Servicing income represents the annual fees earned on the outstanding principal balance of the finance receivables serviced. Fees are earned monthly at an annual rate of approximately 4 % for the 2022-1 securitization transaction and 3.25 % for the 2022-2 and 2023-1 securitization transactions of the outstanding principal balance of the finance receivables serviced. From January to March 2023, UACC waived the monthly servicing fees related to the 2022-2 securitization transaction, which resulted in consolidation of the 2022-2 VIE. Refer to Note 4 – Variable Interest Entities and Securitizations. Contract Costs The Company has elected, as a practical expedient, to expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within “Selling, general and administrative expenses” in the consolidated statements of operations. 4. Variable Interest Entities and Securitizations A VIE is an entity that either (i) has insufficient equity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. The Company consolidates VIEs for which it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. Assets recognized as a result of consolidating VIEs do not represent additional assets that could be used to satisfy claims against the Company's general assets. Liabilities recognized as a result of consolidating VIEs do not represent additional claims on the Company's general assets, rather they represent claims against the specific assets of the consolidated VIEs. 91 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UACC has the power to direct significant activities of its VIEs when it has the ability to exercise discretion in the servicing of financial assets or control investment decisions. UACC generally retains a portion of the economic interests in UACC-sponsored asset-backed securitization transactions, which could be retained in the form of a portion of the senior interests, the subordinated interests, residual interests, or servicing rights. UACC has developed a securitization program that involves selling finance receivables to securitization trusts through the private issuance of asset-backed securities which are collateralized by the finance receivables. UACC establishes and sponsors these transactions which create and pass along risks to the variable interest holders, specifically, consumer credit risk and pre-payment risk. In February and July 2022, UACC completed the 2022-1 and 2022-2 securitization transactions, respectively, and in January 2023, UACC completed the 2023-1 securitization transaction. The securitization trusts established in connection with asset-backed securitization transactions are VIEs. For each VIE that UACC establishes in its role as sponsor of securitization transactions, the Company performs an analysis to determine if it is the primary beneficiary of the VIE. For all securitization transactions consummated prior to the Acquisition Date, the Company consolidated VIEs and accounted for these transactions as secured borrowings. UACC has no obligation to repurchase or replace any securitized asset that subsequently becomes delinquent in payment or otherwise is in default, except when representations and warranties about the eligibility of the securitized assets are breached, or when certain changes are made to the underlying asset contracts. Securitization investors have no recourse to UACC or its other assets and have no right to require UACC to repurchase the investments. UACC has no obligation to provide liquidity or contribute cash or additional assets to the VIEs and does not guarantee any asset-backed securities. In January 2023, UACC completed the 2023-1 securitization transaction, in which it sold approximately $ 238.7 million of rated asset-backed securities, for proceeds of $ 237.8 million. In April 2023, UACC sold the non-investment grade securities related to the 2023-1 securitization transaction for $ 23.1 million. UACC still retains the residual interests related to the 2023-1 securitization transaction. The trust is collateralized by finance receivables with an aggregate principal balance of $ 326.4 million. These finance receivables are serviced by UACC. The Company consolidated the 2023-1 VIE and accounted for this transaction as a secured borrowing. UACC is the primary beneficiary of the 2021-1 and 2023-1 securitization trusts, as it has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. UACC also retained a portion of the economic interests in the 2021-1 and 2023-1 asset-backed securitization transactions, in the form of residual interests in accordance with Regulation RR of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Risk Retention Rules"). The Risk Retention Rules require the Company to retain at least 5 % of the beneficial interests issued by the securitization trusts. Refer to Note 13 – Long Term Debt for further details. In July 2022, UACC sold a pool of finance receivables in the 2022-2 securitization transaction. UACC retained the servicing rights to these finance receivables and receives an "at market" servicing fee. UACC retained an insignificant amount of the asset-backed securities issued in the securitization in order to comply with risk retention rules. Originally, the Company concluded that it is not the primary beneficiary of the 2022-2 securitization trust because UACC retained interests in the VIE are insignificant. Therefore, the Company did not originally consolidate the 2022-2 trust. From January to March 2023, although not contractually required, UACC elected to waive its servicing fee on the 2022-2 securitization, due to higher-than-expected losses, which transferred more than an insignificant portion of the corresponding risk of loss from the VIE to the Company. Since UACC has the power to direct the significant activities of the VIE, as it is the servicer, and additionally it absorbs the risk of loss, the Company concluded that it is the primary beneficiary of the VIE. In March 2023, the Company accounted for the transaction as secured borrowings and consolidated the 2022-2 securitization trust. The beneficial interest was then eliminated. 92 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The VIE model allows for a measurement alternative when a reporting entity elects the fair value option and consolidates a collateralized financing entity (“CFE”). This measurement alternative eliminates the accounting mismatch that may arise from measurement differences between the CFE’s financial assets and third-party financial liabilities in earnings and attributes those earnings to the controlling equity interest in the consolidated income statement. The 2021-1, 2022-2, and 2023-1 securitization trusts consolidated by UACC meet the definition of a CFE, therefore, the Company has elected to apply the measurement alternative when consolidating these VIEs. Refer to Note 17 – Financial Instruments and Fair Value Measurements for further detail. UACC has four senior secured warehouse credit facilities. Through trusts, UACC entered into warehouse facility agreements with certain banking institutions, primarily to finance the purchase and origination of finance receivables as well as to provide funding for general operating activities. These trusts are secured by eligible finance receivables which are pledged as collateral for the warehouse facilities. These trusts are consolidated VIEs. Refer to Note 11 – Warehouse Credit Facilities of Consolidated VIEs for further details on the warehouse facilities. 93 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Creditors or beneficial interest holders of VIEs for which the Company is the primary beneficiary generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to the Company. The following table presents the total assets and total liabilities associated with the Company's variable interests in consolidated VIEs, as classified in the consolidated balance sheets (in thousands): As of December 31, 2023 Securitization Vehicles Warehouse Facilities 1 Total Current Assets: Restricted cash $ 28,458 $ 20,688 $ 49,146 Finance receivables at fair value 10,878 947 11,825 Finance receivables held for sale — 457,185 457,185 Other current assets 12,390 12,814 25,204 Total Current Assets 51,726 491,634 543,360 Finance receivables at fair value 306,120 23,499 329,619 Other assets — 1,759 1,759 Total Assets $ 357,846 $ 516,892 $ 874,738 Current Liabilities: Current portion of securitization debt $ 163,516 $ — $ 163,516 Warehouse credit facilities — 421,268 421,268 Accrued expenses 1,286 2,674 3,960 Total Current Liabilities 164,802 423,942 588,744 Securitization debt, net of current portion 150,579 — 150,579 Other liabilities 3,248 7,127 10,375 Total Liabilities $ 318,629 $ 431,069 $ 749,698 As of December 31, 2022 Securitization Vehicles Warehouse Facilities 1 Total Current Assets: Restricted cash $ 9,023 $ 15,654 $ 24,677 Finance receivables at fair value 5,336 6,156 11,492 Finance receivables held for sale — 305,917 305,917 Other current assets 2,730 9,004 11,734 Total Current Assets 17,089 336,731 353,820 Finance receivables at fair value 72,568 47,024 119,592 Total Assets $ 89,657 $ 383,755 $ 473,412 Current Liabilities: Current portion of securitization debt $ 47,239 $ — $ 47,239 Warehouse credit facilities — 229,518 229,518 Accrued expenses 90 1,439 1,529 Total Current Liabilities 47,329 230,957 278,286 Securitization debt, net of current portion 32,590 — 32,590 Other liabilities 686 6,724 7,410 Total Liabilities $ 80,605 $ 237,681 $ 318,286 1 Refer to Note 11 – Warehouse Credit Facilities of Consolidated VIEs for further details of the warehouse facilities. UACC establishes securitization trusts to purchase finance receivables. The securitization trusts issue asset-backed securities, which are collateralized by the finance receivables that UACC sells to the securitization trusts. Upon sale of the finance receivables to the securitization trusts, the Company recognizes a gain or loss on sales of finance receivables if it determines it qualifies for sale accounting treatment and it is not the primary beneficiary of the VIE. In February 2022, UACC sold a pool of finance receivables in the 2022-1 securitization transaction. UACC retained the servicing rights to these finance receivables and receives an "at market" servicing fee. UACC retained an 94 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS insignificant amount of the asset-backed securities issued in the securitization in order to comply with Risk Retention Rules. The 2022-1 securitization trust is a VIE that the Company does not consolidate. As the servicer, UACC retained the power to direct the activities that are most significant to the entities, however, the Company concluded that it is not the primary beneficiary of the 2022-1 securitization trust because UACC retained interests in the VIE are insignificant. The beneficial interest retained by UACC included rated notes and unrated residual certificates issued by the 2022-1 securitization trust. In July 2022, UACC completed the 2022-2 securitization transaction, as discussed above, and recognized a gain on sale for the year ended December 31, 2022. During the year ended December 31, 2022, the Company sold $ 523.7 million of rated asset-backed securities and $ 49.6 million of residual certificates through securitization transactions. The total gain related to finance receivables sold pursuant to securitization transactions was $ 45.6 million for the year ended December 31, 2022. As of December 31, 2023 and 2022, the assets UACC retains in the unconsolidated VIEs were approximately $ 4.5 million and $ 20.6 million, respectively, and are included in "Beneficial interests in securitizations" in the Company's consolidated balance sheet. The beneficial interests in securitizations are subject to restrictions on transfer pursuant to UACC’s obligations as a sponsor under Risk Retention Rules. These securities are interests in securitization trusts, thus there are no contractual maturities. In the year ended December 31, 2023, the Company entered into a Risk Retention Financing Facility to finance the majority of its retained beneficial interests in securitizations. Refer to Note 13 – Long Term Debt for further detail. The following table summarizes the amortized cost, the carrying amount, which is the fair value, and the maximum exposure to losses of UACC's assets related to unconsolidated VIEs (in thousands): As of December 31, 2023 As of December 31, 2022 Aggregate Principal Balance Carrying Value Total Exposure Aggregate Principal Balance Carrying Value Total Exposure Rated notes $ 4,538 $ 4,345 $ 4,345 $ 19,233 $ 18,664 $ 18,664 Certificates — 140 140 — 1,928 1,928 Other assets 310 310 310 310 310 310 Total unconsolidated VIEs $ 4,848 $ 4,795 $ 4,795 $ 19,543 $ 20,902 $ 20,902 Total exposure represents the estimated loss UACC would incur under severe, hypothetical circumstances, such as if the value of the interests in the securitization trusts and any associated collateral declined to zero. The Company believes the possibility of this is remote. As such, the total exposure presented above is not an indication of the Company's expected losses. 5. Acquisition UACC Acquisition On February 1, 2022 , the Company completed the acquisition (the "UACC Acquisition") of 100 % of Unitas Holdings Corp., a Delaware corporation, including its wholly owned subsidiaries United PanAm Financial Corp. and UACC. Unitas Holdings Corp. (now known as Vroom Finance Corporation), United PanAm Financial Corp. (now known as Vroom Automotive Financial Corporation) and UACC, as well as their other subsidiaries, are now wholly owned subsidiaries of the Company. This acquisition accelerated the Company's strategy of establishing a captive financing arm and underwriting vehicle financing for its customers, the results of which are included within the Ecommerce reporting segment. UACC will also continue its current operations with its network of third-party dealership customers, including the purchases and servicing of vehicle installment contracts, which constitutes the separate Retail Financing reporting segment. The cash consideration transferred was approximately $ 315.4 million at the Acquisition Date, inclusive of immaterial measurement period adjustments. 95 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the fair value of the identified assets acquired and liabilities assumed as of the Acquisition Date, inclusive of immaterial measurement period adjustments (in thousands): Fair Value Cash and cash equivalents $ 5,294 Restricted cash 42,631 Finance receivables at fair value 296,927 Finance receivables, held for sale 263,393 Intangible assets 156,000 Goodwill 42,886 Other assets 25,934 Total assets acquired $ 833,065 Warehouse credit facilities ( 178,067 ) Long term debt ( 285,704 ) Deferred tax liability ( 23,855 ) Other liabilities ( 30,026 ) Total liabilities assumed $ ( 517,652 ) Net assets acquired $ 315,413 The estimated fair value of the finance receivables that were designated as held for sale were determined using the discounted cash flow method under the income approach. The Company determined the fair value of these finance receivables utilizing sales prices based on an estimated securitization transaction, adjusted for transaction costs, risk and a normal profit margin associated with securitization transactions. The significant assumptions used in the valuation were discount rate, prepayment rate, cumulative net losses, weighted average interest rate and recovery rate. Such fair value measurement of finance receivables held for sale is considered Level 3 of the fair value hierarchy. The Company acquired two types of finance receivables that are accounted for under the fair value option: (i) those that were sold in one of the securitization transactions that UACC completed in 2019, 2020 or 2021, and (ii) those that were not eligible to be sold in future securitization transactions. The estimated fair value of the finance receivables that were previously sold were valued using the measurement alternative by reference to the fair value of the securitization debt. See Note 17 – Financial Instruments and Fair Value Measurements for more information regarding the measurement alternative and the fair value of these finance receivables. The fair value of the ineligible finance receivables was determined using a discounted cash flow method under the income approach. The significant assumptions used in the valuation were discount rate and recovery rate. Such fair value measurement of finance receivables accounted for under the fair value option is considered Level 3 of the fair value hierarchy. The estimated fair value of the securitization debt of consolidated VIEs was determined using the discounted cash flow method under the income approach. The significant assumption used in the valuation was the yield. Such fair value measurement of securitization debt is considered Level 3 of the fair value hierarchy. The estimated fair value of the warehouse credit facilities of consolidated VIEs approximated its carrying value due to the proximity of the Acquisition Date to the payoff date. These notes were acquired on February 1, 2022, as part of the UACC Acquisition and were paid off with the proceeds from the 2022-1 securitization transaction that UACC completed on February 16, 2022. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. Goodwill is primarily attributable to the workforce of the acquired business as well as benefits related to integrating UACC’s financing operations to establish a captive financing arm and underwrite vehicle financing for the Company's customers. All of the goodwill was assigned to the Ecommerce reporting unit. 96 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the identifiable intangible assets acquired and their estimated weighted average useful life at the date of acquisition (in thousands): Fair Value Weighted Average Useful Life Purchased technology $ 83,000 7 Customer relationships 66,000 8 Trade name 7,000 10 $ 156,000 Purchased technology represents the fair value of UACC’s proprietary technology used to support all aspects of their business including underwriting, servicing, and risk management. The estimated fair value of the purchased technology was determined using a relief-from-royalty method under the income approach. The significant assumptions used in the relief-from-royalty method include estimates about future expected cash flows from the purchased technology, including the revenue growth rates, the royalty rate, the obsolescence factor and the discount rate. Customer relationships represents UACC's relationship with its network of dealer customers. UACC has expertise in the non-prime credit dealer market serving as the key link between independent dealerships and consumers. UACC has developed expertise and robust relationships in the independent dealer market as demonstrated by its active dealership network. The estimated fair value of the customer relationships was determined using a multi-period excess earnings method under the income approach. The significant assumptions used in the multi-period excess earnings method include estimates about future expected cash flows from the customer relationships, including pre-tax income margins and the discount rate. Trade name represents the value of the UACC trade name. The UACC brand is an important factor in the marketing of UACC’s services to prospective dealership customers. The fair value of the trade name acquired was determined using a relief-from-royalty method under the income approach. The significant assumptions used in the relief-from-royalty method include future expected cash flows from the trade name, the royalty rate, and the discount rate. The fair values assigned to assets acquired and liabilities assumed are based on management’s estimates and assumptions. The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, as well as the liabilities assumed was final as of December 31, 2022. The transaction costs associated with the UACC Acquisition were $ 5.7 million for the year ended December 31, 2022, and are included within "Selling, general and administrative expenses" in the consolidated statement of operations. The aggregate revenue and net income of UACC consolidated into the Company’s financial statements from the date of the acquisition was $ 167.8 million and $ 26.7 million for the year ended December 31, 2022, respectively. Unaudited Pro Forma Information The unaudited pro forma financial information in the table below summarizes the combined results of the Company and UACC, as though the companies had been combined on January 1, 2021. The pro forma adjustments include incremental amortization of intangible assets, adjustments to reflect non-recurring acquisition-related costs of $ 5.7 million as of the beginning of the 2021 annual reporting period, a non-recurring tax adjustment of $ 24.1 million for the year ended December 31, 2022. The pro forma information is presented for informational purposes only and may not be indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021 or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings. The pro forma information for the years ended December 31, 2022 is as follows (in thousands): Year Ended December 31, 2022 Total revenue $ 1,964,372 Net loss $ ( 464,101 ) 97 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Inventory Inventory consisted of the following (in thousands): December 31, 2023 2022 Vehicles $ 162,659 $ 317,994 Parts and accessories 591 2,654 Total inventory $ 163,250 $ 320,648 As of December 31, 2023 and 2022, “Inventory” includes an adjustment of $ 21.8 million and $ 24.2 million, respectively, to record the balances at the lower of cost or net realizable value. 7. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2023 2022 Equipment $ 2,653 $ 3,357 Furniture and fixtures 503 1,896 Logistics fleet 32,562 32,468 Leasehold improvements 434 6,577 Internal-use software 4,807 30,725 Other 1,369 8,081 42,328 83,104 Accumulated depreciation and amortization ( 18,196 ) ( 32,903 ) Property and equipment, net $ 24,132 $ 50,201 Depreciation and amortization expense was $ 16.5 million and $ 13.4 million for the years ended December 31, 2023 and 2022, respectively. Depreciation and amortization expense included within “Cost of sales” in the consolidated statements of operations was $ 0.7 million and $ 0.4 million for the years ended December 31, 2023 and 2022 respectively. Implementation costs capitalized and accumulated amortization related to the Company’s cloud computing arrangements were $ 0.6 million and $ 0.2 million as of December 31, 2023 , respectively, and $ 7.7 million and $ 4.6 million as of December 31, 2022, respectively, and were included within “Other assets” in the consolidated balance sheets. Amortization expense of $ 1.8 million and $ 2.3 million was included within “Selling, general and administrative expenses” in the consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively. The Company determined a triggering event existed as of December 31, 2023, resulting in impairment charges for "Property and equipment, net" and "Other assets" of $ 23.9 million and $ 1.3 million, respectively, related to the Company's internal-use software, implementation costs for cloud computing arrangements, and other miscellaneous furniture and equipment that no longer have a planned future use. Additionally, the Company incurred impairment charges for "Property and equipment, net" and "Other assets" of $ 0.3 million and $ 3.4 million, respectively, for the year ended December 31, 2022, related to the Company's internal-use software and implementation costs for cloud computing arrangements that are no longer in use. 98 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Goodwill and Intangible Assets Goodwill The following table summarizes the activity in the carrying value of goodwill by reporting unit for the year ended December 31, 2022 (in thousands): Ecommerce Wholesale TDA Total Balance as of December 31, 2021 $ 152,876 $ 1,720 $ 4,221 $ 158,817 Acquisition 42,886 — — 42,886 Goodwill impairment charge ( 195,762 ) ( 1,720 ) ( 4,221 ) ( 201,703 ) Balance as of December 31, 2022 $ — $ — $ — $ — There was no goodwill as of December 31, 2023 and 2022. As of March 31, 2022, a quantitative interim goodwill impairment assessment was performed over the Company's reporting units due to further sustained declines in the Company's and comparable companies' stock prices during the three months ended March 31, 2022. The Company estimated the fair value of the Ecommerce, Wholesale, and TDA reporting units using the discounted cash flow method under the income approach. The significant assumptions used in the valuation include revenue growth rates, future gross profit margins and operating expenses used to calculate projected future cash flows, determination of the weighted average cost of capital, and future economic and market conditions. The terminal value is based on an exit revenue multiple which requires significant assumptions regarding the selection of appropriate multiples that consider relevant market trading data. The Company bases its estimates and assumptions on its knowledge of the automotive and ecommerce industries, recent performance, expectations of future performance and other assumptions the Company believe to be reasonable. The Company determined that the estimated fair value of the Ecommerce, Wholesale, and TDA reporting units was less than their carrying amounts. The Company recorded a goodwill impairment charge of $ 201.7 million in the consolidated statements of operations for the year ended December 31, 2022. Refer to Note 5 – Acquisition for more information related to the acquisition that occurred in the year ended December 31, 2022. Intangible Assets Intangible assets, net consisted of the following (in thousands): December 31, 2023 December 31, 2022 Gross Carrying Value Accumulated Amortization Carrying Value Gross Carrying Value Accumulated Amortization Carrying Value Developed and purchased technology $ 108,700 $ ( 38,050 ) $ 70,650 $ 108,700 $ ( 21,053 ) $ 87,647 Customer relationships 69,400 ( 17,336 ) 52,064 69,400 ( 8,661 ) 60,739 Trademarks and trade names 12,200 ( 3,022 ) 9,178 12,200 ( 1,676 ) 10,524 Total intangible assets $ 190,300 $ ( 58,408 ) $ 131,892 $ 190,300 $ ( 31,390 ) $ 158,910 Refer to Note 5 – Acquisition for more information related to the acquisition that occurred in the year ended December 31, 2022. Amortization expense for intangible assets was $ 27.0 million and $ 25.3 million for the years ended December 31, 2023 and 2022, respectively. 99 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated amortization expense for intangible assets subsequent to December 31, 2023, consists of the following (in thousands): Year Ending December 31: 2024 $ 27,022 2025 27,022 2026 21,979 2027 21,882 2028 21,882 Thereafter 12,105 $ 131,892 9. Accrued Expenses and Other Current Liabilities The Company’s accrued expenses consisted of the following (in thousands): December 31, 2023 2022 Accrued marketing expenses $ 3,694 $ 2,093 Vehicle related expenses 9,655 14,789 Sales taxes 4,398 5,983 Accrued compensation and benefits 13,223 28,276 Accrued professional services 2,935 3,488 Accrued legal settlements (1) 6,050 7,383 Interest payable 5,708 3,990 Other 6,789 10,793 Total accrued expenses $ 52,452 $ 76,795 (1) Accrued legal settlements are primarily related to legal challenges stemming from operational challenges created by the Company's prior rapid growth, which resulted in additional costs incurred, including legal settlements. The Company’s other current liabilities consisted of the following (in thousands): December 31, 2023 2022 Vehicle payable $ 3,522 $ 3,617 Reserve for estimated returns 1,594 3,919 Insurance payable 4,158 4,551 Other 700 5,606 Total other current liabilities $ 9,974 $ 17,693 10. Vehicle Floorplan Facility In November 2022, the Company amended its floorplan facility with Ally Bank and Ally Financial (the “2022 Vehicle Floorplan Facility”). The 2022 Vehicle Floorplan Facility provides a committed credit line of up to $ 500.0 million which is scheduled to mature on March 31, 2024 . The amount of credit available to the Company on a monthly basis equals the product of (1) the greater of five times the aggregate number of retail units sold during the most recent month for which information is available or the aggregate number of retail units sold during the five most recent months for which information is available and (2) the greater of the average outstanding floorplan balance of all vehicles on the floorplan as of the immediately preceding month-end or the average monthly outstanding floorplan balance of all vehicles on the floorplan as of month-end for the immediately preceding five months. As of December 31, 2023, the borrowing capacity of the 2022 Vehicle Floorplan Facility was $ 253.6 million, of which $ 102.4 million was unutilized. As of December 31, 2022, the borrowing capacity of the 2022 Vehicle Floorplan Facility was $ 343.9 million, of which $ 66.9 million was unutilized. 100 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additionally, the Company may elect to increase its monthly credit line availability by an additional $ 25.0 million during any four months in the period from November 1, 2022 through March 31, 2024, subject to the maximum $ 500.0 million credit limit. The 2022 Vehicle Floorplan Facility allows for more flexibility in the Company's borrowing capacity. Consistent with the terms of the 2020 Vehicle Floorplan Facility, the Company and Vroom Automotive, LLC have provided Ally with a guaranty of payment of all amounts owed under the 2022 Vehicle Floorplan Facility as well as a security interest in all or substantially all tangible, intangible, and other personal property of Vroom, Inc., to secure obligations under the 2022 Vehicle Floorplan Facility. The 2022 Vehicle Floorplan Facility bears interest at a rate equal to the Prime Rate, announced per annum by Ally Bank, plus 175 basis points. Additionally, the Company is subject to amended covenants and events of default. The Company is required to maintain a certain level of equity in the vehicles that are financed, to maintain at least 20.0 % of the credit line in cash and cash equivalents, and to maintain a minimum required balance with Ally of at least 15.0 % of the daily floorplan principal balance outstanding. The Company was required to pay a commitment fee upon execution of the 2022 Vehicle Floorplan Facility. As of December 31, 2023 and 2022, outstanding borrowings on the vehicle floorplan facilities were $ 151.2 million and $ 277.0 million, respectively. Cash deposits required under the vehicle floorplan facilities of $ 22.7 million and $ 34.6 million are classified as "Restricted cash" within the consolidated balance sheets as of December 31, 2023 and 2022, respectively. Interest expense incurred by the Company for the vehicle floorplan facilities was $ 19.5 million and $ 26.8 million for the years ended December 31, 2023 and 2022 , respectively, which are recorded within “Interest expense” in the consolidated statements of operations. The weighted average interest rate on the vehicle floorplan borrowings was 10.25 % and 9.25 % as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company was in compliance with all covenants related to the vehicle floorplan facilities. In connection with the vehicle floorplan facilities, the Company entered into credit balance agreements with Ally Bank and Ally Financial that permit the Company to deposit cash with the bank for the purpose of reducing the amount of interest payable for borrowings. Interest credits earned by the Company were $ 13.2 million and $ 15.9 million for the years ended December 31, 2023 and 2022, respectively, which are recorded within “Interest income” in the consolidated statements of operations. On January 19, 2024, the Company amended its 2022 Vehicle Floorplan Facility. As a result of the amendment, borrowings under the 2022 Vehicle Floorplan Facility were suspended for future vehicle purchases and the Company was required to maintain 40 % of its outstanding borrowings in cash. In addition, all other financial covenants were eliminated. As a result of the liquidation of the Company's vehicle inventory, the Company repaid the remaining outstanding balance related to the 2022 Vehicle Floorplan Facility in full and the agreement has been terminated. 101 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Warehouse Credit Facilities of Consolidated VIEs UACC has four senior secured warehouse facility agreements (the “Warehouse Credit Facilities”) with banking institutions as of December 31, 2023. The Warehouse Credit Facilities are collateralized by eligible finance receivables and available borrowings are computed based on a percentage of eligible finance receivables. As of December 31, 2023 and 2022, the Company had excess borrowing capacity of $ 56.9 million and $ 105.8 million on UACC's Warehouse Credit Facilities, respectively. The terms of the Warehouse Credit Facilities include the following (in thousands): Facility One Facility Two Facility Three Facility Four Execution date May 30, 2012 November 19, 2013 July 11, 2019 November 18, 2022 Maturity date July 21, 2025 June 2, 2025 August 29, 2025 September 12, 2025 Aggregate borrowings limit $ 200,000 $ 200,000 $ 200,000 $ 225,000 As of December 31, 2023 Aggregate principal balance of finance receivables pledged as collateral $ 223,207 $ 64,970 $ 165,927 $ 92,978 Outstanding balance $ 177,375 $ 51,012 $ 117,264 $ 75,617 Restricted cash $ 8,961 $ 2,550 $ 6,485 $ 2,692 As of December 31, 2022 Aggregate principal balance of finance receivables pledged as collateral $ 143,919 $ 142,503 $ 126,636 $ — Outstanding balance $ 110,602 $ 19,615 $ 101,435 $ — Restricted cash $ 8,110 $ 2,007 $ 5,537 $ — As of December 31, 2023 and 2022, the Company's weighted average interest rate on the Warehouse Credit Facilities borrowings was approximately 6.98 % and 6.19 %, respectively. The Company's ability to utilize its Warehouse Credit Facilities is primarily conditioned on the satisfaction of certain legal, operating, administrative and financial covenants contained within the agreements. These include covenants that require UACC to maintain a minimum tangible net worth, minimum liquidity levels, specified leverage ratios and certain indebtedness levels. Failure to satisfy these and or any other requirements contained within the agreements would restrict access to the Warehouse Credit Facilities. Certain breaches of covenants may also result in acceleration of the repayment of borrowings prior to the scheduled maturity. As of December 31, 2023 and 2022, the Company was in compliance with all covenants related to the Warehouse Credit Facilities. 12. Leases The Company’s leasing activities primarily consist of real estate leases for its operations, including office space, the Company’s reconditioning facility, the Company’s Sell Us Your Car centers, parking lots, other facilities and equipment used in the normal course of business. The real estate leases have terms ranging from three months to nine years . The Company assesses whether each lease is an operating or finance lease at the lease commencement date. The Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2023, the Company had an additional operating lease that has not yet commenced with future lease payments of approximately $ 1.2 million. The lease is expected to commence over the next 12 months with an initial lease term of approximately 7 years. The Company’s real estate leases often require it to make payments for maintenance in addition to rent as well as payments for real estate taxes and insurance. Maintenance, real estate taxes, and insurance payments are generally variable costs which are based on actual expenses incurred by the lessor. Therefore, these amounts are not included in the consideration of the contract when determining the right-of-use asset and lease liability but are reflected as variable lease expenses. 102 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leases with an initial term of 12 months or less are not recorded on the Company’s consolidated balance sheet and expense for these leases are recognized on a straight-line basis over the lease term. Options to extend or terminate leases Certain of the Company’s real estate leases include one or more options to renew , with renewal terms that can extend the lease term from one to five years . The exercise of lease renewal options is at the Company’s sole discretion. If it is reasonably certain that the Company will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of the Company’s right-of-use assets and lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease term and discount rate The weighted-average remaining lease term and discount rate for the Company’s operating leases, excluding short-term operating leases, were 5.1 years and 7.1 % as of December 31, 2023 , respectively, and 4.2 years and 5.8 % as of December 31, 2022, respectively. As the rate implicit in the lease is generally not readily determinable for the Company’s operating leases, the discount rates used to determine the present value of the Company’s lease liabilities are based on the Company’s incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease costs and activity The Company’s lease costs and activity for the years ended December 31, 2023 and 2022 were as follows (in thousands): Year Ended December 31, 2023 2022 Lease Cost Operating lease cost $ 8,951 $ 8,402 Short-term lease cost 312 690 Variable lease cost 4,125 3,810 Sublease income ( 379 ) ( 72 ) Net lease cost $ 13,009 $ 12,830 Year Ended December 31, 2023 2022 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 11,892 $ 9,322 Right-of-use assets obtained in exchange for operating lease liabilities $ 13,260 $ 19,896 The Company incurred impairment charges related to operating lease right-of-use assets of $ 23.5 million for the year ended December 31, 2023, with $ 22.2 million related to the wind-down of the Company's ecommerce operations that resulted in a triggering event as of December 31, 2023 and $ 1.3 million related the closing of a physical office location. The Company incurred impairment charges related to operating lease right-of-use assets of $ 6.5 million for the year ended December 31, 2022, related to costs associated with planned facility closures that will continue to be incurred under the contract for its remaining term without economic benefit to the Company. Refer to Note 18 — Restructuring Activities for further detail. 103 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturity of Lease Liabilities The maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on the Company’s consolidated balance sheet as of December 31, 2023 were as follows (in thousands): 2024 10,744 2025 6,960 2026 6,233 2027 5,877 2028 4,873 Thereafter 6,329 Total lease payments 41,016 Less: interest ( 7,096 ) Present value of lease liabilities $ 33,920 Operating lease liabilities, current $ 8,737 Operating lease liabilities, noncurrent 25,183 Total operating lease liabilities $ 33,920 13. Long Term Debt Debt instruments, excluding the 2022 Vehicle Floorplan Facility, which is discussed in Note 10 — Vehicle Floorplan Facility, and warehouse credit facilities of consolidated VIEs, which are discussed in Note 11 — Warehouse Credit Facilities of Consolidated VIEs, consisted of the following (in thousands): December 31, 2023 2022 Current portion of securitization debt of consolidated VIEs $ 163,516 $ 47,239 Current portion of financing of beneficial interest in securitizations 8,894 — Total current portion of long term debt $ 172,410 $ 47,239 Convertible senior notes $ 286,800 $ 359,254 Securitization debt of consolidated VIEs, net of current portion 150,579 32,590 Financing of beneficial interest in securitizations 6,484 — Junior subordinated debentures 10,310 10,310 Long term debt, net of current portion $ 454,173 $ 402,154 Total debt $ 626,583 $ 449,393 Convertible Senior Notes On June 18, 2021, the Company issued $ 625.0 million aggregate principal amount of 0.75 % unsecured Convertible Senior Notes due 2026 (the “Notes”), including $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the overallotment option granted to the initial purchasers. The Notes were issued pursuant to an indenture (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. 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. 104 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Each $ 1,000 principal amount of the Notes will initially be convertible into 0.2232 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $ 4,480.29 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 the following circumstances: • 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 the Company’s 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 the Company’s common stock and the conversion rate of the Notes on such trading day; • If the Company calls 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). The Company may settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The Company may not redeem the Notes prior to July 6, 2024. On or after July 6, 2024, the Company 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 the Company’s 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 the Company undergoes a fundamental change (as defined in the Indenture), subject to certain conditions, holders of the Notes may require the Company 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 the Company issues a notice of redemption, the Company 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 years ended December 31, 2023 and 2022, the conditions allowing holders of the Notes to convert were not met. In 2023, the Company repurchased $ 74.2 million in aggregate principal amount of the Notes, net of deferred issuance costs, for $ 36.5 million in open-market transactions. The Company recognized a gain on extinguishment of debt of $ 37.9 million for the year ended December 31, 2023. In 2022, the Company repurchased $ 254.3 million in aggregate principal amount of the Notes, net of deferred issuance costs, for $ 90.2 million in open-market transactions. The Company recognized a gain on extinguishment of debt of $ 164.7 million for the year ended December 31, 2022. The Company accounts for the Notes as a single liability-classified instrument measured at amortized cost. As of December 31, 2023 , the unamortized debt discount and debt issuance costs was $ 3.7 million and the net carrying value was $ 286.8 million. A s of December 31, 2022, the unamortized debt discount and debt issuance costs was $ 6.5 million and the net carrying value was $ 359.3 million. The Notes were issued at par value and fees associated with the issuance of these Notes are amortized to interest expense using the effective interest method over the contractual term of the Notes. The interest expense for the years ended December 31, 2023 and 2022 were $ 4.3 million and $ 7.2 million, respectively. The effective interest rate of the Notes is 1.3 %. 105 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securitization Debt of Consolidated VIEs The securitization debt was issued under UACC's securitization program. The Company elected to account for the securitization debt under the fair value option using the measurement alternative. Fair value adjustments are recorded in "Other loss, net" in the consolidated statements of operations. Refer to Note 17 – Financial Instruments and Fair Value Measurements. For the 2021-1, 2022-2, and 2023-1 securitization transactions, the Company consolidated the VIEs and accounted for these transactions as secured borrowings. Refer to Note 4 – Variable Interest Entities and Securitizations for further discussion. Upon the issuance of the securitization debt for the 2021-1 and 2023-1 securitization transactions, UACC retained the residual interests. UACC also retains the servicing rights for all finance receivables that were securitized; therefore, it is responsible for the administration and collection of the amounts owed under the contracts. In the first quarter of 2023, UACC waived its servicing fees related to the 2022-2 securitization and subsequently consolidated the 2022-2 trust. The securitization agreements also require certain funds to be held in restricted cash accounts to provide additional collateral for the borrowings or to be applied to make payments on the securitization debt. Restricted cash under the various agreements totaled approximately $ 28.5 million and $ 9.0 million as of December 31, 2023 and 2022, respectively. Wholly owned bankruptcy remote subsidiaries of UACC were formed to facilitate the above asset-backed financing transactions. Bankruptcy remote refers to a legal structure in which it is expected that the applicable entity would not be included in any bankruptcy filing by its parent or affiliates. All of the assets of these subsidiaries have been pledged as collateral for the related debt. None of the assets of these subsidiaries are available to pay other creditors of the Company or its affiliates. The securitization debt issued is included in “Current portion of long term debt” and "Long term debt, net of current portion" on the consolidated balance sheet. The securitization debt of consolidated VIEs consisted of the following (in thousands): As of December 31, 2023 Series Final Scheduled Payment Date Initial Principal Contractual Interest Rate Outstanding Principal Fair Value United Auto Credit 2021-1-D June 10, 2026 $ 29,380 1.14 % $ 3,246 $ 3,235 United Auto Credit 2021-1-E June 10, 2026 20,800 2.58 % 20,800 20,540 United Auto Credit 2021-1-F September 10, 2027 13,910 4.30 % 13,910 13,644 United Auto Credit 2022-2-B December 10, 2025 30,324 5.41 % 28,786 28,745 United Auto Credit 2022-2-C May 10, 2027 26,533 5.81 % 26,533 26,331 United Auto Credit 2022-2-D January 10, 2028 32,889 6.84 % 32,889 32,642 United Auto Credit 2022-2-E April 10, 2029 33,440 10.00 % 33,440 29,691 United Auto Credit 2023-1-A July 10, 2025 118,598 5.57 % 15,089 15,083 United Auto Credit 2023-1-B July 10, 2028 51,157 5.91 % 51,157 51,019 United Auto Credit 2023-1-C July 10, 2028 33,326 6.28 % 33,326 33,199 United Auto Credit 2023-1-D July 10, 2028 35,653 8.00 % 35,653 36,152 United Auto Credit 2023-1-E September 10, 2029 23,256 10.98 % 23,256 23,814 Total rated notes $ 449,266 $ 318,085 $ 314,095 106 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2022 Series Final Scheduled Payment Date Initial Principal Contractual Interest Rate Outstanding Principal Fair Value United Auto Credit 2021-1-C June 10, 2026 $ 29,640 0.84 % $ 18,466 $ 18,322 United Auto Credit 2021-1-D June 10, 2026 29,380 1.14 % 29,380 28,481 United Auto Credit 2021-1-E June 10, 2026 20,800 2.58 % 20,800 19,685 United Auto Credit 2021-1-F September 10, 2027 13,910 4.30 % 13,910 13,341 $ 93,730 $ 82,556 $ 79,829 The final scheduled payment date represents legal maturity of the remaining balance sheet securitization debt. Securitization debt is expected to become due and to be paid prior to those dates, based on amortization of the finance receivables pledged to the Trusts. Expected payments, which will depend on the performance of such receivables, as to which there can be no assurance, are $ 147.6 million in 2024, $ 91.8 million in 2025, $ 47.8 million in 2026, $ 26.8 million in 2027 and $ 4.1 million in 2028. In February 2024, UACC exercised its option to repurchase the 2021-1 securitization debt for a total redemption price of $ 35.6 million. The aggregate principal balance and the fair value of finance receivables pledged to the securitization debt consists of the following (in thousands): As of December 31, 2023 2022 Aggregate Principal Balance Fair Value Aggregate Principal Balance Fair Value United Auto Credit 2021-1 $ 38,951 $ 35,790 $ 84,477 $ 77,904 United Auto Credit 2022-2 125,072 111,379 — — United Auto Credit 2023-1 197,586 169,829 — — Total finance receivables of CFEs $ 361,609 $ 316,998 $ 84,477 $ 77,904 Financing of Beneficial Interests in Securitizations On May 3, 2023, UACC entered into a Risk Retention Financing Facility enabling it to finance asset-backed securities issued in its securitization transactions and held by UACC pursuant to applicable Risk Retention Rules. Under this facility, UACC sells such retained interests and agrees to repurchase them on a future date. In its initial transaction under this facility, UACC pledged $ 24.5 million of its retained beneficial interests as collateral, and received proceeds of $ 24.1 million, with expected repurchase dates ranging from March 2025 to September 2029 . The securitization trusts will distribute payments related to UACC's pledged beneficial interests in securitizations directly to the lender, which will reduce the beneficial interests in securitizations and the related debt balance. Pledged collateral levels are monitored and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral, UACC may be required to transfer cash or additional securities as pledged under this facility. At the termination of this agreement, UACC is obligated to return the amounts borrowed. The outstanding balance of this facility, net of unamortized debt issuance costs, was $ 15.4 million as of December 31, 2023, with $ 8.9 million included in "Current portion of long term debt" and $ 6.5 million included in "Long-term debt, net of current portion" on the consolidated balance sheet. As of December 31, 2023 , the fair value of the collateral pledged under this facility was $ 15.8 million. 107 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Junior Subordinated Debentures On July 31, 2003, UACC issued junior subordinated debentures (trust preferred securities) of $ 10.0 million through a subsidiary, UPFC Trust I. The trust issuer is a 100 percent owned finance subsidiary and the securities are fully and unconditionally guaranteed by Vroom Automotive Finance Corporation. The interest is paid quarterly at a variable rate, equal to SOFR + 3.05 %. The final maturity of these securities is on October 7, 2033 ; however, they can be called at par any time at the Company’s discretion. 14. Commitments and Contingencies Litigation From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business and an unfavorable resolution of any of these matters could materially affect the Company’s future results of operations, cash flows or financial position. The Company is also party to various disputes that the Company considers routine and incidental to its business. The Company does not expect the results of any of these routine actions to have a material effect on the Company’s business, results of operations, financial condition, or cash flows. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Beginning in March 2021, multiple putative class actions were filed in the U.S. District Court for the Southern District of New York by certain of the Company’s stockholders against the Company and certain of the Company’s officers alleging violations of federal securities laws. The lawsuits were captioned Zawatsky et al. v. Vroom, Inc. et al., Case No. 21-cv-2477; Holbrook v. Vroom, Inc. et al., Case No. 21-cv-2551; and Hudda v. Vroom, Inc. et al., Case No. 21-cv-3296. All three of the lawsuits asserted similar claims under Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5. In each case, the named plaintiff(s) sought to represent a proposed class of all persons who purchased or otherwise acquired the Company’s securities during a period from June 9, 2020 to March 3, 2021 (in the case of Holbrook and Hudda), or November 11, 2020 to March 3, 2021 (in the case of Zawatsky). In August 2021, the Court consolidated the cases under the new name In re: Vroom, Inc. Securities Litigation, Case No. 21-cv-2477, appointed a lead plaintiff and lead counsel and ordered a consolidated amended complaint to be filed. The court-appointed lead plaintiff subsequently filed a consolidated amended complaint that reasserts claims under Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 against the Company and certain of the Company’s officers, and added new claims under Sections 11, 12 and 15 of the Securities Act against the Company, certain of its officers, certain of its directors, and the underwriters of the Company’s September 2020 secondary offering. The Company filed a motion to dismiss all claims, and briefing of this motion is complete. The Company believes this lawsuit is without merit and intends to vigorously contest these claims. While the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties, based upon information presently known to management, the Company believes that the potential liability, if any, will not have a material adverse effect on the Company’s financial condition, cash flows, or results of operations. In August 2021, November 2021, January 2022, and February 2022, various Company stockholders filed purported shareholder derivative lawsuits on behalf of the Company in the U.S. District Court for the Southern District of New York against certain of the Company’s officers and directors, and nominally against the Company, alleging violations of the federal securities laws and breaches of fiduciary duty to the Company and/or related violations of Delaware law based on the same general course of conduct alleged in In re: Vroom, Inc. Securities Litigation. All four lawsuits have been consolidated under the case caption In re Vroom, Inc. Shareholder Derivative Litigation, Case No. 21-cv-6933, and the court has approved the parties’ stipulation that the cases would remain stayed pending final resolution of In re: Vroom, Inc. Securities Litigation. All four derivative suits remain in preliminary stages and there have been no substantive developments in any matter. In April 2022, one of the Company’s stockholders filed a purported shareholder derivative lawsuit on behalf of the Company in the U.S. District Court for the District of Delaware against certain of the Company’s officers and directors, and nominally against the Company, alleging violations of the federal securities law and breaches of fiduciary duty to the Company and/or related violations of Delaware law based on the same general course of conduct alleged in In re: Vroom, Inc. Securities Litigation. The case is captioned Godlu v. Hennessy et al., Case No. 22-cv-569, and the court has 108 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS approved the parties’ stipulation that the case would remain stayed pending final resolution of In re: Vroom, Inc. Securities Litigation. This lawsuit remains in preliminary stages and there have been no substantive developments. In January 2022, the Company received a non-public civil investigative demand from the Federal Trade Commission (“FTC”), seeking the production of information related to certain of the Company's business practices and the Company responded to those information requests. On February 23, 2024, the FTC notified the Company that it has reason to believe that the Company violated Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a); the FTC's Mail, Internet, or Telephone Order Merchandise Rule, 16 C.F.R. Part 435; the FTC’s Used Motor Vehicle Trade Regulation Rule,16 C.F.R. Part 455; and the FTC’s Pre-Sale Availability Rule, 16 C.F.R. Part 702. The FTC advised the Company that it is authorized to negotiate a stipulated order and the Company intends to work cooperatively with the FTC towards a resolution. Because the matter is at an early stage and the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties, the Company cannot determine at present whether any potential liability would have a material adverse effect on the Company’s financial condition, cash flows, or results of operations. In April 2022, the Attorney General of Texas filed a petition on behalf of the State of Texas in the District Court of Travis County, Texas against the Company, alleging violation of the Texas Deceptive Trade Practices − Consumer Protection Act, Texas Business and Commerce Code § 17.41 et seq., based on alleged deficiencies and other issues in the Company’s marketing of used vehicles and fulfilment of customer orders, including the titling and registration of sold vehicles. According to the petition, 80% of the customer complaints referenced in the petition were received in the 12 months prior to April 2022. The petition is captioned State of Texas v. Vroom Automotive LLC, and Vroom Inc., Case No. D-1-GN-001809. In May 2022, Vroom Automotive, LLC the Attorney General of the State of Texas agreed to a temporary injunction in which Vroom Automotive, LLC agreed to adhere to its existing practice of possessing title for all vehicles it sells or advertises as available for sale on its ecommerce platform. In December 2023, Vroom, Inc., Vroom Automotive, LLC and the Attorney General of the State of Texas reached a final agreement to resolve all claims in the petition, without any admission of wrongdoing by either Vroom entity. Under the agreement, the Company will pay a total of $ 2 million in civil penalties and $ 1 million in attorneys' fees, with the first half due in September 2024 and the remaining half due in September 2025, and abide permanently by an injunction of certain operational practices that were previously implemented. The agreement was approved by the District Court of Travis County on December 13, 2023. In July 2022 and August 2022, respectively, certain plaintiffs filed two putative class action lawsuits in the District Court of Cleveland County, Oklahoma and the New York State Supreme Court, respectively, against Vroom, Inc., and Vroom Automotive LLC as defendants, alleging, among other things, deficiencies in Vroom’s titling and registration of sold vehicles: Blake Sonne, individually and on behalf of all others similar situated, v. Vroom Automotive, LLC and Vroom, Inc., No. CJ-2022-822 and Emely Reyes Martinez, on behalf of all others similarly situated, v. Vroom Automotive, LLC and Vroom Inc . , No. 652684/2022. The Company removed the cases to the U.S. District Court for the Western District of Oklahoma (Case No. 22-cv-761) and the U.S. District Court for the Southern District of New York (Case No. 22-cv-7631), respectively, and filed motions to compel arbitration of all claims in both cases. In September 2023, Vroom's motions to compel arbitration were granted in both cases, and the court actions stayed pending the outcome of any arbitration proceeding over the respective plaintiffs' individual claims. On February 9, 2024, the parties filed a joint stipulation to dismiss the Sonne matter with prejudice. As previously disclosed, the Company has been subject to audits, requests for information, investigations and other inquiries from its regulators relating to increased customer complaints concerning the same or similar matters alleged in the State of Texas petition. These regulatory matters could continue to progress into legal proceedings as well as enforcement actions. The Company has incurred fines in certain states and could continue to incur fines, penalties, restitution, or alterations in the Company's business practices, which in turn, could lead to increased business expenses, additional limitations on the Company's business activities and further reputational damage, although to date such expenses have not had a material adverse effect on the Company’s financial condition, cash flows, or results of operations. Nasdaq Notice On December 21, 2023, the Company received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying it that, for the last 30 consecutive business days, the bid price for the Company's common stock had closed 109 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS below the $ 1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Minimum Bid Price Requirement"). On February 13, 2024 after obtaining stockholder approval, the Company effected a 1-for-80 reverse stock split (the "Reverse Stock Split"), and the Company's stock began trading on a post-split adjusted basis on February 14, 2024. On February 29, 2024, the Company was notified by the Nasdaq Listing Qualifications staff that the closing bid price of its common stock had been at $ 1.00 per share or greater for 11 consecutive business days, from February 14, 2024 to February 28, 2024. Accordingly, the Company has regained compliance with Nasdaq Listing Rule 5450(a)(1) and this matter is now closed. If the Company's common stock again closes below the $ 1.00 per share minimum bid price required by Nasdaq for 30 consecutive business days, the Company would again receive another notice of non-compliance with Nasdaq's listing standards and face the risk of delisting. All shares of the Company’s common stock, stock-based instruments, and per-share data included in these consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split has been effected prior to all periods presented. Other Matters The Company enters into agreements with third parties in the ordinary course of business that may contain indemnification provisions. In the event that an indemnification claim is asserted, the Company’s liability, if any, would be limited by the terms of the applicable agreement. Historically, the Company has not incurred material costs to defend lawsuits or settle claims related to indemnification provisions. 15. Preferred Stock and Stockholders’ Equity Preferred Stock On June 11, 2020, the Company amended its certificate of incorporation to authorize the issuance of up to 10,000,000 shares of Preferred Stock. As of December 31, 2023 , there was no preferred stock issued or outstanding. Common Stock On February 13, 2024, the Company amended its certificate of incorporation to effect a 1-for-80 reverse stock split of shares of the Company’s outstanding common stock, such that every 80 shares of common stock became one of common stock . The shares of common stock authorized for issuance remained unchanged at 500,000,000 and the par value per share of common stock remained unchanged at $ 0.001 . Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. At-the-market Offering On December 1, 2023, the Company entered into an equity distribution agreement with Virtu Americas LLC to sell shares of the Company’s common stock, par value $ 0.001 per share, with aggregate gross sales proceeds of up to $ 50.0 million, from time to time, through an “at-the-market” equity offering program (the "ATM offering"). As of December 31, 2023, the Company has up to $ 47.5 million remaining in aggregate gross proceeds that can be issued through the ATM offering. 16. Stock-based Compensation On May 28, 2020, the Company adopted the 2020 Incentive Award Plan (“the 2020 Plan”), which authorized the issuance of (i) up to 37,379 shares of the Company’s common stock, (ii) an annual increase on the first day of each year beginning on January 1, 2022 and ending on January 1, 2030 of up to 4 % of the shares of common stock outstanding on an as-converted basis on the last day of the immediately preceding fiscal year, and (iii) any shares of the Company’s common stock subject to awards under the 2014 Plan which are forfeited or lapse unexercised and which following the effective date are not issued under the 2014 Plan. Awards may be issued in the form of restricted stock units, restricted stock, stock appreciation rights, and stock options. As of December 31, 2023, the Company has registered an additional 110 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 137,647 shares of the Company's common stock to be issued pursuant to the 2020 Plan. As of December 31, 2023 , there were 22,869 shares available for future issuance under the 2020 Plan. On May 20, 2022, the Company adopted the 2022 Inducement Award Plan (the “Inducement Award Plan”). Awards under the Inducement Award Plan may only be granted to a newly hired employee who has not previously been an employee or a member of the Board or an employee who is being rehired following a bona fide period of non-employment by the Company, in each case as a material inducement to the employee’s entering into employment. An aggregate of 37,500 shares of the Company’s common stock are reserved for issuance under the Inducement Award Plan. As of December 31, 2023 , there were 30,668 shares available for future issuance under the Inducement Award Plan. Stock Options The following table summarizes stock option activity for the year ended December 31, 2023: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life Outstanding as of December 31, 2022 35,715 $ 475.74 7.32 Granted — — Exercised — — Expired ( 3,281 ) 336.80 Forfeited / cancelled ( 6,346 ) 387.49 Outstanding as of December 31, 2023 26,088 $ 514.72 6.64 Vested and exercisable as of December 31, 2022 16,494 $ 378.40 5.71 Vested and exercisable as of December 31, 2023 16,861 $ 468.68 5.70 The Company recognized $ 0.8 million and $ 1.5 million of stock-based compensation expense related to stock options for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company had $ 0.6 million and $ 1.6 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 1.2 years and 1.9 years, respectively. There were no options exercised during the year ended December 31, 2023, and the aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2023 was not material. On May 9, 2022 and May 20, 2022, 7,500 stock options having a fair value of $ 66.40 per share were granted to the CEO and an aggregate of 8,125 stock options having a grant date fair value of $ 91.20 per share were granted to certain members of key management, respectively. The exercise price of the stock options is $ 600.00 per share. The stock options vest ratably over a three-year period subject to continued employment through each applicable vesting date. The grant date fair value of stock options granted during the year ended December 31, 2022 was estimated at the time of grant using the Black-Scholes option-pricing model and utilized the following assumptions: May 20, 2022 May 9, 2022 Fair value of common stock (per share) $ 91.20 $ 66.40 Expected term (in years) 10 10 Risk-free interest rate 2.78 % 3.05 % Expected volatility 100.00 % 100.00 % Dividend yield —% —% 111 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RSUs The following table summarizes restricted stock unit ("RSUs") activity for the year ended December 31, 2023: Shares Weighted Average Grant Date Fair Value per Share Unvested and outstanding as of December 31, 2022 108,268 $ 259.37 Granted 110,365 73.10 Vested and released ( 20,278 ) 468.31 Forfeited / cancelled ( 23,089 ) 213.51 Outstanding as of December 31, 2023 175,266 $ 124.33 Vested and exercisable ( 1,152 ) 84.80 Unvested and outstanding as of December 31, 2023 174,114 $ 124.59 The Company recognized $ 9.2 million, $ 10.5 million, and $ 11.2 million of stock-based compensation expense related to RSUs for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022 , the Company had $ 12.1 million and $ 18.2 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 1.6 and 1.9 years, respectively. On May 9, 2022, 15,000 RSUs having a grant date fair value of $ 86.40 per share were granted to the CEO and on May, 20, 2022, an aggregate of 39,875 RSUs having a grant date fair value of $ 116.00 per share were granted to certain members of the management team. On July 25, 2022, 1,750 RSUs having a grant date fair value of $ 131.20 per share were granted to a member of the management team. The RSUs were issued under the 2020 Plan and will vest on the third anniversary of the grant date, subject to continued employment through that date. The vesting of the RSUs will accelerate in one-third increments if the Company's common stock achieves a closing price at or above $ 600.00 per share for twenty consecutive trading days during the three-year vesting period; a closing price at or above $ 1,200.00 per share for twenty consecutive trading days in the second or third years of the vesting period ; and a closing price at or above $ 1,680.00 per share for twenty consecutive trading days during the third year of the vesting period. As of December 31, 2023, the accelerated vesting conditions were not met. Certain of the Company’s RSU grants are subject to acceleration upon a change of control and termination within 12 months, and upon death, disability, retirement and certain “good leaver” circumstances. 17. Financial Instruments and Fair Value Measurements U.S. GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes the following three levels of inputs that may be used to measure fair value: Level 1—Quoted prices in active markets for identical assets or liabilities Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Items Measured at Fair Value on a Recurring Basis The Company holds certain financial assets that are required to be measured at fair value on a recurring basis. Additionally, the Company elected the fair value option for the financial assets and liabilities of UACC’s consolidated CFEs, beneficial interests in the 2022-1 securitization transaction, certain of UACC’s finance receivables that are ineligible 112 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to be sold as of the Acquisition Date, and certain other finance receivables. Under the fair value option allowable under ASC 825, “Financial Instruments” (“ASC 825”), the Company may elect to measure at fair value financial assets and liabilities that are not otherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings. The following tables present the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands): As of December 31, 2023 Level 1 Level 2 Level 3 Total Financial Assets Cash and cash equivalents: Money market funds $ 80 $ — $ — $ 80 CFE assets: Finance receivables — — 316,998 316,998 Finance receivables at fair value — — 31,672 31,672 Beneficial interests in securitizations — 4,485 — 4,485 Total financial assets $ 80 $ 4,485 $ 348,670 $ 353,235 Financial Liabilities CFE liabilities: Securitization debt of consolidated VIEs — 314,095 — 314,095 Total financial liabilities $ — $ 314,095 $ — $ 314,095 As of December 31, 2022 Level 1 Level 2 Level 3 Total Financial Assets Cash and cash equivalents: Money market funds $ 182,687 $ — $ — $ 182,687 CFE assets: Finance receivables — — 77,904 77,904 Finance receivables at fair value — — 75,270 75,270 Beneficial interests in securitizations — 20,592 — 20,592 Total financial assets $ 182,687 $ 20,592 $ 153,174 $ 356,453 Financial Liabilities CFE liabilities: Securitization debt of consolidated VIEs — 79,829 — 79,829 Total financial liabilities $ — $ 79,829 $ — $ 79,829 Valuation Methodologies of Financial Instruments Measured at Fair Value on a Recurring Basis The following is a description of the valuation methodologies used for financial instruments carried at fair value. These methodologies are applied to financial assets and liabilities across the fair value levels discussed above, and it is the observability of the inputs used that determines the appropriate level in the fair value hierarchy for the respective asset or liability. Money Market Funds: Money market funds primarily consist of investments in highly liquid U.S. treasury securities, with original maturities of three months or less and are classified as Level 1. The Company determines the fair value of cash equivalents based on quoted prices in active markets. Financial assets and liabilities of CFEs: The Company elected the fair value option for the assets and liabilities of its consolidated VIEs related to securitization transactions that were deemed to be CFEs. In accordance with ASC 825, the Company has elected the fair value option, for the eligible financial assets and liabilities of the 2021-1, 2022-2, and 2023-1 consolidated CFEs in order to mitigate potential accounting mismatches between the carrying value of the financial assets and liabilities. To eliminate potential measurement differences, the 113 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company elected the measurement alternative included in ASU 2014-13, allowing the Company to measure both the financial assets and liabilities of a qualifying CFE using the fair value of either the CFE’s financial assets or liabilities, whichever is more observable. Under the measurement alternative prescribed by ASU 2014-13, the Company recognizes changes in the CFE’s net assets, including changes in fair value adjustments and net interest earned, in its consolidated statements of operations. The Company is required to determine whether the fair value of the financial assets or the fair value of the financial liabilities of the eligible CFEs are more observable, but in either case, the methodology results in the fair value of the financial assets of the securitization trust being equal to the fair value of their liabilities. The Company determined that the fair value of the liabilities of the securitization CFEs are more observable, since market prices of their liabilities are based on non-binding quoted prices provided by broker dealers who make markets in similar financial instruments. The assets of the securitization CFEs are not readily marketable, and their fair value measurement requires information that may be limited in availability. In determining the fair value of the securitization debt of consolidated CFEs, the broker dealers consider contractual cash payments and yields expected by market participants. Broker dealers also incorporate common market pricing methods, including a spread measurement to the treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including ratings, coupon, collateral type and seasoning or age of the security. When the Company obtains prices from multiple broker dealers for the same security and has a consensus among them, it deems these fair values to be based on observable valuation inputs and classified as Level 2 of the fair value hierarchy. Where a third-party broker dealer quote is not available, an internal model is utilized using unobservable inputs or if the Company has multiple quotes that are not within determined range, it classified the securitization debt as Level 3 of the fair value hierarchy. The financial assets of the consolidated CFEs are an aggregate value derived from the fair value of the CFEs liabilities. The Company determined that CFEs finance receivables in their entirety should be classified as Level 3 of the fair value hierarchy. Finance receivables at fair value: Finance receivables at fair value represent finance receivables for which the Company elected the fair value option in accordance with ASC 825. These receivables primarily relate to finance receivables that the Company does not intend to sell in the immediate future due to various factors such as: delinquencies, bankruptcy, etc. The Company estimates the fair value of these receivables using a discounted cash flow model and incorporates key inputs that include performance rate, default rate, recovery rate, and weighted average coupon rates, as well as certain macroeconomics events the Company believes market participants would consider relevant. Beneficial interests in securitization: Beneficial interests in securitization relate to the 2022-1 securitization completed in February 2022 and include rated notes as well as certificates. The beneficial interests in the 2022-2 securitization completed in July 2022 were eliminated upon consolidation of the VIE in March 2023. Refer to Note 4 – Variable Interest Entities and Securitizations. The Company elected the fair value option on its beneficial interests in securitization. Beneficial interests may initially be classified as Level 2 if the transactions occur within close proximity to the end of each respective reporting period. Subsequently, similar to the securitization debt described above, fair value is determined by requesting a non-binding quote from broker dealers, or by utilizing market acceptable valuation models, such as discounted cash flows. Broker dealer quotes may be based on an income approach, which converts expected future cash flows to a single present value amount, with specific consideration of inputs relevant to particular security types. Such inputs may include ratings, collateral types, geographic concentrations, underlying loan vintages, delinquencies and defaults, loss severity assumptions, prepayments, and weighted average coupons and maturities. When the volume or level of market activity for a security is limited, certain inputs used to determine fair value may not be observable in the market. Broker dealer quotes may also be based on a market approach that considers recent transactions involving identical or similar securities. When the Company obtains prices from multiple broker dealers for the same security and has a consensus among them, it deems these fair values to be based on observable valuation inputs and classified as Level 2 of the fair value hierarchy. Where a third-party broker dealer quote is not available, the Company utilizes an internally developed model using unobservable inputs. If internally developed models are utilized or if the 114 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company has multiple quotes that are not within a consensus range of each other, the Company deems these securities to be classified as Level 3 of the fair value hierarchy. Changes in Level 3 Recurring Fair Value Measurements The following table presents a reconciliation of the financial assets, which were measured at fair value on a recurring basis using Level 3 inputs (in thousands): Finance Receivables of Consolidated CFEs Finance Receivables at Fair Value Fair value as of January 1, 2023 $ 77,904 $ 75,270 Reclassification of finance receivables held for sale to finance receivables at fair value 248,081 — Transfer within Level 3 categories 23,338 ( 23,338 ) Consolidation of VIEs 180,706 — Losses included in other income ( 86,331 ) ( 1,683 ) Issuances, net of discount — 3,392 Paydowns ( 151,032 ) ( 23,716 ) Other 24,332 1,747 Fair value as of December 31, 2023 $ 316,998 $ 31,672 Finance Receivables of Consolidated CFEs Finance Receivables at Fair Value Securitization Debt of Consolidated CFEs Fair value as of January 1, 2022 $ — $ — $ — Acquired in business combination 262,644 34,283 275,394 Transfer out of Level 3 — — ( 275,394 ) Transfer within Level 3 categories ( 51,330 ) 51,330 — Losses included in other income ( 29,825 ) ( 14,388 ) — Issuances, net of discount — 56,484 Sales ( 24,312 ) ( 14,114 ) — Paydowns ( 90,410 ) ( 41,980 ) — Other 11,137 3,655 — Fair value as of December 31, 2022 $ 77,904 $ 75,270 $ — During the year ended December 31, 2023, $ 180.7 million of finance receivables related to the 2022-2 securitization transaction were consolidated and classified as Level 3 and $ 248.1 million of finance receivables held for sale related to the 2023-1 securitization transaction were reclassified to Level 3 finance receivables of consolidated CFEs. The Company's transfers between levels of the fair value hierarchy are assumed to have occurred at the beginning of the reporting period on a quarterly basis, except for assets and liabilities acquired during the prior period as described below. During the year ended December 31, 2022, transfers out of Level 3 liabilities related to securitization debt of consolidated CFEs. The transfer out of Level 3 was the result of achieving consensus pricing from third-party broker dealers who utilize market observable inputs to price the liabilities. Upon acquisition, the Company utilized unobservable pricing information and an internal discounted cash flows model to value the CFEs liabilities. The Company obtained consensus broker dealers quotes as of December 31, 2022. For the CFEs liabilities acquired during the period, the transfer was presumed to occur immediately after the Acquisition Date. 115 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Relevant Data for Financial Assets and Liabilities for which FVO Was Elected The following table presents the gains or losses recorded in "Other loss (income), net" in the consolidated statements of operations related to the eligible financial instruments for which the fair value option was elected (in thousands): Year Ended December 31, 2023 2022 Financial Assets Finance receivables of CFEs $ 75,064 $ 24,231 Finance receivables at fair value ( 2,103 ) 11,624 Beneficial interests in securitizations 1,103 1,149 Financial Liabilities Debt of securitized VIEs ( 5,635 ) ( 2,727 ) Total net loss included in " Other loss (income), net" $ 68,429 $ 34,277 The following table presents other relevant data related to the finance receivables carried at fair value (in thousands): As of December 31, 2023 Finance Receivables of CFEs at Fair Value Finance Receivables at Fair Value Aggregate unpaid principal balance included within finance receivables that are reported at fair value $ 361,609 $ 36,207 Aggregate fair value of finance receivables that are reported at fair value $ 316,998 $ 31,672 Unpaid principal balance of receivables within finance receivables that are reported at fair value and are on nonaccrual status (90 days or more past due) $ 6,700 $ 717 Aggregate fair value of receivables carried at fair value that are on nonaccrual status (90 days or more past due) $ 5,921 $ 544 As of December 31, 2022 Finance Receivables of CFEs at Fair Value Finance Receivables at Fair Value Aggregate unpaid principal balance included within finance receivables that are reported at fair value $ 84,477 $ 89,068 Aggregate fair value of finance receivables that are reported at fair value $ 77,904 $ 75,270 Unpaid principal balance of receivables within finance receivables that are reported at fair value and are on nonaccrual status (90 days or more past due) $ 1,097 $ 1,499 Aggregate fair value of receivables carried at fair value that are on nonaccrual status (90 days or more past due) $ 985 $ 1,311 All finance receivables of CFEs are pledged to the CFEs trusts. The following table presents other relevant data related to securitization debt of consolidated VIEs carried at fair value (in thousands): As of December 31, 2023 Securitization debt of consolidated VIEs at Fair Value Aggregate unpaid principal balance of rated notes of securitized VIEs $ 318,085 Aggregate fair value of rated notes of securitized VIEs $ 314,095 As of December 31, 2022 Securitization debt of consolidated VIEs at Fair Value Aggregate unpaid principal balance of rated notes of securitized VIEs $ 82,556 Aggregate fair value of rated notes of securitized VIEs $ 79,829 116 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value of Financial Instruments Not Carried at Fair Value The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term nature. The carrying value of the 2022 Vehicle Floorplan Facility and the Warehouse Credit Facilities was determined to approximate fair value due to its short-term duration and variable interest rate that approximates prevailing interest rates as of each reporting period. Finance receivables held for sale, net: For finance receivables eligible to be sold in a securitization, the Company determines the fair value of these finance receivables utilizing sales prices based on estimated securitization transactions, adjusted for transformation costs, risk and a normal profit margin associated with securitization transactions. Such fair value measurement of finance receivables held for sale, net is considered Level 3 of the fair value hierarchy. As of December 31, 2023, the Company determined that all of these finance receivables should be marked to their fair value of $ 468.8 million based on the results of the Company's lower of amortized cost basis or fair value analysis . As of December 31, 2022, the carrying value and fair value of the finance receivables held for sale, net were $ 299.2 million and $ 299.9 million, respectively. In addition, from time to time the Company may mark certain receivables, that are no longer eligible to be sold in a securitization, classified as held for sale to fair value on a non-recurring basis. As of December 31, 2023 and 2022 , there were $ 34.8 million and $ 22.4 million of these finance receivables that were marked to fair value on a non-recurring basis, respectively. These are finance receivables that became delinquent and no longer meet the expected securitization sales criteria. The Company uses a discounted cash flow model to estimate the present value of future recoveries for finance receivables. Such fair value measurement of finance receivables held for sale, net is considered Level 3 of the fair value hierarchy. Convertible Senior Notes: The fair value of the Notes, which are not carried at fair value on the accompanying consolidated balance sheets, was determined utilizing actual bids and offer prices of the Notes in markets that are not active and are classified within Level 2 of the fair value hierarchy. December 31, 2023 2022 Carrying value $ 286,800 $ 359,254 Fair value $ 152,506 $ 128,026 Financing of beneficial interests in securitizations: The fair value of the financing of beneficial interests in securitizations, which are not carried at fair value on the accompanying consolidated balance sheets, approximated their carrying value as of December 31, 2023 and are classified within Level 3 of the fair value hierarchy. Junior Subordinated Debentures: The fair value of the junior subordinated debentures, which are not carried at fair value on the accompanying consolidated balance sheets, approximated their carrying value as of December 31, 2023 and 2022 and are classified within Level 3 of the fair value hierarchy. Fair Value of Financial Instruments on a Nonrecurring Basis Assets and liabilities acquired as part of a business combination and goodwill attributable to each of the Company's reporting units are recorded at fair value on a nonrecurring basis. Refer to Note 5 – Acquisition and Note 8 – Goodwill and Intangible Assets for additional information. 18. Restructuring Activities On May 5, 2022, the Company approved the Realignment Plan, which was designed to position the Company for long-term profitable growth by prioritizing unit economics, reducing operating expenses and maximizing liquidity. In connection with the Realignment Plan, the Company reduced headcount across the organization and closed its New York City, Detroit, and one of its Houston office locations as well as several Sell Us Your Car® center facilities. Additionally, the Company streamlined TDA's operations and closed its service center. The service center was 117 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS repurposed to replace the reconditioning facility in Stafford, Texas, which was also closed. The Company also restructured its network of logistics hubs in order to align with reduced unit volume and its regional operating model. The restructuring activities associated with the Realignment Plan were substantially completed during 2022. On January 18, 2023, the Company executed a reduction-in- force as part of the continued focus on reducing variable and fixed costs. The Company reduced Vroom’s headcount by approximately 275 employees based on the assessment of the Company's business needs, key initiatives, and long-term success and profitable growth. For the year ended December 31, 2023, the Company incurred expenses of approximately $ 4.1 million, primarily consisting of severance. On April 26, 2023, as part of the Company’s ongoing reexamination of all facets of the business, the Company implemented an organizational restructuring that included a reduction-in- force. The Company reduced Vroom’s headcount by approximately 120 employees and incurred total expenses of approximately $ 2.3 million for the year ended December 31, 2023, primarily consisting of severance costs, as a result of this reduction -in-force. The following table summarizes the components of the restructuring and related charges: Year Ended December 31, Total Charges Incurred to Date 2023 2022 Charges by activity: Severance and termination benefits (1) $ 6,703 $ 7,358 $ 14,061 Impairment of operating lease right-of-use assets (2) — 6,491 6,491 Other costs (3) — 1,176 1,176 Total restructuring and related charges $ 6,703 $ 15,025 $ 21,728 (1) Severance and termination costs consist of severance costs provided to employees who have been terminated as well outplacement costs and COBRA benefits. (2) Impairment of operating lease right-of-use assets consist of costs associated with planned facility closures that will continue to be incurred under the contract for its remaining term without economic benefit to the Company. (3) Other costs incurred to date consist of legal expenses incurred in connection with the Realignment Plan and acceleration of depreciation of property and equipment related to the planned facility closures. Severance and termination benefits and other costs are included in "Selling, general, and administrative expenses" and impairment of operating lease right-of-use assets are included in "Impairment charges" in the consolidated statements of operations for the years ended December 31, 2023 and 2022. The following table is a reconciliation of the beginning and ending restructuring liability for the years ended December 31, 2023 and 2022: Balance as of December 31, 2021 $ — Accrual and accrual adjustments 7,941 Cash payments ( 7,131 ) Balance as of December 31, 2022 $ 810 Accrual and accrual adjustments 6,703 Cash payments ( 7,440 ) Balance as of December 31, 2023 $ 73 The restructuring liability for severance and termination benefits is reflected in "Accrued Expenses" in the consolidated balance sheet as of December 31, 2023 and 2022. 19. Segment Information The Company has three reportable segments: Ecommerce, Wholesale, and Retail Financing. No operating segments have been aggregated to form the reportable segments. 118 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of the Value Maximization Plan and the wind-down of the ecommerce operations, the Company will discontinue reporting its results through the Ecommerce and Wholesale segments starting in the first quarter of 2024. The Company determined its operating segments based on how the chief operating decision maker (“CODM”) reviews the Company’s operating results in assessing performance and allocating resources. The CODM reviews revenue and gross profit for each of the reportable segments. Gross profit is defined as revenue less cost of sales incurred by the segment. The CODM does not evaluate operating segments using asset information as these are managed on an enterprise-wide group basis. Accordingly, the Company does no t report segment asset information. As of December 31, 2023 and 2022, long-lived assets were predominantly located in the United States. The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform, revenue earned on vehicle financing originated by UACC or the Company's third-party financing sources and sales of value-added products associated with those vehicles sales. The Wholesale reportable segment represents sales of used vehicles through wholesale channels. The Retail Financing reportable segment represents UACC’s operations with its network of third-party dealership customers, including the purchases and servicing of vehicle installment contracts. Revenues within the "All Other" category consist of retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicles sales and the CarStory business. Information about the Company’s reportable segments are as follows (in thousands): Year Ended December 31, 2023 Ecommerce Wholesale Retail Financing All Other Total Revenues from external customers $ 576,170 $ 104,119 $ 156,938 $ 55,976 $ 893,203 Gross profit $ 59,231 $ ( 34,353 ) $ 125,610 $ 11,459 $ 161,947 Year Ended December 31, 2022 Ecommerce Wholesale Retail Financing All Other Total Revenues from external customers $ 1,364,195 $ 293,528 $ 152,542 $ 138,636 $ 1,948,901 Gross profit $ 99,973 $ ( 10,620 ) $ 138,381 $ 17,053 $ 244,787 The reconciliation between reportable segment gross profit to consolidated loss before provision for income taxes is as follows (in thousands): Year Ended December 31, 2023 2022 Reconciliation to consolidated total revenue Total reportable segment revenue $ 837,227 $ 1,810,265 All Other revenues 55,976 138,636 Consolidated total revenue $ 893,203 $ 1,948,901 Reconciliation to consolidated loss before (benefit) provision for income taxes Total reportable segment gross profit $ 150,488 $ 227,734 All Other gross profit 11,459 17,053 Selling, general and administrative expenses 340,657 566,387 Depreciation and amortization 42,769 38,290 Impairment charges 48,748 211,873 Gain on debt extinguishment ( 37,878 ) ( 164,684 ) Interest expense 45,445 40,693 Interest Income ( 21,158 ) ( 19,363 ) Other loss, net 108,289 43,181 Consolidated loss before provision (benefit) for income taxes $ ( 364,925 ) $ ( 471,590 ) 119 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. Income Taxes Income Tax Provision Domestic and foreign pretax income (loss) are as follows for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Domestic $ ( 365,520 ) $ ( 472,203 ) Foreign 595 613 Total $ ( 364,925 ) $ ( 471,590 ) The components of the provision for income taxes are as follows (in thousands): Year Ended December 31, 2023 2022 Current: Federal $ — $ — State and local 526 4,083 Foreign 89 92 Total current tax expense 615 4,175 Deferred tax (benefit): Federal — ( 20,472 ) State and local — ( 3,383 ) Foreign — — Total deferred tax (benefit) — ( 23,855 ) Provision (benefit) for income taxes $ 615 $ ( 19,680 ) On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions. The Company evaluated the provisions included under the IRA and the provisions do not have a material impact to the Company's consolidated financial statements. Tax Rate Reconciliation The Company’s effective tax rate for the years ended December 31, 2023 and 2022 was ( 0.17 )% and 4.17 %, respectively. The increase in effective tax rate for the year ended December 31, 2022 was primarily driven by a deferred tax benefit recorded for the decrease of Valuation Allowance resulting from the acquisition of Unitas Holdings Corp. (now known as Vroom Finance Corporation) that occurred during the December 31, 2022 period, of $ 23.9 million. 120 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the provision for income taxes at the statutory rate to the amount reflected in the consolidated statements of operations is as follows (in thousands): Year Ended December 31, 2023 2022 Income taxes at statutory rate $ ( 76,657 ) $ ( 99,034 ) State income taxes, net of federal benefit ( 23,718 ) ( 3,529 ) Foreign Rate Differential ( 36 ) ( 129 ) Permanent differences 1,550 1,510 Goodwill impairment — 41,241 Deferred tax adjustment for acquisition of business — ( 23,855 ) Change in valuation allowance 99,926 66,634 Other ( 450 ) ( 2,518 ) Provision (benefit) for income taxes $ 615 $ ( 19,680 ) Deferred Tax Assets (Liabilities) The Company computes income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statements and the income tax basis of assets and liabilities. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that certain deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those specific jurisdictions prior to the dates on which such net operating losses expire. The Company maintained a full valuation allowance against its net deferred tax assets because the Company has determined that it is more likely than not that these assets will not be fully realized based on a current evaluation of expected future taxable income and the Company being in a cumulative 3-year loss position. As of December 31, 2023, 2022 , and 2021, the valuation allowance balance was $ 358.7 million, $ 258.8 million and $ 216.0 million, respectively. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands): As of December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 365,841 $ 265,927 Inventory reserves 9,758 9,395 Stock-based compensation 2,169 3,067 Depreciation 3,729 — Lease Liability 8,829 7,086 Unrealized Gains/Losses 3,636 10,549 Allowance for Doubtful Accounts 1,765 8,342 Other 2,441 2,612 Total deferred tax assets 398,168 306,978 Less: valuation allowance ( 358,722 ) ( 258,796 ) Net deferred tax assets 39,446 48,182 Deferred tax liabilities: Intangible amortization ( 32,687 ) ( 37,377 ) Depreciation — ( 3,017 ) Repo Expenses ( 4,966 ) ( 2,194 ) Right of Use Asset ( 1,793 ) ( 5,594 ) Net deferred tax liabilities ( 39,446 ) ( 48,182 ) Net deferred income taxes $ — $ — 121 Table of Contents VROOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net Operating Losses As of December 31, 2023 , the Company had total net operating loss carryforwards for U.S. federal income tax purposes of $ 1,504.9 million, of which $ 168.5 million expire from 2028 through 2042 and $ 1,336.4 million do not expire. The Company has net operating loss carryforwards for state income tax purposes of $ 767.8 million, which expire from 2034 through 2042 . The Company is subject to tax in the United States and many state and local jurisdictions. The Company, with certain exceptions, is no longer subject to income tax examinations by U.S. federal, state and local for tax years 2017 and prior. The company is not currently under audit for any US federal or state income tax audits. The Internal Revenue Code (IRC) Section 382 provides for a limitation of the annual use of net operating loss and tax credit carryforwards following certain ownership changes (as defined by the IRC Section 382) that limits the Company’s ability to utilize these carryforwards. The Company completed a Section 382 study to determine the applicable limitation, if any. It was determined that the Company has undergone four ownership changes the most recent of which was April 2021. These changes will substantially limit the use of the net operating losses generated before the change in control. The Company acquired Unitas Holdings Corp. (now known as Vroom Finance Corporation) on February 1, 2022 in a stock acquisition, refer to Note 5 – Acquisition for additional information. The NOLs and other tax attributes acquired are subject to Section 382 limitations. Uncertain Tax Positions The Company has no t identified any uncertain tax positions as of December 31, 2023 or 2022 . Any interest and penalties related to uncertain tax positions shall be recorded as a component of income tax expense. To date, no interest or penalties have been accrued in relation to uncertain tax positions. 21. Net Loss Per Share The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders: Year Ended December 31, (in thousands, except share and per share amounts) 2023 2022 Net loss $ ( 365,540 ) $ ( 451,910 ) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 1,743,128 1,723,843 Net loss per share attributable to common stockholders, basic and diluted $ ( 209.70 ) $ ( 262.15 ) The following potentially dilutive shares were not included in the calculation of diluted shares outstanding for the periods presented as the effect would have been anti-dilutive: As of December 31, 2023 2022 Convertible senior notes 64,830 81,635 Stock options 26,088 35,715 Restricted stock units 175,266 108,268 Total 266,184 225,618 122 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.