Vroom, Inc. 10-Q

Item 1. Financial Statements VROOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (unaudited) As of December 31, As of June 30, 2019 2020 ASSETS Current Assets: Cash and cash equivalents $ 217,734 $ 651,035 Restricted cash 1,853 21,853 Accounts receivable, net of allowance of $789 and $1,135, respectively 30,848 15,287 Inventory 205,746 141,063 Prepaid expenses and other current assets 9,149 17,808 Total current assets 465,330 847,046 Property and equipment, net 7,828 9,783 Intangible assets, net 572 297 Goodwill 78,172 78,172 Operating lease right-of-use assets — 15,437 Other assets 11,485 12,472 Total assets $ 563,387 $ 963,207 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY Current Liabilities: Accounts payable $ 18,987 $ 20,133 Accrued expenses 38,491 40,898 Vehicle floorplan 173,461 109,783 Deferred revenue 17,323 15,488 Operating lease liabilities, current — 4,640 Other current liabilities 11,572 13,115 Total current liabilities 259,834 204,057 Operating lease liabilities, excluding current portion — 11,750 Other long-term liabilities 3,073 1,965 Total liabilities 262,907 217,772 Commitments and contingencies (Note 8) Redeemable convertible preferred stock, $0.001 par value; 86,123,364 and 10,000,000 shares authorized as of December 31, 2019 and June 30, 2020, respectively; 83,568,628 and zero shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively 874,332 — Stockholders’ (deficit) equity: Common stock, $0.001 par value; 113,443,854 and 500,000,000 shares authorized as of December 31, 2019 and June 30, 2020, respectively; 8,650,922 and 119,336,588 shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively 8 119 Additional paid-in-capital — 1,424,675 Accumulated deficit (573,860 ) (679,359 ) Total stockholders’ (deficit) equity (573,852 ) 745,435 Total liabilities, redeemable convertible preferred stock and stockholders’ (deficit) equity $ 563,387 $ 963,207 See accompanying notes to these unaudited condensed consolidated financial statements . 5 VROOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 Revenue: Retail vehicle, net $ 200,402 $ 196,150 $ 379,152 $ 504,862 Wholesale vehicle 54,531 50,921 106,651 106,497 Product, net 5,491 5,736 9,236 16,780 Other 473 286 917 726 Total revenue 260,897 253,093 495,956 628,865 Cost of sales 247,052 245,486 470,099 602,871 Total gross profit 13,845 7,607 25,857 25,994 Selling, general and administrative expenses 43,692 47,911 80,275 106,291 Depreciation and amortization 1,501 1,083 3,034 2,049 Loss from operations (31,348 ) (41,387 ) (57,452 ) (82,346 ) Interest expense 3,388 1,297 6,106 4,123 Interest income (1,415 ) (715 ) (3,264 ) (2,671 ) Revaluation of preferred stock warrant 60 21,260 142 20,470 Other income, net (12 ) (53 ) (31 ) (86 ) Loss before provision (benefit) for income taxes (33,369 ) (63,176 ) (60,405 ) (104,182 ) Provision (benefit) for income taxes (29 ) 52 74 105 Net loss $ (33,340 ) $ (63,228 ) $ (60,479 ) $ (104,287 ) Accretion of redeemable convertible preferred stock (25,879 ) — (43,843 ) — Net loss attributable to common stockholders $ (59,219 ) $ (63,228 ) $ (104,322 ) $ (104,287 ) Net loss per share attributable to common stockholders, basic and diluted $ (6.90 ) $ (2.00 ) $ (12.16 ) $ (5.21 ) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 8,580,150 31,599,497 8,579,539 20,035,476 See accompanying notes to these unaudited condensed consolidated financial statements. 6 VROOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY (in thousands, except share amounts) (unaudited) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit (Deficit) Equity Balance at December 31, 2018 66,825,300 $ 519,100 8,571,386 $ 8 $ — $ (296,874 ) $ (296,866 ) Stock-based compensation — $ — — $ — $ 869 $ — $ 869 Exercise of stock options — — 101,950 — 347 — 347 Repurchase of common stock — — (93,186 ) — (1,216 ) 674 (542 ) Accretion of redeemable convertible preferred stock — 17,964 — — — (17,964 ) (17,964 ) Net loss — — — — — (27,139 ) (27,139 ) Balance at March 31, 2019 66,825,300 $ 537,064 8,580,150 $ 8 $ — $ (341,303 ) $ (341,295 ) Stock-based compensation — $ — — $ — $ 667 $ — $ 667 Exercise of stock options — — — — — — — Repurchase of common stock — — — — (667 ) 667 — Accretion of redeemable convertible preferred stock — 25,879 — — — (25,879 ) (25,879 ) Net loss — — — — — (33,340 ) (33,340 ) Balance at June 30, 2019 66,825,300 $ 562,943 8,580,150 $ 8 $ — $ (399,855 ) $ (399,847 ) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit (Deficit) Equity Balance at December 31, 2019 83,568,628 $ 874,332 8,650,922 $ 8 $ — $ (573,860 ) $ (573,852 ) Stock-based compensation — $ — — $ — $ 600 $ — $ 600 Exercise of stock options — — 2,774 — 6 — 6 Repurchase of common stock — — (200,000 ) — (606 ) (1,212 ) (1,818 ) Issuance of Series H redeemable convertible preferred stock, net of issuance costs 1,964,766 26,714 — — — — — Net loss — — — — — (41,059 ) (41,059 ) Balance at March 31, 2020 85,533,394 $ 901,046 8,453,696 $ 8 $ — $ (616,131 ) $ (616,123 ) Issuance of common stock — $ — 183,870 $ — $ 2,127 $ — $ 2,127 Conversion of redeemable convertible preferred stock to common stock (85,533,394 ) (901,046 ) 85,533,394 86 900,960 — 901,046 Conversion of redeemable convertible preferred stock warrant to common stock warrant — — — — 21,873 — 21,873 Issuance of common stock in IPO, net of offering costs — — 24,437,500 24 496,486 — 496,510 Stock-based compensation — — — — 4,100 — 4,100 Exercise of stock options — — 500 — 7 — 7 Exercise of common stock warrants — — 636,112 1 — — 1 Vesting of restricted stock units — — 133,334 — — — — Common stock shares withheld to satisfy employee tax withholding obligations — — (41,818 ) — (878 ) — (878 ) Net loss — — — — — (63,228 ) (63,228 ) Balance at June 30, 2020 — $ — 119,336,588 $ 119 $ 1,424,675 $ (679,359 ) $ 745,435 See accompanying notes to these unaudited condensed consolidated financial statements . 7 VROOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, 2019 2020 Operating activities Net loss $ (60,479 ) $ (104,287 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 3,146 2,059 Amortization of debt issuance costs 179 375 Stock-based compensation expense 1,536 4,700 Loss on disposal of property and equipment 764 — Provision for inventory obsolescence 1,889 (1,564 ) Revaluation of preferred stock warrant 142 20,470 Other — 632 Changes in operating assets and liabilities: Accounts receivable (14,544 ) 14,863 Inventory (76,209 ) 66,247 Prepaid expenses and other current assets (1,814 ) (7,909 ) Other assets (1,488 ) (1,285 ) Accounts payable 6,501 919 Accrued expenses 7,224 4,714 Deferred revenue 2,664 (1,835 ) Other liabilities 2,592 1,905 Net cash (used in) provided by operating activities (127,897 ) 4 Investing activities Purchase of property and equipment (794 ) (3,128 ) Net cash used in investing activities (794 ) (3,128 ) Financing activities Repayments of long-term debt (3,340 ) — Proceeds from vehicle floorplan 420,518 465,663 Repayments of vehicle floorplan (349,545 ) (529,341 ) Payment of vehicle floorplan upfront commitment fees — (1,125 ) Proceeds from the issuance of redeemable convertible preferred stock, net — 21,694 Repurchase of common stock (542 ) (1,818 ) Common stock shares withheld to satisfy employee tax withholding obligations — (878 ) Proceeds from the issuance of common stock in connection with IPO, net of underwriting discount — 504,023 Payments of costs related to IPO — (1,740 ) Proceeds from exercise of stock options 347 13 Other financing activities 268 (66 ) Net cash provided by financing activities 67,706 456,425 Net (decrease) increase in cash, cash equivalents and restricted cash (60,985 ) 453,301 Cash, cash equivalents and restricted cash at the beginning of period 163,509 219,587 Cash, cash equivalents and restricted cash at the end of period $ 102,524 $ 672,888 Supplemental disclosure of cash flow information: Cash paid for interest $ 5,176 $ 2,743 Cash paid for income taxes $ 209 $ — Supplemental disclosure of non-cash investing and financing activities: Accretion of redeemable convertible preferred stock $ 43,843 $ — Costs related to IPO included in accrued expenses and accounts payable $ — $ 5,051 Conversion of redeemable convertible preferred stock warrant to common stock warrant $ — $ 21,873 Issuance of common stock as upfront payment to nonemployee $ — $ 2,127 Accrued property and equipment expenditures $ 101 $ 611 See accompanying notes to these unaudited condensed consolidated financial statements . 8 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Description of Business and Basis of Presentation Description of Business and Organization Vroom, Inc., and its wholly owned subsidiaries (collectively “the Company”) is an innovative, end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles. In December 2015, the Company acquired Houston-based Left Gate Property Holding, LLC (d/b/a Texas Direct Auto and herein referred to as “TDA”) which is the Company’s sole physical retail location. The Company currently is organized into three reportable segments: Ecommerce, TDA, and Wholesale. The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicles sales. The TDA reportable segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicles sales. The Wholesale reportable segment represents sales of used vehicles through wholesale auctions. 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. Stock Split In connection with the closing of the Company’s initial public offering (“IPO”) on June 11, 2020, the Company effected a 2-for-1 forward stock split of the Company’s common stock, which became effective immediately prior to the consummation of the IPO. All shares of the Company’s common stock, stock-based instruments, and per-share data included in these condensed consolidated financial statements have been retroactively adjusted as though the stock split has been effected prior to all periods presented. Initial Public Offering The Company closed its IPO on June 11, 2020 in which it sold 24,437,500 shares of common stock at the public offering price of $22.00 per share, including 3,187,500 shares sold pursuant to exercise by the underwriters of their option to purchase additional shares. The Company received proceeds of $504.0 million from the IPO, net of the underwriting discount and before deducting offering expenses of $7.5 million. In addition, in accordance with their terms and consistent with the conversion rates discussed in Note 10 - Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity, all shares of the Company’s outstanding redeemable convertible preferred stock were automatically converted into common stock upon the closing of the IPO. Basis of Presentation The interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the final prospectus dated June 8, 2020 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, (the "Securities Act"), on June 9, 2020 (the "Prospectus"). The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, include all adjustments, which consist of only normal recurring adjustments necessary for the fair statement of the Company’s condensed consolidated balance sheet as of June 30, 2020 and its results of operations for the three and six months ended June 30, 2019 and 2020. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the current fiscal year or any other future periods. Certain prior year amounts have been reclassified to conform to the current year presentation. 9 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Except as described elsewhere in Note 2 to the condensed consolidated financial statements, there have been no material changes to the Company's significant accounting policies as described in the Prospectus. Principles of Consolidation The accompanying condensed 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 condensed 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, and 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, goodwill, 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. Beginning in the first quarter of 2020, the COVID-19 pandemic caused by the novel coronavirus has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the United States and globally, as well as the Company’s business, financial condition and results of operations. Due to the evolving and uncertain nature of COVID-19, it is reasonably possible that it could materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions the Company may face. Comprehensive Loss The Company did not have any other comprehensive income or loss for three and six months ended June 30, 2019 and 2020. Accordingly, net loss and comprehensive loss are the same for the periods presented. Restricted Cash Restricted cash as of December 31, 2019 and June 30, 2020 includes cash deposits required under letter of credit agreements as explained in Note 8 – Commitments and Contingencies. Restricted cash as of June 30, 2020 also includes a $20.0 million cash deposit required under the Company’s 2020 Vehicle Floorplan Facility as explained in Note 7 – Vehicle Floorplan Facilities. Advertising Advertising costs are expensed as incurred and are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations. Advertising expenses were $12.7 million and $11.6 million for the three months ended June 30, 2019 and 2020, respectively, and $19.8 million and $29.5 million for the six months ended June 30, 2019 and 2020, respectively. Shipping and Handling The Company’s logistics costs related to transporting its used vehicle inventory primarily include third-party transportation fees. The portion of these costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility is 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 fulfil contracts with customers and are included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations and were $2.7 million and $5.5 million for the three months ended June 30, 2019 and 2020, respectively, and $4.9 million and $11.3 million for the six months ended June 30, 2019 and 2020, respectively. 10 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Conc entration 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 and cash equivalents are maintained at various large 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. Concentration of credit risk with respect to accounts receivable is generally mitigated by a large customer base. For the three and six months ended June 30, 2019 and 2020, 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, 2019 and June 30, 2020. Liquidity The Company has had negative cash flows and losses from operations since inception which it has funded primarily through issuances of common and preferred stock. The Company has historically funded vehicle inventory purchases through its vehicle floorplan facility (refer to Note 7 – Vehicle Floorplan Facilities). As further discussed in Note 7, the Company entered into a new vehicle floorplan facility in March 2020 which increased the borrowing capacity up to $450.0 million and extended the term through March 2021. In accordance with Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there is substantial doubt about the Company’s ability to meet its obligations within one year from the financial statement issuance date. In connection with the previous issuance of the consolidated financial statements as of and for the year ended December 31, 2019, uncertainties relating to the COVID-19 pandemic, combined with the Company’s losses and negative cash flows from operations since inception, and the fact that management’s plan to obtain additional capital had not yet been completed, raised substantial doubt about the Company’s ability to continue as a going concern. However, following the successful completion of the Company’s IPO in June 2020, in which it raised proceeds of $504.0 million from the IPO, net of the underwriting discount and before deducting offering expenses of $7.5 million as described above, management completed an updated evaluation of the Company’s ability to continue as going concern and has concluded the factors that previously raised substantial doubt about the Company’s ability to continue as going concern no longer exist as of the issuance date of these condensed consolidated financial statements. Nonemployee Share-Based Payments On May 15, 2020, the Company entered into an agreement with Rocket Auto LLC and certain of its affiliates (collectively, “Rocket”) providing for the launch of an ecommerce platform under the “Rocket Auto” brand for the marketing and sale of vehicles directly to consumers (the “RA Agreement”). The Company will list its used vehicle inventory for sale on the Rocket Auto platform, but all sales of the Company’s inventory will be conducted through the Company’s platform. Rocket Auto is expected to launch publicly during the second half of the year ending December 31, 2020 and, during the term of the RA Agreement, Rocket has agreed to ensure that not less than a minimum percentage of all used vehicles sold or leased through the platform on a monthly basis will be Vroom inventory. The Company has agreed to pay Rocket a combination of cash and stock for vehicle sales made through the platform, including upfront equity consisting of 183,870 shares of the Company’s common stock that were issued upon execution of the RA Agreement, and the potential issuance to Rocket of up to an additional 8,641,914 shares of common stock, over a four-year period based upon sales volume of Vroom inventory through the Rocket Auto platform. The Company accounts for the issuance of its common stock under the RA agreement in accordance with ASC 718, Compensation – Stock Compensation , including the provisions that apply to share-based payments issued to nonemployees for goods or services. The Company determined that the grant date was May 15, 2020 for both the upfront shares issued and the additional shares that potentially are to be issued based on sales volume through the Rocket Auto platform. The fair value of the Company’s common stock on the grant date was determined to be $11.57 per share. The grant date fair value of the upfront shares issued was initially recognized as an asset within “Other assets” in the condensed consolidated balance sheet, which will subsequently be amortized within “Selling, general and administrative expenses” over the term of the RA agreement commencing on the launch date. The grant date fair value of the potential shares to be issued will be recognized within “Selling, general and administrative expenses” as sales of Vroom’s inventory associated with the Rocket Auto platform occur and such shares are earned. 11 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Accounting Standards Adopted In February 2016, the FASB issued, ASU 2016-02 , Leases (Topic 842) , which amends the accounting guidance on leases. The new standard requires a lessee to recognize right-of-use assets and lease obligations on the balance sheet for most lease agreements. Leases are classified as either operating or finance, with classification affecting the pattern of expense recognition in the statement of operations. The FASB also subsequently issued amendments to the standard to provide additional practical expedients and an additional transition method option. The Company adopted Topic 842 as of January 1, 2020 using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings (accumulated deficit) with no restatement of comparative periods. Upon adoption, the Company recognized $18.4 million of operating lease liabilities and $17.4 million of operating lease right-of-use assets. The adoption of Topic 842 did not result in a cumulative effect adjustment to accumulated deficit. Topic 842 provides various optional practical expedients for transition. The Company elected to utilize the package of practical expedients for transition which permitted the Company to not reassess its prior conclusions regarding whether a contract is or contains a lease, lease classification and initial direct costs. The Company did not elect the hindsight practical expedient to determine lease terms. Topic 842 also provides optional practical expedients for an entity’s ongoing lease accounting. The Company elected the short-term lease recognition exemption for all leases that qualify and the practical expedient to not separate lease and non-lease components of leases. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, related to updated requirements over the disclosures of fair value measurements. Under ASU 2018-13, certain disclosure requirements for fair value measurements were eliminated, modified or added to facilitate better disclosure regarding recurring and non-recurring fair value measurements. The Company adopted the guidance on January 1, 2020 which did not have a material impact on the Company’s consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial instruments, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for most financial assets, including trade receivables, and other instruments that are not measured at fair value through net income. The Company adopted the guidance on January 1, 2020 which did not have a material impact on the Company’s consolidated financial statements and related disclosures. Accounting Standards Issued But Not Yet Adopted The Company previously qualified as an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and it had elected to delay adoption of new or revised accounting standards until those standards apply to private companies. The Company ceased to qualify as an EGC because its annual revenue for the fiscal year ended December 31, 2019 exceeded $1.07 billion. The Company continued to be treated as an EGC through June 11, 2020, which was the date the Company consummated the IPO. Accordingly, since the Company can no longer be treated as an EGC, effective dates included in these condensed consolidated financial statements reflect the effective dates that apply to public companies. 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 guidance will be effective for fiscal years beginning after December 15, 2020, 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. 12 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 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 condensed consolidated statements of operations and is generated from customers throughout the United States. The Company recognizes revenue at a point in time as described below. Retail Vehicle Revenue The Company sells 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 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 from third-party financial institutions within a short period of time following the sale if the customer obtains financing. Payments received prior to delivery or pick-up of used vehicles are recorded as “Deferred revenue” within the condensed consolidated balance sheets. The Company offers a return policy 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 condensed 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 sells vehicles that do not meet its retail sales criteria through third-party wholesale auctions. Vehicles sold at auction are acquired from customers who trade-in their vehicles when making a purchase from the Company and also from customers who sell their vehicles to the Company in direct-buy transactions. The transaction price for wholesale vehicles is a fixed amount that is determined at the auction. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold at auction. 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 fees earned on selling extended warranty contracts, guaranteed asset protection (“GAP”) and wheel and tire coverage. The Company sells these 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. 13 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) A portion of the fees earned on these products is subject to chargebacks in the event of ea rly termination, default, or prepayment of the contracts by end-customers. The Company’s exposure for these events is limited to the fees that it receives. An estimated refund liability for chargebacks against the revenue recognized from sales of these pro ducts 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, 2019 and June 30, 2020 , the Co mpany’s reserve for chargebacks was $3.3 million and $ 4.1 million, respectively, of which $1.8 million and $ 2.2 million, respectively, are included within “Accrued expenses” and $1.5 million and $ 1.9 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 extended warranty 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, 2019 and June 30, 2020, the Company recognized $6.9 million and $8.5 million, respectively, related to cumulative profit-sharing payments to which it expects to be entitled, of which $0.3 million and $0.8 million, respectively, are included within “Prepaid expenses and other current assets” and $6.6 million and $7.7 million, respectively, are included within “Other assets.” Other Revenue Other revenue primarily consists of labor and parts revenue earned by the Company for vehicle repair services at TDA. 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 condensed consolidated statements of operations. 4. Inventory Inventory consisted of the following (in thousands): December 31, June 30, 2019 2020 Vehicles $ 203,290 $ 140,111 Parts and accessories 2,456 952 Total inventory $ 205,746 $ 141,063 As of December 31, 2019 and June 30, 2020, “Inventory” includes an adjustment of $6.3 million, and $4.8 million, respectively, to record the balances at the lower of cost or net realizable value. 14 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 5. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, June 30, 2019 2020 Equipment $ 930 $ 991 Furniture and fixtures 1,725 1,725 Company vehicles 1,151 1,151 Leasehold improvements 6,556 6,584 Internal-use software 4,406 8,012 Other 2,580 2,624 17,348 21,087 Accumulated depreciation and amortization (9,520 ) (11,304 ) Property and equipment, net $ 7,828 $ 9,783 Depreciation and amortization expense was $0.6 million and $1.0 million for the three months ended June 30, 2019 and 2020, respectively, and $1.3 million and $1.8 million for the six months ended June 30, 2019 and 2020, respectively. Depreciation and amortization expense of $0.1 million was included within “Cost of sales” in the condensed consolidated statements of operations for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2020, depreciation and amortization expense included within “Cost of sales” was immaterial. 6. Accrued Expenses and Other Current Liabilities The Company’s accrued expenses consisted of the following (in thousands): December 31, June 30, 2019 2020 Accrued marketing expenses $ 3,158 $ 6,488 Vehicle related expenses 8,923 8,234 Sales taxes 7,455 11,304 Accrued compensation and benefits 3,386 2,654 Accrued professional services 2,964 5,537 Accrued Series H preferred stock issuance costs 5,020 — Other 7,585 6,681 Total accrued expenses $ 38,491 $ 40,898 The Company’s other current liabilities consisted of the following (in thousands): December 31, June 30, 2019 2020 Vehicle payable $ 8,904 $ 10,493 Other 2,668 2,622 Total other current liabilities $ 11,572 $ 13,115 15 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7 . Vehicle Floorplan Facilities In March 2020, the Company entered into a new vehicle floorplan facility with Ally Bank and Ally Financial (the “2020 Vehicle Floorplan Facility”), which replaced the Company’s previous vehicle floorplan facility. The 2020 Vehicle Floorplan Facility provides a committed credit line of up to $450.0 million which expires in March 2021. The amount of credit available is determined on a monthly basis based on a calculation that considers average outstanding borrowings and vehicle units paid off by the Company within the immediately preceding three-month period. The Company may elect to increase its monthly credit line availability by an additional $25.0 million during any three months of each year. As of June 30, 2020, the borrowing capacity of the 2020 Vehicle Floorplan Facility was $200.0 million, of which $90.2 million was unutilized. Outstanding borrowings related to the 2020 Vehicle Floorplan Facility are due as the vehicles financed are sold, or in any event, on the maturity date. The 2020 Vehicle Floorplan Facility bears interest at a rate equal to the 1-Month LIBOR rate applicable in the immediately preceding month plus a spread of 425 basis points. The 2020 Vehicle Floorplan Facility is collateralized by the Company’s vehicle inventory and certain other assets and the Company is subject to covenants that require it to maintain a certain level of equity in the vehicles that are financed, to maintain at least 10% of the outstanding borrowings in cash and cash equivalents, to maintain 10% of the monthly credit line availability on deposit with Ally Bank and to maintain a minimum tangible adjusted net worth of $167.0 million, which is defined as shareholder (deficit) equity plus redeemable convertible preferred stock as determined under U.S. GAAP. The Company was required to pay an upfront commitment fee of $1.1 million upon execution of the 2020 Vehicle Floorplan Facility. The Company previously entered into a vehicle floorplan (the “2016 Vehicle Floorplan Facility”) with Ally Bank and Ally Financial in April 2016, as subsequently amended. The 2016 Vehicle Floorplan Facility consisted of a revolving line of credit with a borrowing capacity of $220.0 million as of December 31, 2019, which could be used to finance the Company’s vehicle inventory. The interest rate on the 2016 Vehicle Floorplan Facility was equal to the 1-Month LIBOR rate applicable in the immediately preceding month plus a spread of 425 basis points and was payable on a monthly basis. As of December 31, 2019 and June 30, 2020, outstanding borrowings on the vehicle floorplan facilities were $173.5 million and $109.8 million, respectively. Interest expense incurred by the Company for the vehicle floorplan facilities was $2.5 million and $1.0 million for the three months ended June 30, 2019 and 2020, respectively, and $4.4 million and $3.7 million for the six months ended June 30, 2019 and 2020, respectively, which are recorded within “Interest expense” in the condensed consolidated statements of operations. The weighted average interest rate on the vehicle floorplan borrowings was 6.00% and 4.49% as of December 31, 2019 and June 30, 2020, respectively. As of December 31, 2019 and June 30, 2020, 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 permits 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 $1.3 million and $0.7 million for the three months ended June 30, 2019 and 2020, respectively, and $2.8 million and $2.4 million for the six months ended June 30, 2019 and 2020, respectively, which are recorded within “Interest income” in the condensed consolidated statements of operations. 8. 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. We accrue 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, we do not record a liability, but instead disclose 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. As of December 31, 2019 and June 30, 2020, the Company was not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more matters could have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows. 16 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Letters of Credit The Company has obtained stand-by letters of credit totaling $1.9 million to satisfy conditions under two lease agreements. The Company is required to maintain a cash deposit of $1.9 million with the financial institution that issued the stand-by letters of credit, which is classified as “Restricted cash” within the condensed consolidated balance sheets as of December 31, 2019 and June 30, 2020, respectively. 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. 9. Leases The Company’s leasing activities primarily consist of real estate leases for its operations, including office space, the Company’s reconditioning facility, the TDA retail location, the Company’s Sell Us Your Car centers, parking lots and other facilities. The real estate leases have terms ranging from six months to eight years. The Company also has leases for various types of equipment, which are not material, individually or in the aggregate. 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. The Company does not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company. 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. 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 As of June 30, 2020, the weighted-average remaining lease term and discount rate for the Company’s operating leases were 4.0 years and 3.4%, excluding short-term operating leases. 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 determines its incremental borrowing rate based on a synthetic credit rating that was developed with the assistance of a third-party specialist. 17 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Lease costs and activity The Company’s lease costs and activity for the three and six months ended June 30, 2020 were as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2020 Lease Cost Operating lease cost $ 1,369 $ 2,767 Short-term lease cost 634 1,518 Variable lease cost 437 966 Sublease income (100 ) (337 ) Net lease cost $ 2,340 $ 4,914 Three Months Ended June 30, Six Months Ended June 30, 2020 2020 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,399 $ 2,826 Right-of-use assets obtained in exchange for operating lease liabilities $ — $ 521 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 condensed consolidated balance sheet as of June 30, 2020 were as follows (in thousands): For remainder of 2020 $ 2,591 2021 5,022 2022 3,291 2023 3,138 2024 2,858 Thereafter 724 Total lease payments 17,624 Less: interest (1,234 ) Present value of lease liabilities $ 16,390 Operating lease liabilities, current $ 4,640 Operating lease liabilities, noncurrent 11,750 Total operating lease liabilities $ 16,390 Future minimum payments under non-cancelable operating leases with initial terms of one year or more consisted of the following as of December 31, 2019 in accordance with ASC Topic 840 (in thousands): Year Ending December 31, 2020 $ 5,509 2021 4,909 2022 3,204 2023 3,026 2024 2,746 Thereafter 699 Total future minimum lease payments $ 20,093 18 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) In accordance with ASC Topic 840, rent expense was $ 1.9 million and $ 3.4 million for three and six months ended June 30, 2019 . Certain of the Company’s lease agreements contain escalation clauses, and accordingly, the Company records the rent expense on a straight-line basis over the lease term. Deferred rent under ASC Topic ASC 840 is recorded within “Accrued expe nses” in the condensed consolidated balance sheet. 10. Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity Redeemable Convertible Preferred Stock As of December 31, 2019, the Company had eight outstanding series of redeemable convertible preferred stock (collectively the “Series Preferred”) . The Company classified its Series B through H Preferred Stock (collectively the “Senior Preferred Stock”) as temporary equity within the Company’s consolidated balance sheet as of December 31, 2019 because the instruments contained redemption rights. The Company concluded that the Senior Preferred Stock were considered probable of becoming redeemable through November 2019 and therefore recorded accretion to their redemption values of $132.8 million during the year ended December 31, 2019. During December 2019, the Company ceased accretion of the Senior Preferred Stock to their redemption values due to a sufficiently high likelihood of an IPO requiring a conversion of the instruments into common stock. As of December 31, 2019, the Company classified its Series A Preferred Stock as temporary equity within the Company’s consolidated balance sheets because the instrument contained liquidation features, including a liquidation preference in the event of a deemed liquidation event, that were not solely within the Company’s control. The Company did not adjust the carrying value of the Series A Preferred Stock to its redemption value because it was not probable that the Series A Preferred Stock would become redeemable. On January 8, 2020, the Company completed an additional closing of its Series H Preferred Stock whereby it sold and issued an aggregate of 1,964,766 shares of Series H Preferred Stock in exchange for gross proceeds of $26.7 million. The proceeds were used for general corporate purposes and business development. Immediately upon closing of the IPO, the Company’s outstanding preferred stock was automatically converted into an aggregate of 85,533,394 shares of the Company’s common 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 June 30, 2020, there was no preferred stock issued or outstanding. The authorized, issued and outstanding shares, issue price, conversion price, liquidation preference, and carrying value of the Series Preferred as of December 31, 2019 were as follows: As of December 31, 2019 (in thousands, except share and per share amounts) Shares authorized Shares issued and outstanding Issue price Per share conversion price Liquidation preference Carrying value Series A 3,983,996 3,983,996 $ 1.61 $ 1.61 $ 6,419 $ 6,167 Series B 4,716,484 4,716,484 2.48 2.48 11,709 42,425 Series C 9,134,242 9,134,242 5.93 5.93 54,209 88,739 Series D 14,431,136 14,431,136 6.58 6.58 95,000 142,724 Series E 6,163,792 6,163,792 8.11 8.11 50,000 64,042 Series F 12,705,580 12,115,610 8.53 8.53 103,346 127,820 Series G 16,280,040 16,280,040 8.98 8.98 146,113 174,764 Series H 18,708,094 16,743,328 13.60 13.60 227,651 227,651 86,123,364 83,568,628 $ 694,447 $ 874,332 19 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Common Stock On June 11, 2020, the Company amended its certificate of incorporation to effect a 2-for-1 forward stock split of shares of the Company’s outstanding common stock, such that each share of common stock, $0.001 par value became two shares of common stock, $0.001 par value per share. The shares of common stock authorized for issuance was increased to 500,000,000. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Warrants In connection with the offering of shares of Series B Preferred Stock, the Company issued warrants to an investor in return for providing ongoing advisory services (“Series B Warrants”). The Series B Warrants allowed the investor to purchase up to 161,136 shares of common stock with an exercise price of $0.72 per share. The Series B Warrants vested in equal monthly installments through October 1, 2017. Upon the closing of the IPO, all of the Series B Warrants were exercised cashless by the holder which resulted in the net issuance of 155,862 shares of the Company’s common stock. In August 2017, the Company issued a warrant (the “Series F Preferred Stock Warrant”) which allowed the holders to purchase up to 589,970 shares of the Company’s Series F Preferred Stock, or common stock upon conversion of the Company’s preferred stock into common stock, with an exercise price of $8.53 per share. The holders exercised the warrant on June 23, 2020 cashless, which resulted in the net issuance of 480,250 shares of the Company’s common stock. Prior to the conversion of the Company’s preferred stock into common stock, the Series F Preferred Stock Warrant was classified as a liability due to the contingent redemption features of the Series F Preferred Stock and was measured at fair value at each reporting date. Refer to Note 12 – Financial Instruments and Fair Value Measurements. 11. 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 3,019,108 shares of the Company’s common stock, (ii) up to 4% of an annual increase on the first day of each year beginning on January 1, 2022 and ending on January 1, 2030, 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 June 30, 2020, there were 3,093,498 shares available for future issuance under the 2020 Plan. Stock Options The following table summarizes stock option activity for the six months ended June 30, 2020: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life Outstanding as of December 31, 2019 6,340,000 $ 3.92 8.22 Granted 420,500 10.46 Exercised (3,274 ) 4.21 Forfeited / cancelled (417,150 ) 4.30 Outstanding as of June 30, 2020 6,340,076 $ 4.33 7.79 Vested and exercisable as of December 31, 2019 2,684,160 $ 3.58 7.41 Vested and exercisable as of June 30, 2020 3,451,864 $ 3.63 7.05 The Company recognized $0.7 million and $0.6 million of stock-based compensation expense related to stock options for the three months ended June 30, 2019 and 2020, respectively, and $1.5 million and $1.2 million for the six months ended June 30, 2019 and 2020, respectively. As of December 31, 2019 and June 30, 2020, the Company had $5.2 million, and $4.7 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.6 years, and 2.7 years, respectively. 20 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The grant date fair value of stock options granted during the six months ended June 30, 2020 was estimated at the time of grant using the Black-Scholes option-pricing model and utilized the following weighted average assumptions: Six Months Ended June 30, 2020 Fair value of common stock (per share) $ 10.46 Expected term (in years) 5.9 — 6.3 Risk-free interest rate 1.7% Expected volatility 36.3% — 36.6% Dividend yield —% The weighted average fair value of stock options granted during the six months ended June 30, 2020 was estimated to be $3.97 per share. The aggregate intrinsic value of options exercised during the six months ended June 30, 2020 was immaterial, and the aggregate intrinsic value of options outstanding and options exercisable as of June 30, 2020 was $303.1 million and $167.5 million, respectively. RSUs The following table summarizes activity for restricted stock units (“RSUs”) for the six months ended June 30, 2020: Shares Weighted Average Grant Date Fair Value per Share Unvested and outstanding as of December 31, 2019 408,000 $ 4.01 Granted 2,214,276 11.28 Vested (133,334 ) 3.60 Forfeited / cancelled (540 ) 11.57 Unvested and outstanding as of June 30, 2020 2,488,402 $ 10.50 The Company recognized $0.0 million and $3.3 million of stock-based compensation expense related to RSUs for the three months ended June 30, 2019 and 2020, respectively, and $0.0 million and $3.3 million for the six months ended June 30, 2019 and 2020, respectively. As of December 31, 2019 and June 30, 2020, the Company had $1.3 million and $20.9 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.4 years and 1.9 years, respectively. As a result of completing its IPO in June 2020, the Company commenced the recognition of compensation expense for 510,278 RSUs that vest upon the occurrence of a liquidity event, which includes an IPO, and continuous service that generally ranges from 12 to 48 -months. In February 2020, the Company granted 367,782 RSUs to its chief executive officer that vest upon the achievement of performance-based conditions, which includes Revenue and EBITDA targets for fiscal year 2022, and the achievement of a liquidity event, which includes a change of control or an IPO. As a result of completing its IPO in June 2020, and the probability of achieving the performance-based conditions, the Company commenced recognition of compensation expense. Accordingly, $0.5 million of stock-based compensation expense was recorded for these RSUs for the three and six months ended June 30, 2020. 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. RSAs During the years ended December 31, 2014 and 2015, the Company granted awards of 4,751,874 shares of restricted common stock (the “RSAs”). 21 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table summarizes the activity related to the Co mpany’s RSAs for the six months ended June 30, 2020 : Shares Unvested at December 31, 2019 272,868 Vested (272,868 ) Unvested at June 30, 2020 — For the three and six months ended June 30, 2019, the expense related to the RSAs was immaterial. For the three and six months ended June 30, 2020, the expense related to the RSAs was $0.2 million. As of June 30, 2020, there was no remaining unrecognized stock-based compensation expense related to the RSAs. 12. 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 following tables present the Company’s financial assets and liabilities measured at fair value on a recurring basis: ` As of December 31, 2019 Level 1 Level 2 Level 3 Total (in thousands) Financial Assets Cash and cash equivalents: Money market funds $ 70,059 $ — $ — $ — Total financial assets $ 70,059 $ — $ — $ — Financial Liabilities Other long-term liabilities: Series F Preferred Stock Warrant — — 1,403 1,403 Total financial liabilities $ — $ — $ 1,403 $ 1,403 ` As of June 30, 2020 Level 1 Level 2 Level 3 Total (in thousands) Financial Assets Cash and cash equivalents: Money market funds $ 100,016 $ — $ — $ — Total financial assets $ 100,016 $ — $ — $ — 22 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table presents a reconciliation of the Series F Preferred Stock Warrant, which is measured at fair value using Level 3 inputs: Series F Preferred Stock Warrant (in thousands) Balance as of December 31, 2019 $ 1,403 Change in fair value 20,470 Conversion to common stock warrant (21,873 ) Balance as of June 30, 2020 $ — Prior to the closing of the IPO on June 11, 2020 and the related conversion of the Company’s preferred stock into common stock, the Company estimated the fair value of the Series F Preferred Stock Warrant based on the Black-Scholes option-pricing model which utilized the value of shares sold in the Company’s latest preferred stock financing and allocated the estimated equity value of the Company to each class of the Company’s outstanding securities using an option-pricing back-solve model. Upon the closing of the IPO, the Series F Preferred Stock Warrant converted into a common stock warrant and the warrant liability was remeasured at fair value for the last time based on the quoted price of the Company’s publicly traded common stock. On June 23, 2020, the holders exercised the Series F Preferred Stock Warrant. Fair Value of Financial Instruments 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 Vehicle Floorplan Facility 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. 13. Segment Information The Company has three reportable segments: Ecommerce, TDA, and Wholesale. No operating segments have been aggregated to form the reportable segments. 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 not report segment asset information. As of December 31, 2019 and June 30, 2020, the Company did not have any assets located outside of the United States. The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales. The TDA reportable segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicle sales. The Wholesale reportable segment represents sales of used vehicles through wholesale auctions. 23 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Information about the Company’s reportable segments are as follows (in thousands): Three Months Ended June 30, 2019 Ecommerce TDA Wholesale Consolidated Revenues from external customers $ 120,953 $ 85,413 $ 54,531 $ 260,897 Gross profit $ 7,295 $ 6,101 $ 449 $ 13,845 Three Months Ended June 30, 2020 Ecommerce TDA Wholesale Consolidated Revenues from external customers $ 175,568 $ 26,604 $ 50,921 $ 253,093 Gross profit (loss) $ 7,219 $ 931 $ (543 ) $ 7,607 Six Months Ended June 30, 2019 Ecommerce TDA Wholesale Consolidated Revenues from external customers $ 210,808 $ 178,497 $ 106,651 $ 495,956 Gross profit $ 13,049 $ 12,179 $ 629 $ 25,857 Six Months Ended June 30, 2020 Ecommerce TDA Wholesale Consolidated Revenues from external customers $ 408,740 $ 113,628 $ 106,497 $ 628,865 Gross profit (loss) $ 21,486 $ 6,346 $ (1,838 ) $ 25,994 The reconciliation between reportable segment gross profit to consolidated loss before provision for income taxes is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 Segment gross profit $ 13,845 $ 7,607 $ 25,857 $ 25,994 Selling, general and administrative expenses 43,692 47,911 80,275 106,291 Depreciation and amortization 1,501 1,083 3,034 2,049 Interest expense 3,388 1,297 6,106 4,123 Interest Income (1,415 ) (715 ) (3,264 ) (2,671 ) Revaluation of preferred stock warrant 60 21,260 142 20,470 Other income, net (12 ) (53 ) (31 ) (86 ) Loss before provision (benefit) for income taxes $ (33,369 ) $ (63,176 ) $ (60,405 ) $ (104,182 ) 14. Income Taxes 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 is it 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 is in a cumulative loss position. The Company’s effective tax rate for the three months ended June 30, 2019 and 2020 was (0.12)% and 0.09% respectively. The effective tax rate for the six months ended June 30, 2019 and 2020 was (0.10)% and (0.12)% respectively. 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 2015 and prior. 24 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 utili ze these carryforwards. The Company completed a Section 382 study to determine the applicable limitation, if any. It was determined that the Company has undergone three ownership changes. There were ownership changes in July 2013, November 2014 and July 20 15 which substantially limit the use of the net operating losses generated before the change in control. The Company has not identified any uncertain tax positions as of December 31, 2019 or June 30, 2020. 15. Net Loss Per Share The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except share and per share amounts) 2019 2020 2019 2020 Net loss $ (33,340 ) $ (63,228 ) $ (60,479 ) $ (104,287 ) Accretion of redeemable convertible preferred stock (25,879 ) — (43,843 ) — Net loss attributable to common stockholders $ (59,219 ) $ (63,228 ) $ (104,322 ) $ (104,287 ) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 8,580,150 31,599,497 8,579,539 20,035,476 Net loss per share attributable to common stockholders, basic and diluted $ (6.90 ) $ (2.00 ) $ (12.16 ) $ (5.21 ) 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 June 30, 2019 2020 Redeemable convertible preferred stock 66,825,300 — Warrants 161,136 — Stock options 5,985,508 6,340,076 Restricted stock awards 3,873,214 3,249,382 Restricted stock units 408,000 2,488,402 Total 77,253,158 12,077,860 25 VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1 6 . Related Party Transactions Management Services Agreement In July 2015, the Company entered into a management services agreement (“MSA”) with Catterton Management Company, L.L.C. (“Catterton Management”), an affiliate of L Catterton (“Catterton”), a holder of more than 5% of the Company’s outstanding capital stock, pursuant to which Catterton Management agreed to provide consulting services on certain business and financial matters. Under the MSA, the Company agreed to pay Catterton Management an annual fee of $0.3 million until the expiration of the MSA upon the earlier of (i) termination by mutual consent of the parties and (ii) such time that Catterton and/or its affiliates cease to be one of the Company’s stockholders. For the years ended December 31, 2019 and 2020, payments of the annual fees were waived. In May 2020, the MSA was terminated. AutoNation Reconditioning Agreement In January 2019, the Company entered into a vendor agreement (“Vendor Agreement”) with AutoNation, Inc. (“AutoNation”), an affiliate of Auto Holdings, Inc., a holder of more than 5% of the Company’s outstanding capital stock, pursuant to which AutoNation agreed to provide certain reconditioning and repair services for vehicles owned by the Company. Amounts due under the Vendor Agreement for parts supplied and services performed by AutoNation become due and payable as they accrued. For the three and six months ended June 30, 2019, the Company incurred $0.4 million of costs under the Vendor Agreement. The Vendor Agreement was terminated in February 2020. 26 Ite m 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Vroom is an innovative, end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles. We are deeply committed to creating an exceptional experience for our customers. We are driving enduring change in the industry on a national scale. We take a vertically integrated, asset-light approach that is reinventing all phases of the vehicle buying and selling process, from discovery to delivery and everything in between. Our platform encompasses: • Ecommerce: We offer an exceptional ecommerce experience for our customers. In contrast to legacy dealerships and the peer-to-peer market, we provide consumers with a personalized and intuitive ecommerce interface to research and select from thousands of fully reconditioned vehicles. Our platform is accessible at any time on any device and provides transparent pricing, real-time financing and nationwide contact-free delivery right to a buyer’s driveway. For consumers looking to sell or trade in their vehicles, we provide attractive market-based pricing, real-time, guaranteed purchase offers and convenient, contact-free at-home vehicle pick-up. • Vehicle Operations: Our scalable and vertically integrated operations underpin our business model. We strategically source inventory from auctions, consumers, rental car companies, Original Equipment Manufacturers (“OEMs”) and dealers. We improve our ability to acquire high-demand vehicles through enhanced supply science across all our sourcing channels and we are expanding our national marketing efforts to drive consumer sourcing. In our reconditioning and logistics operations, we deploy an asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships. This hybrid approach provides flexibility, agility and speed without taking on unnecessary risk and capital investment, and drives improved unit economics and operating leverage. • Data Science and Experimentation: Data science and experimentation are at the core of everything we do. We rely on data science, machine learning and A/B and multivariate testing to continually drive optimization and operating leverage across our ecommerce and vehicle operations. We leverage data to increase the effectiveness of our national brand and performance marketing, enhance the customer experience, analyze market dynamics at scale, calibrate our vehicle pricing and optimize our overall inventory sales velocity. On the operations side, data science and experimentation enables us to fine tune our supply, sourcing and logistics models and to streamline our reconditioning processes. The U.S. used automotive market is the largest consumer product category, generating approximately $841 billion from sales of approximately 40 million units in 2019. The industry is highly fragmented with over 42,000 dealers and millions of peer-to-peer transactions. It also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of ecommerce penetration at only 0.9%. Industry reports estimate that ecommerce penetration will grow to as much as half of all used vehicle sales by 2030. Our platform, coupled with our national presence and brand, provides a significant competitive advantage versus local dealerships and regional players that lack nationwide reach and scalable technology, operations and logistics. The traditional auto dealers and peer-to-peer market do not and cannot offer consumers what we offer. In December 2015, we acquired Houston-based Texas Direct Auto, or TDA, which included our proprietary vehicle reconditioning center, or Vroom VRC, our sole physical retail location and our Sell Us Your Car ® centers. From the launch of our combined operations in January 2016, our business has grown significantly as we have scaled our operations, developed our ecommerce platform and leveraged the network effects inherent in our model. 27 For the three and six months ended June 30, 2020, we generated $253.1 mill ion and $628. 9 million in total revenue, respectively, representing a 3.0% decrease and a 26.8% increase , respectively, over $260.9 million and $496.0 million for the three and six months ended June 30 , 2019. Our business generated a net loss of $33.3 million and $ 63.2 million for the three months ended June 30, 2019 and 2020 , and a net loss of $6 0.5 million and $104.3 million for the six months ended June 30, 2019 and 2020, respectively. We intend to continue to invest in growth to scale our company re sponsibly and drive towards profitability. Our Model We generate revenue through the sale of used vehicles and value-added products. We sell vehicles directly to consumers primarily through our Ecommerce segment. As the largest segment in our business, Ecommerce revenue grew 45.2% from the three months ended June 30, 2019 to the three months ended June 30, 2020 and 93.9% from the six months ended June 30, 2019 to the six months ended June 30, 2020, and we expect Ecommerce to continue to outgrow our other segments as it is the core focus of our growth strategy. We also sell vehicles through wholesale auctions, which provide a revenue source for vehicles that do not meet our Vroom retail sales criteria. Additionally, we generate revenue through the retail sale of used vehicles and value-added products at Houston-based Texas Direct Auto, or TDA. For the three months ended June 30, 2020, our Ecommerce, TDA and Wholesale segments represented 69.4%, 10.5% and 20.1% of our total revenue, respectively. For the six months ended June 30, 2020, our Ecommerce, TDA and Wholesale segments represented 65.0%, 18.1% and 16.9% of our total revenue, respectively. Our retail gross profit consists of two components: Vehicle Gross Profit and Product Gross Profit. Vehicle Gross Profit is calculated as the aggregate retail sales price for all vehicles sold to customers along with delivery fee revenue and document fees received from customers, less the aggregate cost to acquire such vehicles, the aggregate cost of inbound transportation for such vehicles to our vehicle reconditioning centers, which we refer to as VRCs, and the aggregate cost of reconditioning such vehicles for sale. Product Gross Profit consists of fees earned on any value-added products sold as part of a vehicle sale. Because we are paid fees on the value-added products we sell, our gross profit on such products is equal to the revenue we generate. See “—Key Operating and Financial Metrics.” Below is an explanation of how we calculate vehicle gross profit per unit and product gross profit per unit: Our profitability depends primarily on increasing unit sales and operating leverage, as well as improving unit economics. We deploy an asset-light strategy that optimizes a combination of ownership and operation of assets by us with strategic third-party partnerships. Our hybrid approach also applies to the third-party value-added products we sell to customers, which enables us to generate additional revenue streams without taking on the risk associated with underwriting vehicle financing or protection products. As we scale, we expect to benefit from efficiencies and operating leverage across our business, including our marketing and technology investments, and our inventory procurement, logistics, reconditioning and sales processes. 28 Inventory Sourcing We source our vehicle inventory from a variety of channels, including auctions, consumers, rental car companies, OEMs and dealers. Because the quality of vehicles and associated gross margin profile vary across each channel, the mix of inventory sources has an impact on our profitability. We continually evaluate the optimal mix of sourcing channels to generate the highest sales margins and shortest inventory turns, both of which contribute to increased gross profit per unit. We generate a vast set of data derived from market demand, pricing dynamics, vehicle acquisitions and subsequent sales, and we leverage that data to optimize future vehicle acquisitions. As we scale, we expect to continue to leverage the data at our disposal to optimize and enhance the volume and selection of vehicles in our inventory and, in turn, drive revenue growth and profitability. We also have begun to offer third party inventory listings that will expand our sourcing channels through third party sellers while offering us attractive revenue models in an asset light, debt free structure. See “—Key Factors and Trends Affecting our Operating Results—Ability to drive growth by cost effectively increasing the volume and selection of vehicles in our inventory.” Vehicle Reconditioning Before a vehicle is listed for retail sale on our platform, it undergoes a thorough reconditioning process in order to meet our Vroom retail sales criteria. The efficiency of this reconditioning process is a key element in our ability to profitably grow. To recondition vehicles, we rely on a combination of our Vroom VRC along with a network of VRCs owned and operated by third parties. We intend to continue to expand our network of third-party VRCs and going forward intend to make capital investments in additional Vroom VRCs. Utilizing this hybrid approach, we have increased our total reconditioning capacity from 223 units per day as of June 30, 2019, to 313 units per day as of June 30, 2020, including an increase from 78 units per day to 169 units per day at our third-party VRCs. As we increase the number of vehicles in our inventory and expand our reconditioning capacity, we expect that reconditioning costs per unit will decrease as we benefit from economies of scale and operating leverage in reconditioning costs. See “—Key Factors and Trends Affecting our Operating Results—Ability to expand and optimize our reconditioning capacity to satisfy increasing demand.” Logistics Network For our logistics operations, we primarily use our strategic carrier arrangements with national haulers, which allows us to efficiently deliver vehicles to customers throughout the United States while focusing on expanding other critical components of our business, such as the volume and selection of vehicles in our inventory. This strategy enhances the flexibility, agility and speed of our growth while reducing the need for additional capital commitments as we scale. In addition, by strategically partnering with third party carriers with widely dispersed locations, we are able to quickly expand our last mile delivery hubs and enhance our customer experience. By leveraging the experience and data at our disposal from the tens of thousands of deliveries we have completed, we are finding ways to enhance the efficiencies in our logistics network, and we are developing our hybrid strategy with the intent to build out our proprietary logistics network. See “—Key Factors and Trends Affecting our Operating Results—Ability to expand and develop our logistics network.” Value-Added Products We generate revenue by earning fees for selling value-added products to customers in connection with vehicle sales. Currently, our third-party value-added product offering consists of finance and protection products, including financing from third-party lenders for our customers’ vehicle purchases, as well as sales of extended warranty contracts, GAP products and wheel and tire coverage. As we scale our business, we intend to introduce additional value-added products that will be attractive to our customers and drive revenue and profitability growth. We expect that both expanded product offerings and increased attachment rates in value-added product sales will have a positive impact on our profitability. See “—Key Factors and Trends Affecting our Operating Results—Ability to increase and better monetize value-added products.” Our Segments We manage and report operating results through three reportable segments: • Ecommerce (69.4% and 65.0% of revenue for the three and six months ended June 30, 2020, respectively): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales. • TDA (10.5% and 18.1% of revenue for the three and six months ended June 30, 2020, respectively): The TDA segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicle sales. • Wholesale (20.1% and 16.9% of revenue for the three and six months ended June 30, 2020, respectively): The Wholesale segment represents sales of used vehicles through wholesale auctions. 29 Gross profit is defined as revenue less cost of sales for each segment. Reflected below is a summary of reportable segment revenue and reportable segment gross profit for the three and six months ended June 30, 2019 and 2020 : Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 (in thousands) (in thousands) Revenue: Ecommerce $ 120,953 $ 175,568 $ 210,808 $ 408,740 TDA 85,413 26,604 178,497 113,628 Wholesale 54,531 50,921 106,651 106,497 Total revenue $ 260,897 $ 253,093 $ 495,956 $ 628,865 Gross profit: Ecommerce $ 7,295 $ 7,219 $ 13,049 $ 21,486 TDA 6,101 931 12,179 6,346 Wholesale 449 (543 ) 629 (1,838 ) Total gross profit $ 13,845 $ 7,607 $ 25,857 $ 25,994 Key Operating and Financial Metrics We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial forecasts and make strategic decisions. We believe these operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. You should read the key operating and financial metrics in conjunction with the following discussion of our results of operations and together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. We focus heavily on metrics related to unit economics as improved gross profit per unit is a key element of our growth and profitability strategies. The calculation of our key operating and financial metrics is straightforward and does not rely on significant projections, estimates or assumptions. Nevertheless, each of our key operating and financial metrics has limitations because each focuses specifically on only one standard by which to evaluate our business, without taking into account other applicable standards, performance measures or operating trends by which our business could be evaluated. Accordingly, no single metric should be viewed as the bellwether by which our business should be measured. Rather, each key operating and financial metric should be considered in conjunction with other metrics and components of our results of operations, such as each of the other key operating and financial metrics and our revenues, inventory, loss from operations and segment results. Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 Ecommerce units sold 3,856 6,713 7,043 14,643 Vehicle Gross Profit per ecommerce unit $ 1,274 $ 314 $ 1,340 $ 602 Product Gross Profit per ecommerce unit 618 761 512 866 Total Gross Profit per ecommerce unit $ 1,892 $ 1,075 $ 1,852 $ 1,468 Average monthly unique visitors 628,659 999,899 520,074 973,457 Listed Vehicles 4,550 5,745 4,550 5,745 Ecommerce average days to sale 64 66 64 67 Ecommerce Units Sold Ecommerce units sold is defined as the number of vehicles sold and shipped to customers through our ecommerce platform, net of returns under our Vroom 7-Day Return Policy. Ecommerce units sold excludes sales of vehicles through the TDA and Wholesale segments. As we continue to expand our ecommerce business, we expect that ecommerce units sold will be the primary driver of our revenue growth. Additionally, each vehicle sale through our ecommerce platform also creates the opportunity to leverage such sale to sell value-added products. Continued ecommerce growth will also increase the number of trade-in vehicles acquired from our customers, which we can either recondition and add to our inventory or sell at wholesale auctions. 30 Vehicle Gross Profit per Ecommerc e Unit Vehicle Gross Profit per ecommerce unit, which we refer to as Vehicle GPPU, for a given period is defined as the aggregate retail sales price and delivery charges for all vehicles sold through our Ecommerce segment less the aggregate costs to acquire those vehicles, the aggregate costs of inbound transportation to the VRCs and the aggregate costs of reconditioning those vehicles in that period, divided by the number of ecommerce units sold in that period. As we continue to expand our ecommerce business, we believe Vehicle GPPU will be a key driver of our long-term profitability. Product Gross Profit per Ecommerce Unit Product Gross Profit per ecommerce unit, which we refer to as Product GPPU, for a given period is defined as the aggregate fees earned on sales of value-added products in that period, net of the reserves for chargebacks on such products in that period, divided by the number of ecommerce units sold in that period. Because we are paid fees on the value-added products we sell, our gross profit is equal to the revenue we generate from the sale of value added products. We plan to introduce initiatives to increase the attachment rates of value-added products and expand our offerings of value-added products which will grow our Product GPPU. Total Gross Profit per Ecommerce Unit Total Gross Profit per ecommerce unit, which we refer to as Total GPPU, for a given period is calculated as the sum of Vehicle GPPU and Product GPPU. We view Total GPPU as a key metric of the profitability of our Ecommerce segment. Average Monthly Unique Visitors Average monthly unique visitors is defined as the average number of individuals who access our ecommerce platform within a calendar month. We calculate the average monthly unique visitors over any period by dividing the aggregate monthly unique visitors during such period by the number of months in that period. We use average monthly unique visitors to measure the quality of our customer experience, the effectiveness of our marketing campaigns and customer acquisition as well as the strength of our brand and market penetration. Average monthly unique visitors is calculated using data provided by Google Analytics. The computation of average monthly unique visitors excludes individuals who access our platform multiple times within a calendar month, counting such individuals only one time for purposes of the calculation. If an individual accesses our ecommerce platform using different devices or different browsers on the same device within a given month, the first access through each such device or browser is counted as a separate monthly unique visitor. Listed Vehicles We define listed vehicles as the aggregate number of vehicles listed on our platform at any given point in time. Vehicles available for sale is a key indicator of our performance because we believe that the number of vehicles listed on our platform is a key driver of vehicle sales and revenue growth. Increasing the number of vehicles listed on our platform results in a greater selection of vehicles for our customers, creating demand and increasing conversion. Ecommerce Average Days to Sale We define ecommerce average days to sale as the average number of days between our acquisition of vehicles and the final delivery of such vehicles to customers through our ecommerce platform. We calculate average days to sale for a given period by dividing the aggregate number of days between the acquisition of all vehicles sold through our ecommerce platform during such period and final delivery of such vehicles to customers by the number of ecommerce units sold in that period. Average days to sale excludes vehicles sold through the TDA and Wholesale segments. Average days to sale is an important metric because a reduction in the number of days between the acquisition of a vehicle and the delivery of such vehicle typically results in a higher gross profit per unit. Non-GAAP Financial Measures In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance: EBITDA, Adjusted EBITDA, Adjusted loss from operations, Non-GAAP net loss, Non-GAAP net loss per share and Non-GAAP net loss per share, as adjusted. These non-GAAP financial measures have limitations as analytical tools in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. Because of these limitations, these non-GAAP financial measures should be considered along with other operating and financial performance measures presented in accordance with U.S. GAAP. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. We have reconciled all non-GAAP financial measures with the most directly comparable U.S. GAAP financial measures. 31 EBITDA and Adjusted EBITDA We calculate EBITDA as net loss before interest expense, interest income, income tax expense and depreciation and amortization expense and we calculate Adjusted EBITDA as EBITDA adjusted to exclude the one-time, IPO related acceleration of non-cash stock-based compensation expense and the one-time, IPO related non-cash revaluation of a preferred stock warrant. EBITDA and Adjusted EBITDA are supplemental performance measures that our management uses to assess our operating performance and the operating leverage in our business. Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes. The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable U.S. GAAP measure: Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 (in thousands) (in thousands) Net loss $ (33,340 ) $ (63,228 ) $ (60,479 ) $ (104,287 ) Adjusted to exclude the following: Interest expense 3,388 1,297 6,106 4,123 Interest income (1,415 ) (715 ) (3,264 ) (2,671 ) Provision (benefit) for income taxes (29 ) 52 74 105 Depreciation and amortization expense 1,557 1,089 3,146 2,059 EBITDA $ (29,839 ) $ (61,505 ) $ (54,417 ) $ (100,671 ) One-time, IPO related acceleration of non-cash stock-based compensation — 1,262 — 1,262 One-time, IPO related non-cash revaluation of preferred stock warrant — 21,260 — 20,470 Adjusted EBITDA $ (29,839 ) $ (38,983 ) $ (54,417 ) $ (78,939 ) Adjusted loss from operations We calculate Adjusted loss from operations as loss from operations adjusted to exclude the one-time, IPO related acceleration of non-cash stock-based compensation expense. The following table presents a reconciliation of Adjusted loss from operations to loss from operations, which is the most directly comparable U.S. GAAP measure: Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 (in thousands) (in thousands) Loss from operations $ (31,348 ) $ (41,387 ) $ (57,452 ) $ (82,346 ) Add: One-time IPO related acceleration of non-cash stock based compensation — 1,262 — 1,262 Adjusted loss from operations $ (31,348 ) $ (40,125 ) $ (57,452 ) $ (81,084 ) 32 Non-GAAP net loss, Non-GAAP net loss per share and Non-GAAP net loss per share, as adjusted We calculate Non-GAAP net loss as net loss adjusted to exclude the one-time, IPO related acceleration of non-cash stock-based compensation expense and the one-time, IPO related non-cash revaluation of a preferred stock warrant. We calculate Non-GAAP net loss per share as Non-GAAP net loss divided by weighted average number of shares outstanding. The following table presents a reconciliation of Non-GAAP net loss and Non-GAAP net loss per share to net loss and net loss per share, which are the most directly comparable U.S. GAAP measures: Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 (in thousands, except share and per share amounts) Net loss $ (33,340 ) $ (63,228 ) $ (60,479 ) $ (104,287 ) Accretion of redeemable convertible preferred stock (25,879 ) — (43,843 ) — Net loss attributable to common stockholders $ (59,219 ) $ (63,228 ) $ (104,322 ) $ (104,287 ) Add: One-time IPO related acceleration of non-cash stock based compensation — 1,262 — 1,262 Add: One-time IPO related non-cash revaluation of preferred stock warrant — 21,260 — 20,470 Non-GAAP net loss $ (59,219 ) $ (40,706 ) $ (104,322 ) $ (82,555 ) Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted 8,580,150 31,599,497 8,579,539 20,035,476 Net loss per share, basic and diluted $ (6.90 ) $ (2.00 ) $ (12.16 ) $ (5.21 ) Impact of one-time IPO related acceleration of non-cash stock based compensation - 0.04 - 0.07 Impact of one-time IPO related non-cash revaluation of preferred stock warrant - 0.67 - 1.02 Non-GAAP net loss per share, basic and diluted $ (6.90 ) $ (1.29 ) $ (12.16 ) $ (4.12 ) Non-GAAP net loss per share, as adjusted, basic and diluted (a) $ (0.28 ) $ (0.34 ) $ (0.51 ) $ (0.70 ) (a ) Non-GAAP net loss per share, as adjusted has been computed to give effect to, as of the beginning of each period presented, (i) the shares of common stock issued in connection with our IPO and (ii) the automatic conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock that occurred upon the consummation of our IPO. The computation of Non-GAAP net loss per share, as adjusted is as follows: Three Months Ended June 30, Six Months Ended June 30, 2019 2020 2019 2020 (in thousands, except share and per share amounts) Non-GAAP net loss $ (59,219 ) $ (40,706 ) $ (104,322 ) $ (82,555 ) Add: Accretion of redeemable convertible preferred stock 25,879 — 43,843 — Non-GAAP net loss, as adjusted $ (33,340 ) $ (40,706 ) $ (60,479 ) $ (82,555 ) Weighted-average number of shares outstanding used to compute net loss per share, basic and diluted 8,580,150 31,599,497 8,579,539 20,035,476 Add: unweighted adjustment for common stock issued in connection with IPO 24,437,500 24,437,500 24,437,500 24,437,500 Add: unweighted adjustment for conversion of redeemable convertible preferred stock in connection with IPO 85,533,394 85,533,394 85,533,394 85,533,394 Less: Adjustment for the impact of the above items already included in weighted-average number of shares outstanding for the periods presented — (22,960,956 ) — (11,480,478 ) Weighted-average number of shares outstanding used to compute net loss per share, as adjusted, basic and diluted 118,551,044 118,609,435 118,550,433 118,525,892 Non-GAAP net loss per share, as adjusted, basic and diluted $ (0.28 ) $ (0.34 ) $ (0.51 ) $ (0.70 ) 33 Recent Events Initial Public Offering On June 11, 2020, we completed an initial public offering “IPO” in which we sold 24,437,500 shares of common stock, which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $22.00 per share. We received proceeds of approximately $504.0 million, net of underwriting discount and before deducting offering expenses of $7.5 million, from sales of our shares in the IPO. Prior to the completion of the IPO, we effected a 2-for-1 forward stock split of all the issued and outstanding shares of our common stock the (“Stock Split”). As a result of the Stock Split and the completion of the IPO, all of our redeemable convertible preferred stock outstanding automatically converted into an aggregate of 85,533,394 shares of our common stock. Rocket Agreement On May 15, 2020, we entered into an agreement with Rocket Auto LLC and certain of its affiliates (collectively, “Rocket”) providing for the launch of an e-commerce platform under the “Rocket Auto” brand for the marketing and sale of vehicles directly to consumers (the “RA Agreement”). We will list our used vehicle inventory for sale on the Rocket Auto platform, but all sales of the inventory will be conducted through our platform. Rocket Auto is expected to launch publicly during the second half of 2020 and, during the term of the RA Agreement, Rocket has agreed to ensure that not less than a minimum percentage of all used vehicles sold or leased through the platform on a monthly basis will be Vroom inventory. We will pay Rocket a combination of cash and stock for vehicle sales made through the platform, including upfront equity consisting of 183,870 shares of our common stock that were issued upon execution of the RA Agreement, and the potential issuance to Rocket of up to an additional 8,641,914 shares of common stock, over a four-year period based upon sales volume of Vroom inventory through the Rocket Auto platform. Impact of COVID-19 In March 2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of a novel strain of coronavirus known as COVID-19. In the following weeks, many states and counties across the United States responded by implementing a number of measures designed to prevent its spread, including stay-at-home or shelter-in-place orders, quarantines and closure of all non-essential businesses. Impact on our operations The COVID-19 pandemic has rapidly escalated in the United States, creating significant uncertainty and economic disruption, and leading to record levels of unemployment nationally. Due to the evolving nature of the COVID-19 crisis, we continue to monitor the situation closely and assess the impact on our business. We expect our operations will continue to be adversely impacted throughout at least 2020, however, the magnitude and duration of the ultimate impact is impossible to predict with certainty due to: • uncertainties regarding the duration of the COVID-19 pandemic and the length of time over which the disruptions caused by COVID-19 will continue; • the impact of governmental orders and regulations that have been, and may in the future be, imposed in response to the pandemic; • the impact of COVID-19 on VRCs, wholesale auctions, state DMV titling and registration services, third party vehicle carriers and other third parties on which we rely; • uncertainty as to the impact future increases in transmission could have on our ability to fully staff portions of our business; • the deterioration of economic conditions in the United States, as well as record high unemployment levels, which could have an adverse impact on discretionary consumer spending; and • uncertainty regarding the potential for and timing of a “second wave” of the COVID-19 crisis to occur in the future. Impact on ecommerce operations The COVID-19 pandemic began to have an impact on our ecommerce operations during the last three weeks of March 2020. Between March 11, 2020 and March 31, 2020, we experienced an approximate 15% decrease in total ecommerce revenue due to a decrease in consumer demand as compared to the 20 days prior to March 11, 2020. 34 In March 2020, d ue to the drop in demand in the early days of the pandemic , as well as uncertainty regarding future vehicle pricing in both the retail and wholesale markets, we made the strategic decision to quickly reduce our exposure to inventory risk and floorplan liab ilities. Commencing in late March 2020 , we reduced vehicle prices in order to drive vehicle sales and quickly reduce the amount of inventory that was purchased pre-COVID-19. We also paused all vehicle acquisitions other than trade-ins, and we sold at whole sale auctions many units that had not yet been reconditioned. As a result of these strategic decisions, our total inventory levels went from approximately 8,500 retail and wholesale units as of the beginning of March 2020 to approximately 2,500 retail and wholesale units at the end of April 2020 . In late April 2020 , we started to rebuild our inventory levels. Due to the inventory price reductions that began in late March, our demand returned to pre-COVID-19 levels, and we experienced robust ecommerce vehicle sales; however, those sales were at a reduced gross profit per unit. During April and May 2020, we sold 2,880 and 1,934 ecommerce units, respectively, and gross profit per unit was $1,236 and $191, respectively, as compared to the 2,771 units we sold at $1,769 gross profit per unit in March 2020. In late April 2020, we began to acquire new inventory, with a primary focus on high-demand models. In June 2020, we sold 1,899 ecommerce units and our gross profit per unit increased to $1,714. As of June 30, 2020, we had an inventory of 6,811 retail and wholesale units. We intend to continue to build our inventory levels strategically. Impact on our vehicle reconditioning and our logistics network The COVID-19 pandemic and the actions taken in response have had a significant impact on our VRC operations. In April 2020, six of our thirteen third-party VRCs that we had operating at the time were either partially closed or completely closed, which initially resulted in approximately 500 vehicles left either with incomplete reconditioning or no reconditioning across these third-party VRCs. As a result of these closures at our third-party VRCs, we prioritized the reconditioning of vehicles that were near completion, relocated vehicles to third-party VRCs that remained open and listed such vehicles for sale, or sold vehicles at wholesale to minimize the risk of price deterioration. As of June 30, 2020, we were able to successfully access and sell all these stranded vehicles. We began purchasing vehicles again on April 20, 2020 and as of June 30, 2020 our Vroom VRC and third party VRCs collectively returned to pre-COVID-19 capacity. As of the date of this Quarterly Report on Form 10-Q, we continue to experience disruption across our logistics network due to the COVID-19 pandemic, with a limited number of third-party providers available to deliver our vehicles, which has resulted in a slowdown of inventory being picked up and delivered to our VRCs and in sold units being delivered to customers. In addition, our transportation costs have increased as the remaining carriers have increased prices. Impact on TDA Commencing on March 24, 2020, counties in the Houston area began to implement stay-at-home or shelter-in-place orders with limited exceptions for essential businesses. Both TDA and our back-office facility in Houston qualified as essential businesses under the relevant ordinances and remained open. However, as a result of these orders, as well as continuous impact of the COVID-19 pandemic in the Houston are a, we saw a significant reduction in foot traffic that caused us to experience an approximate 63.4% decrease in unit sales for the second quarter of 2020 as compared to the first quarter of 2020. These conditions continue in the Houston area and as a result we are unsure when TDA will return to normal operations. Impact on our administrative functions Most of our corporate, engineering and back-office operations have been able to successfully transition to a remote working environment. However, we have experienced certain productivity challenges with remote work and the various shut-down orders have had a significant effect on certain of our back-office functions, such as the titling and registration of vehicles sold to customers, which has been challenged by the temporary closure of state division of motor vehicle offices across the United States. As a result of these developments, we have experienced an adverse impact on our revenue, gross profit, results of operations and cash flows. The situation is fluid and additional impacts to our business may arise. Management actions in response to the COVID-19 disruptions In response to the COVID-19 disruptions, in addition to managing our inventory exposure, we have implemented a number of measures to protect the health and safety of our workforce. These measures include restrictions on non-essential business travel, the institution of work-from-home policies wherever feasible and the implementation of strategies for workplace safety at our facilities. We are following the guidance from public health officials and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines, wearing of masks, eliminating non-essential vendor / guest visitation, and requiring temperature checks and health attestations prior to entering buildings. Seating, signage, and cleaning materials have been added to ensure adherence to best practices for employee health and safety during this pandemic. Where feasible, we operate on a rotating team schedule to reduce exposure and also require 35 any diagnosed or exposed employees to self-isolate for up to two weeks. E ffective May 3, 2020, approximately one-third of our workforce was placed on furlough. The majority of employees furloughed were in reconditi oning, logistics, acquisitions and TDA sales, which were the positions most affected by the reduction in unit volume. However, since we restarted vehicle acquisitions and increased our Vroom VRC operations, as of the beginning of August 2020 , most of the p reviously furloughed employees have returned to work. Additionally, we instituted an across-the-board salary reduction for our non-furloughed salaried employees. All salaries were reinstated to pre-COVID-19 levels by July 2020. In the second quarter of 2020, w e also took measures to reduce operating expenses by negotiating reductions and deferrals in payments to landlords, vehicle listing sites, service providers and commercial vendors, and we significantly reduc ed marketing expenditures through May 2020 . We have taken several precautionary measures to enhance our customer experience during the pandemic, such as increasing the level of cleaning and sanitation of vehicles prior to making delivery to our customers. Additionally, we adjusted our delivery protocols to provide contact-free delivery and pick up of vehicles. While our ecommerce business, including contact-free delivery, is continuing to operate nationwide, the COVID-19 crisis has had a significant impact on our business operations. We are unable to accurately predict the ultimate impact that the COVID-19 disruptions will have on our business and financial results going forward due to the uncertainties surrounding the extent, duration and risk of recurrence of such disruptions. Nevertheless, we believe the measures we have taken and will continue to take will position Vroom to emerge from the crisis in a healthy financial position, and that our business model and years of experience with ecommerce vehicle sales and home delivery enable us to be highly responsive to increased consumer desire for ecommerce solutions and contact-free delivery. Other Key Factors and Trends Affecting our Operating Results Our financial condition and results of operations have been, and will continue to be, affected by a number of factors and trends, including the following: Ability to drive revenue growth by cost effectively increasing the volume and selection of vehicles in our inventory Our growth is primarily driven by vehicle sales. Vehicle sales growth, in turn, is largely driven by the volume of inventory and the selection of vehicles listed on our platform. Accordingly, we believe that having the appropriate volume and mix of vehicle inventory is critical to our ability to drive growth. The continued growth of our vehicle inventory requires a number of important capabilities, including the ability to finance the acquisition of inventory at competitive rates, source high quality vehicles across various acquisition channels nationwide, secure adequate reconditioning capacity and execute effective marketing strategies to increase consumer sourcing. In addition, our ability to accurately forecast pricing and consumer demand for specific types of vehicles is critical to sourcing high quality, high-demand vehicles. This ability is enabled by our data science capabilities that leverage the growing amount of data at our disposal and fine-tune our supply and sourcing models. As we continue to invest in our operational efficiency and data analytics, we expect that we will continue to cost effectively increase the volume and optimize the selection of our ecommerce inventory. 36 Ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing effo rts While the overall ecommerce penetration rate in used vehicle sales remains low, over the last several years, ecommerce used vehicle sales have experienced significant growth. There has been a shift in consumer buying patterns towards more convenient, personalized, and on-demand purchases, as well as a demand for ecommerce across more diverse categories, including the used vehicle market. We expect that the ecommerce model for buying and selling used vehicles will continue to grow and such growth may be accelerated by the COVID-19 pandemic. Our ability to continue to benefit from this trend will be an important driver of our future performance. We seek to improve our brand awareness among consumers through national marketing campaigns in order to strengthen our customer acquisition funnel. We also use digital performance marketing such as search engine marketing, automotive aggregator sites and social media to acquire customers more cost effectively. Our aggregate marketing spend has increased over time, with our first national brand marketing campaign commencing in the first quarter of 2019, and we expect to continue to invest in both national brand marketing and performance marketing efforts. As we leverage our national brand, we believe this investment in marketing spend will drive additional demand and sales. We also believe that we have the ability to drive down the cost of acquisition per unit sold by increasing the efficiency of our marketing spend. Ability to convert visitors to our platform into customers The quality of the customer experience on our ecommerce platform is critical to our ability to attract new visitors to our platform, convert such visitors into customers and increase repeat customers. Our ability to drive higher customer conversion depends on our ability to make our platform a compelling choice for consumers based on our functionalities and consumer offerings. Data analytics and experimentation drive decision making across all of our conversion efforts. By analyzing the data generated by the millions of visitors and tens of thousands of transactions on our platform, and continually testing strategies to maximize conversion rates, we form a better understanding of consumer preferences and try to create a more tailored ecommerce experience. As we continue to invest in our brand and improve the customer experience, we expect that we will attract more visitors, improve conversion and drive greater sales. Ability to optimize the mix of inventory sources to drive increased gross profit and improvements to our unit economics We strategically source inventory from auctions, consumers, rental car companies, OEMs and dealers. Auctions, consumers, and rental car companies represent the vast majority of our inventory sources, accounting for approximately 55%, 28%, and 15% of our retail inventory sold for the three months ended June 30, 2020, respectively, and 51%, 34%, and 14% for the six months ended June 30, 2020, respectively. Because the quality of vehicles and associated gross margin profile vary across each channel, the mix of inventory sources has an impact on our profitability. We continually evaluate the optimal mix of sourcing channels and will source vehicles in a way that maximizes our average gross profit per unit and improves our unit economics. For example, purchasing vehicles at third-party auctions is competitive and, consequently, vehicle prices at third-party auctions tend to be higher than vehicle prices for vehicles sourced directly from consumers. Accordingly, as part of our sourcing strategy, we seek to increase the percentage of vehicle sales that we source from consumers. Our ability to increase the percentage of inventory sourced directly from consumers will depend on the popularity and success of our ecommerce platform. In order to continue to increase the percentage of vehicles that we source directly from consumers, we are expanding our national marketing efforts that are focused on our Sell Us Your Car ® proposition, which we believe will result in more customers gaining familiarity with our platform. We expect that, as consumers experience the convenience of our platform to sell or trade in their used vehicles, the percentage of inventory we source directly from consumers will continue to grow. We have begun to pursue third party inventory listings that will expand our sourcing channels through third party sellers while offering us attractive revenue models in an asset light, debt free structure. Ability to expand and optimize our reconditioning capacity to satisfy increasing demand Our ability to recondition purchased vehicles to our quality standards is a critical component of our business. Historically, we have successfully increased our reconditioning capacity as our business has grown, and our future success will depend on our ability to expand and optimize our reconditioning capacity to satisfy increasing customer demand. We employ a hybrid approach that combines the use of our Vroom VRC and third-party VRCs to best meet our reconditioning needs. 37 In 2019, we significantly increa sed our reconditioning capacity within our Vroom VRC by overhauling our operations and applying lean manufacturing techniques and other software-enabled technological advances. As we continue to grow our business, we intend to continue to invest in increas ed reconditioning capacity and operational efficiency through third-party VRC locations and going forward we expect to invest in additional proprietary reconditioning capacity to provide added scale with reduced lead-time and greater flexibility. Additiona lly, our use of third-party VRCs to recondition vehicles allows us to avoid additional capital expenditures, quickly increase capacity, maintain greater operational flexibility and broaden our geographic footprint to drive lower logistics costs. In 2019 an d through early August 2020 , we expanded our third-party VRC operations by adding fifteen additional VRCs across the nation for a current total of s ixteen . See “—Liquidity and Capital Resources.” We leverage our data analytics and deep industry experience to strategically select both Vroom VRCs and third-party VRCs in locations where we believe there is the highest supply and demand for our vehicles. We expect that our continued investment in reconditioning capacity and technology will lower our reconditioning costs per unit and drive greater operational efficiency, higher gross profit per unit and improved unit economics. Ability to expand and develop our logistics network We primarily use third-party carriers and are developing a hybrid strategy to build out our proprietary logistics network. We are in the process of optimizing our third-party logistics network nationally through the development of strategic carrier arrangements with national haulers. As we continue to grow, we plan to significantly consolidate our carrier base into dedicated operating regions. We expect that these enhanced logistics operations, combined with the expansion of strategically located VRCs, will drive lower inbound and outbound logistics costs, thus lowering costs per unit. Our VRCs also serve as pooling points to aggregate acquired vehicles and can serve as hubs for staging vehicles for last-mile delivery to customers, which we expect will result in an improved experience for customers. We recently launched a number of enhancements to our last-mile delivery service to enrich our customer experience. We expect that these enhancements will result in an increase in outbound shipping costs, thereby increasing our SG&A expenses. However, we expect any such increase to be offset by certain cost efficiencies gained from improvements in our reconditioning and logistics operations, which will ultimately lead to reduced total costs per unit. Consistent with our hybrid strategy, we also intend to build out our proprietary logistics network. Over time, we expect that optimizing our logistics network will result in improved unit economics, increased profitability and an enhanced customer experience. Ability to increase and better monetize value-added products Our offering of value-added products is an integral part of providing a seamless vehicle-buying experience to our customers. These products provide added revenue streams for us as well as offering convenience, assurance and efficiency for our customers. We sell our third-party value-added products through our strategic relationships with multiple lenders and other third parties who bear the incremental risks associated with the underwriting of finance and protection products. In the fourth quarter of 2019 and first quarter of 2020, we entered into strategic partnerships with lenders such as Chase and Santander which have contributed to improvements in Product GPPU. Additionally, through our on-going data analytics, experimentation and further development of our ecommerce technology, we expect to increase attachment rates of our existing value-added products while finding new opportunities to include additional finance and protection and other value-added products. Because we are paid fees on value-added products we sell, our gross profit is equal to the revenue we generate on such sales. As a result, such sales help drive total gross profit per unit. We expect that, as we scale our business, we will increase the breadth and variety of value-added products offered to customers and improve attachment rates to our vehicle sales, which in turn will grow revenue and drive profitability. Seasonality Used vehicle sales are seasonal. The used vehicle industry typically experiences an increase in sales early in the calendar year and reaches its highest point late in the first quarter and early in the second quarter. Vehicle sales then level off through the rest of the year, with the lowest level of sales in the fourth quarter. This seasonality has historically corresponded with the timing of income tax refunds, which are an important source of funding for vehicle purchases. Additionally, used vehicles depreciate at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year. In line with these macro trends, our gross profit per unit has historically been higher in the first half of the year when compared to the second half of the year. See “Risk Factors—Risks Related to Our Business—We may experience seasonal and other fluctuations in our quarterly results of operations, which may not fully reflect the underlying performance of our business.” 38 Components of R esults of Operations Revenue Retail vehicle revenue We sell vehicles through both our ecommerce platform and TDA. Revenue from vehicle sales, including any delivery charges, are recognized when vehicles are delivered to the customers or picked up at our TDA retail location, net of a reserve for estimated returns. The number of units sold and the average selling price per unit are the primary factors impacting our retail revenue stream. The number of units sold depends on the volume of inventory and the selection of vehicles listed on our ecommerce platform, our ability to attract new customers, our brand awareness and our ability to expand our reconditioning operations and logistics network. Average selling price per unit sold depends primarily on our pricing strategy, retail used car market prices, our average days to sale and our reconditioning and logistics costs. Historically, we have focused our inventory on low-mileage, high-demand vehicles with average selling prices of approximately $30,000. As we ramp up our vehicle acquisitions following our strategic decision to reduce inventory in response to the COVID-19 pandemic, and as we scale our business going forward, we have begun to strategically take advantage of a broader portion of the used vehicle market by adding more lower priced vehicles to our inventory. This will allow us to expand our vehicle selection, while potentially decreasing the average selling price per unit in any given period. See “—Impact of COVID-19”. Wholesale vehicle revenue We sell vehicles that do not meet our Vroom retail sales criteria through third-party wholesale auctions. Vehicles sold at auction are acquired from customers who trade-in their vehicles when making a purchase from us and also from customers who sell their vehicle to us in direct-buy transactions. The number of wholesale vehicles sold and the average selling price per unit are the primary drivers of wholesale revenue. The average selling price per unit is affected by the mix of the vehicles we acquire and general supply and demand conditions in the wholesale market. Product revenue We generate revenue by earning fees on sales of value-added products to our customers in connection with vehicle sales, including fees earned on customer vehicle financing from third-party lenders and fees earned on sales of other value-added products, such as extended warranty contracts, GAP products and wheel and tire coverage. We earn fees on these products pursuant to arrangements with the third parties that sell and administer these products. For accounting purposes, we are an agent for these transactions and, as a result, we recognize fees on a net basis when the customer enters into an arrangement to purchase these products or obtain third-party financing, which is typically at the time of a vehicle sale. Our gross profit on product revenue is equal to the revenue we generate. Product revenue is affected by the number of vehicles sold, the attachment rate of value-added products and the amount of fees we receive on each product. Product revenue also consists of estimated profit-sharing amounts to which we are entitled based on the performance of third-party protection products once a required claims period has passed. A portion of the fees we receive is subject to chargeback in the event of early termination, default, or prepayment of the contracts by our customers. We recognize product revenue net of reserves for estimated chargebacks. Other revenue Other revenue consists of labor and parts revenue earned by us for vehicle repair services at TDA. See “Note 3—Revenue Recognition” to our condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q. 39 Cost of sales Cost of sales primarily includes the costs to acquire vehicles, inbound transportation costs and direct and indirect reconditioning costs associated with preparing vehicles for sale. Costs to acquire vehicles are primarily driven by the inventory source, vehicle mix and general supply and demand conditions of the used vehicle market. Inbound transportation costs include costs to transport the vehicle to our VRCs. Reconditioning costs include parts, labor and third-party reconditioning costs directly attributable to the vehicle and allocated overhead costs. Cost of sales also includes any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value. Total gross profit Total gross profit is defined as total revenue less costs associated with such revenue. Selling, general and administrative expenses Our selling, general, and administrative expenses, which we refer to as SG&A expenses, consist primarily of advertising and marketing expenses, outbound transportation costs, employee compensation, occupancy costs of our facilities and professional fees for accounting, auditing, tax, legal and consulting services. We expect that our SG&A expenses will increase in the future as we expand our operations, hire additional employees and continue to increase our marketing spend to build brand awareness and increase consumer traffic on our platform. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with SEC and stock exchange requirements, director and officer insurance costs, and investor and public relations costs. Depreciation and amortization Our depreciation and amortization expense primarily includes depreciation related to our leasehold improvements, as well as amortization related to intangible assets acquired in the TDA acquisition and capitalized internal use software costs incurred in the development of our platform and website applications. Depreciation expense related to our Vroom VRC is included in cost of sales in the consolidated statements of operations. Interest expense Our interest expense includes interest expense related to our Vehicle Floorplan Facility, which is used to finance our inventory, as well as interest expense on our term loan facility, which was repaid in full in December 2019. Interest Income Interest income primarily represents interest credits earned on cash deposits maintained in relation to our Vehicle Floorplan Facility. 40 Results of Operations The following table presents our consolidated results of operations for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2019 2020 % Change 2019 2020 % Change (in thousands) (in thousands) Revenue: Retail vehicle, net $ 200,402 $ 196,150 (2.1 )% $ 379,152 $ 504,862 33.2 % Wholesale vehicle 54,531 50,921 (6.6 )% 106,651 106,497 (0.1 )% Product, net 5,491 5,736 4.5 % 9,236 16,780 81.7 % Other 473 286 (39.5 )% 917 726 (20.8 )% Total revenue 260,897 253,093 (3.0 )% 495,956 628,865 26.8 % Cost of sales 247,052 245,486 (0.6 )% 470,099 602,871 28.2 % Total gross profit 13,845 7,607 (45.1 )% 25,857 25,994 0.5 % Selling, general and administrative expenses 43,692 47,911 9.7 % 80,275 106,291 32.4 % Depreciation and amortization 1,501 1,083 (27.8 )% 3,034 2,049 (32.5 )% Loss from operations (31,348 ) (41,387 ) 32.0 % (57,452 ) (82,346 ) 43.3 % Interest expense 3,388 1,297 (61.7 )% 6,106 4,123 (32.5 )% Interest income (1,415 ) (715 ) (49.5 )% (3,264 ) (2,671 ) (18.2 )% Revaluation of stock warrant 60 21,260 35,333.3 % 142 20,470 14,315.5 % Other income, net (12 ) (53 ) 341.7 % (31 ) (86 ) 177.4 % Loss before provision (benefit) for income taxes (33,369 ) (63,176 ) 89.3 % (60,405 ) (104,182 ) 72.5 % Provision (benefit) for income taxes (29 ) 52 (279.3 )% 74 105 41.9 % Net loss $ (33,340 ) $ (63,228 ) 89.6 % $ (60,479 ) $ (104,287 ) 72.4 % Segments We manage and report operating results through three reportable segments: • Ecommerce (69.4% and 65.0% of revenue for the three and six months ended June 30, 2020, respectively): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales. • TDA (10.5% and 18.1% of revenue for the three and six months ended June 30, 2020, respectively): The TDA segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicle sales. • Wholesale (20.1% and 16.9% of revenue for the three and six months ended June 30, 2020, respectively): The Wholesale segment represents sales of used vehicles through wholesale auctions. 41 Three Months Ended June 30 , 2019 and 2020 Ecommerce The following table presents our Ecommerce segment results of operations for the periods indicated: Three Months Ended June 30, 2019 2020 Change % Change (in thousands, except unit data and average days to sale) Ecommerce units sold 3,856 6,713 2,857 74.1 % Ecommerce revenue: Vehicle revenue $ 118,569 $ 170,460 $ 51,891 43.8 % Product revenue 2,384 5,108 2,724 114.3 % Total ecommerce revenue $ 120,953 $ 175,568 $ 54,615 45.2 % Ecommerce gross profit: Vehicle gross profit $ 4,911 $ 2,111 $ (2,800 ) (57.0 )% Product gross profit 2,384 5,108 2,724 114.3 % Total ecommerce gross profit $ 7,295 $ 7,219 $ (76 ) (1.0 )% Average vehicle selling price per ecommerce unit $ 30,749 $ 25,393 $ (5,356 ) (17.4 )% Gross profit per ecommerce unit: Vehicle gross profit per ecommerce unit $ 1,274 $ 314 $ (960 ) (75.4 )% Product gross profit per ecommerce unit 618 761 143 23.1 % Total gross profit per ecommerce unit $ 1,892 $ 1,075 $ (817 ) (43.2 )% Ecommerce average days to sale 64 66 2 3.1 % Ecommerce units Ecommerce units sold increased 2,857, or 74.1%, from 3,856 for the three months ended June 30, 2019 to 6,713 for the three months ended June 30, 2020. This increase was driven by process improvements in our ecommerce platform, our national advertising campaign which continues to strengthen our national brand awareness as well as greater consumer acceptance of our business model as a result of disruptions caused by the COVID-19 pandemic. Average monthly unique visitors to our website grew from 628,659 for the three months ended June 30, 2019 to 999,899 for the three months ended June 30, 2020, representing year over year growth of 59.1%. We expect ecommerce units sold to continue to grow in the future as we increase our inventory selection and marketing efforts and improve conversion. Vehicle Revenue Ecommerce vehicle revenue increased $51.9 million, or 43.8%, from $118.6 million for the three months ended June 30, 2019 to $170.5 million for the three months ended June 30, 2020. The increase in ecommerce vehicle revenue was primarily attributable to the 2,857 increase in ecommerce units sold, which increased vehicle revenue by $87.9 million, partially offset by a lower average selling price per unit, which decreased from $30,749 for the three months ended June 30, 2019 to $25,393 for the three months ended June 30, 2020 and decreased vehicle revenue by $36.0 million. The decrease in average selling price per unit was driven by our strategic decision to reduce vehicle pricing in order to sell pre-COVID-19 inventory and our focus on acquiring high-demand vehicles. We expect ecommerce vehicle revenue will continue to grow driven by increases in ecommerce units sold. In the three months ended June 30, 2020, the escalation of the COVID-19 pandemic within the United States initially negatively impacted consumer demand and ecommerce revenue growth. However, due to our strategic decision to reduce vehicle pricing in order to sell pre-COVID-19 inventory, we were able to maintain the number of ecommerce units sold at pre-COVID levels, through April 30, 2020. The significant reduction in our inventory and pause in vehicle acquisitions negatively impacted our unit sales for the remainder of the three months ended June 30, 2020. In late April 2020, we started gradually rebuilding our inventory levels. Due to greater customer acceptance of our business model and focus on contact-free delivery, we expect sales to return to pre-COVID levels in the near future. Product Revenue Ecommerce product revenue increased $2.7 million, or 114.3%, from $2.4 million for the three months ended June 30, 2019 to $5.1 million for the three months ended June 30, 2020. The increase in ecommerce product revenue was primarily attributable to the 2,857 increase in ecommerce units sold, which increased product revenue by $1.8 million and a 42 $143 increase in product revenue per unit which increased product revenue by $0.9 million . Product revenue per unit increased by $ 14 3 from $ 618 for the three months ended June 30 , 2019 to $ 761 for the three months ended June 30, 2020 , which was primarily due to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships. We expect ecommerce product revenue will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. Vehicle Gross Profit Ecommerce vehicle gross profit decreased $2.8 million, or 57.0%, from $4.9 million for the three months ended June 30, 2019 to $2.1 million for the three months ended June 30, 2020. The decrease in vehicle gross profit was primarily attributable to a $960 decrease in vehicle gross profit per unit, which decreased vehicle gross profit by $6.4 million, partially offset by the 2,857 increase in ecommerce units sold, which increased vehicle gross profit by $3.6 million . Vehicle gross profit per unit decreased by $960 from $1,274 for the three months ended June 30, 2019 to $314 for the three months ended June 30, 2020 primarily attributable to our strategic decision to reduce vehicle pricing in order to drive vehicle sales in the early stages of the COVID-19 pandemic. In late April 2020, due to the increase in consumer demand and pricing becoming more stable, we started to rebuild our inventory focusing on higher margin vehicles and our gross profit per unit began to approach pre-COVID levels in June 2020. As we continue to mature our infrastructure, increase the number of VRCs and optimize our network of VRCs, we expect ecommerce vehicle gross profit per unit to increase in the future driven by reduced costs across acquisitions, logistics and reconditioning. Product Gross Profit Ecommerce product gross profit increased $2.7 million, or 114.3%, from $2.4 million for the three months ended June 30, 2019 to $5.1 million for the three months ended June 30, 2020. The increase in ecommerce product gross profit was primarily attributable to the 2,857 increase in ecommerce units sold which increased product gross profit by $1.8 million and a $143 increase in product gross profit per unit which increased product gross profit by $0.9 million . The increase in product gross profit per unit was primarily attributable to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships. The increase was partially offset by the lower average selling price per unit which reduced the fees we earned on our financing products. We expect ecommerce product gross profit will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. TDA The following table presents our TDA segment results of operations for the periods indicated: Three Months Ended June 30, 2019 2020 Change % Change (in thousands, except unit data and average days to sale) TDA units sold 2,792 1,110 (1,682 ) (60.2 )% TDA revenue: Vehicle revenue $ 81,833 $ 25,690 $ (56,143 ) (68.6 )% Product revenue 3,107 628 (2,479 ) (79.8 )% Other 473 286 (187 ) (39.5 )% Total TDA revenue $ 85,413 $ 26,604 $ (58,809 ) (68.9 )% TDA gross profit: Vehicle gross profit $ 2,723 $ 236 $ (2,487 ) (91.3 )% Product gross profit 3,107 628 (2,479 ) (79.8 )% Other gross profit 271 67 (204 ) (75.3 )% Total TDA gross profit $ 6,101 $ 931 $ (5,170 ) (84.7 )% Average vehicle selling price per TDA unit $ 29,310 $ 23,144 $ (6,166 ) (21.0 )% Gross profit per TDA unit: Vehicle gross profit per TDA unit $ 975 $ 212 $ (763 ) (78.2 )% Product gross profit per TDA unit 1,113 566 (547 ) (49.2 )% Total gross profit per TDA unit $ 2,088 $ 778 $ (1,310 ) (62.7 )% TDA average days to sale 45 44 (1 ) (2.2 )% 43 TDA units TDA units sold decreased 1,682, or 60.2%, from 2,792 for the three months ended June 30, 2019 to 1,110 for the three months ended June 30, 2020 . Although our physical retail location remained open, consumer demand for vehicles at TDA declined significantly due to government mandated “stay-at-home” orders and other disruptions related to the COVID-19 pandemic. We expect our TDA units sold will continue to be negatively impacted by the COVID-19 crisis, but the ultimate extent and duration of the impact is uncertain at this time. Vehicle Revenue TDA vehicle revenue decreased $56.1 million, or 68.6%, from $81.8 million for the three months ended June 30, 2019 to $25.7 million for the three months ended June 30, 2020. The decrease in TDA vehicle revenue was primarily due to the 1,682 decrease in TDA units sold which decreased TDA vehicle revenue by $49.3 million and a lower average selling price per unit, which decreased from $29,310 for the three months ended June 30, 2019 to $23,114 for the three months ended June 30, 2020 and decreased revenue by $6.8 million . We expect our TDA vehicle revenue will continue to be negatively impacted by the COVID-19 pandemic, but the ultimate extent and duration of the impact is uncertain at this time. Product Revenue TDA product revenue decreased $2.5 million, or 79.8% from $3.1 million for the three months ended June 30, 2019 to $0.6 million for the three months ended June 30, 2020. The decrease in TDA product revenue was primarily attributable to the 1,682 decrease in TDA units sold, which decreased TDA product revenue by $1.9 million and the decrease in product revenue per unit of $547 for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 which decreased revenue by $0.6 million . Other Revenue TDA other revenue decreased $0.2 million, or 39.5% from $0.5 million for the three months ended June 30, 2019 to $0.3 million for the three months ended June 30, 2020. Vehicle Gross Profit TDA vehicle gross profit decreased $2.5 million, or 91.3%, from $2.7 million for the three months ended June 30, 2019 to $0.2 million for the three months ended June 30, 2020. The decrease was primarily attributable to the 1,682 decrease in TDA units sold, which decreased TDA vehicle gross profit by $1.6 million and a $763 decrease in TDA vehicle gross profit per unit for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, which decreased vehicle gross profit by $0.9 million. We expect our TDA vehicle gross profit to continue to be negatively impacted by the COVID-19 pandemic and limited consumer demand at TDA, but the ultimate extent and duration of the impact is uncertain at this time. Product Gross Profit TDA product gross profit decreased $2.5 million, or 79.8%, from $3.1 million for the three months ended June 30, 2019 to $0.6 million for the three months ended June 30, 2020. The decrease in TDA product gross profit was primarily attributable to the 1,682 decrease in TDA units sold, which decreased TDA product gross profit by $1.9 million and the decrease in product gross profit per unit of $547 for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, which decreased product gross profit by $0.6 million . Other gross profit TDA other gross profit decreased $0.2 million, or 75.3%, from $0.3 million for the three months ended June 30, 2019 to $0.1 million for the three months ended June 30, 2020. 44 Wholesale The following table presents our Wholesale segment results of operations for the periods indicated: Three Months Ended June 30, 2019 2020 Change % Change (in thousands, except unit data) Wholesale units sold 5,396 3,259 (2,137 ) (39.6 )% Wholesale revenue $ 54,531 $ 50,921 $ (3,610 ) (6.6 )% Wholesale gross profit (loss) $ 449 $ (543 ) $ (992 ) (220.9 )% Average selling price per unit $ 10,106 $ 15,625 $ 5,519 54.6 % Wholesale gross profit (loss) per unit $ 83 $ (167 ) $ (250 ) (301.2 )% Units Wholesale units sold decreased 2,137, or 39.6%, from 5,396 for the three months ended June 30, 2019 to 3,259 for the three months ended June 30, 2020, primarily driven by a reduction in wholesale units purchased from customers as a result of the COVID-19 pandemic. Revenue Wholesale revenue decreased $3.6 million, or 6.6%, from $54.5 million for the three months ended June 30, 2019 to $50.9 million for the three months ended June 30, 2020. The decrease was primarily attributable to the 2,137 decrease in wholesale units sold which decreased wholesale revenue by $21.6 million, partially offset by a higher average selling price per wholesale units which increased from $10,106 for the three months ended June 30, 2019 to $15,625 for the three months ended June 30, 2020 and increased wholesale revenue by $18.0 million. The increase in average selling price per unit was primarily driven by the sale of retail quality vehicles through the wholesale auctions as we initially reduced our inventory levels in order to respond to the decreased consumer demand due to the COVID-19 pandemic. Gross Profit (Loss) Wholesale vehicle gross profit decreased $1.0 million, or 220.9% from gross profit of $0.5 million for the three months ended June 30, 2019 to a loss of $0.5 million for the three months ended June 30, 2020. The decrease was primarily attributable to a $250 decrease in wholesale gross profit per unit for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019 which decreased wholesale gross profit by $0.8 million and the 2,137 decrease in wholesale units sold which decreased wholesale gross profit by $0.2 million. Selling, general and administrative expenses Three Months Ended June 30, 2019 2020 Change % Change (in thousands) Compensation & benefits $ 17,476 $ 20,618 $ 3,142 18.0 % Marketing expense 12,736 11,573 (1,163 ) (9.1 )% Outbound logistics 2,650 5,470 2,820 106.4 % Occupancy and related costs 2,985 2,267 (718 ) (24.1 )% Professional fees 3,227 1,465 (1,762 ) (54.6 )% Other 4,618 6,518 1,900 41.1 % Total selling, general & administrative expenses $ 43,692 $ 47,911 $ 4,219 9.7 % Selling, general and administrative expenses increased $4.2 million, or 9.7%, from $43.7 million for the three months ended June 30, 2019 to $47.9 million for the three months ended June 30, 2020. The increase was primarily due to a $3.4 million increase in stock-based compensation included within compensation and benefits, and a $2.8 million increase in outbound logistics costs attributable to the growth in ecommerce units sold and increases in market rates of logistics providers. These increases were offset by a $1.8 million decrease in professional services due to higher accounting assistance costs incurred in the prior period and a $1.2 million decrease in advertising and marketing costs due to the reduction of marketing spend during our initial response to the COVID-19 pandemic. 45 Depreciation and amortization Depreciation and amortization expenses decreased $0.4 million, or 27.8%, from $1.5 million for the three months ended June 30, 2019 to $1.1 million for the three months ended June 30, 2020 . The decrease was primarily due to reduced amortization expense as certain intangible assets were fully amortized. Interest expense Interest expense decreased $2.1 million, or 61.7%, from $3.4 million for the three months ended June 30, 2019 to $1.3 million for the three months ended June 30, 2020. The decrease was primarily attributable to the lower outstanding balance of the Vehicle Floorplan Facility due to reduction in vehicles inventory levels as a result of our initial response to the COVID-19 pandemic as well as the repayment of our term loan facility in December 2019. Interest income Interest income decreased $0.7 million, or 49.5%, from $1.4 million for the three months ended June 30, 2019 to $0.7 million for the three months ended June 30, 2020. The decrease in interest income was primarily driven by lower interest earned on cash deposits maintained with Ally Bank as a result of the lower outstanding balance of the Vehicle Floorplan Facility. Revaluation of preferred stock warrant The increase in revaluation of preferred stock warrant of $21.2 million for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 was related to the revaluation of the warrant to purchase Series F preferred stock which was converted to a warrant to purchase common stock upon the IPO and subsequently exercised in June 2020. Six Months Ended June 30, 2019 and 2020 Ecommerce The following table presents our Ecommerce segment results of operations for the periods indicated: Six Months Ended June 30, 2019 2020 Change % Change (in thousands, except unit data and average days to sale) Ecommerce units sold 7,043 14,643 7,600 107.9 % Ecommerce revenue: Vehicle revenue $ 207,199 $ 396,065 $ 188,866 91.2 % Product revenue 3,609 12,675 9,066 251.2 % Total ecommerce revenue $ 210,808 $ 408,740 $ 197,932 93.9 % Ecommerce gross profit: Vehicle gross profit $ 9,440 $ 8,811 $ (629 ) (6.7 )% Product gross profit 3,609 12,675 9,066 251.2 % Total ecommerce gross profit $ 13,049 $ 21,486 $ 8,437 64.7 % Average vehicle selling price per ecommerce unit $ 29,419 $ 27,048 $ (2,371 ) (8.1 )% Gross profit per ecommerce unit: Vehicle gross profit per ecommerce unit $ 1,340 $ 602 $ (738 ) (55.1 )% Product gross profit per ecommerce unit 512 866 354 69.1 % Total gross profit per ecommerce unit $ 1,852 $ 1,468 $ (384 ) (20.7 )% Ecommerce average days to sale 64 67 3 4.7 % 46 Ecommerce units Ecommerce units sold increased 7,600, or 107.9%, from 7,043 for the six months ended June 30, 2019 to 14,643 for the six months ended June 30, 2020, driven by our increased inventory levels, process improvements in our ecommerce platform and our national advertising campaign which has strengthened our national brand awareness as well as greater consumer acceptance of our business model as a result of the COVID-19 pandemic. Average monthly unique visitors to our website increased from 520,074 for the six months ended June 30, 2019 to 973,457 for the six months ended June 30, 2020. We expect ecommerce units sold to continue to grow in the future as we increase our inventory selection and marketing efforts and improve conversion. Vehicle Revenue Ecommerce vehicle revenue increased $188.9 million, or 91.2%, from $207.2 million for the six months ended June 30, 2019 to $396.1 million for the six months ended June 30, 2020. The increase in ecommerce vehicle revenue was primarily attributable to the 7,600 increase in ecommerce units sold, which increased revenue by $223.6 million, partially offset by a lower average selling price per unit, which decreased from $29,419 for the six months ended June 30, 2019 to $27,048 for the six months ended June 30, 2020 and decreased revenue by $34.7 million. The decrease in average selling price per unit was driven by our strategic decision to reduce vehicle pricing in order to sell pre-COVID-19 inventory and our focus on acquiring high-demand vehicles. We expect ecommerce vehicle revenue will continue to grow driven by increases in ecommerce units sold. Product Revenue Ecommerce product revenue increased $9.1 million, or 251.2%, from $3.6 million for the six months ended June 30, 2019 to $12.7 million for the six months ended June 30, 2020. The increase was attributable to the increase in product revenue per unit of $354, which increased product revenue by $5.2 million, and the 7,600 increase in ecommerce units sold which increased revenue by $3.9 million. Product revenue per unit increased $354 from $512 for the six months ended June 30, 2019 to $866 for the six months ended June 30, 2020, which was primarily due to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships. We expect ecommerce product revenue will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. Vehicle Gross Profit Ecommerce vehicle gross profit decreased $0.6 million, or 6.7%, from $9.4 million for the six months ended June 30, 2019 to $8.8 million for the six months ended June 30, 2020. The decrease was attributable to lower vehicle gross profit per unit, which decreased vehicle gross profit by $10.8 million partially offset by the 7,600 increase in ecommerce units sold which increased vehicle gross profit by $10.2 million. Vehicle gross profit per unit decreased by $738 from $1,340 for the six months ended June 30, 2019 to $602 for the six months ended June 30, 2020, primarily attributable to our strategic decision to reduce vehicle pricing in order to drive vehicle sales in the early stage of the COVID-19 pandemic. In late April 2020, due to the increase in consumer demand and pricing becoming more stable, we started to rebuild our inventory focusing on higher margin vehicles and our gross profit per unit began to approach pre-COVID levels in June 2020. As we continue to mature our infrastructure, increase the number of VRCs and optimize our network of VRCs, we expect ecommerce vehicle gross profit per unit to increase in the future driven by reduced costs across acquisitions, logistics and reconditioning. Product Gross Profit Ecommerce product gross profit increased $9.1 million, or 251.2%, from $3.6 million for the six months ended June 30, 2019 to $12.7 million for the six months ended June 30, 2020. The increase was attributable to higher product gross profit per unit, which increase product gross profit by $5.2 million, and the 7,600 increase in ecommerce units sold which increased product gross profit by $3.9 million during the six months ended June 30, 2020, as compared to June 30, 2019. We expect ecommerce product gross profit will continue to grow in the future driven by increases in ecommerce units sold, new product offerings, initiatives to improve product attachment rates and increases in per unit profit. 47 TDA The following table presents our TDA segment results of operations for the periods indicated: Six Months Ended June 30, 2019 2020 Change % Change (in thousands, except unit data and average days to sale) TDA units sold 6,162 4,145 (2,017 ) (32.7 )% TDA revenue: Vehicle revenue $ 171,952 $ 108,797 $ (63,155 ) (36.7 )% Product revenue 5,628 4,105 (1,523 ) (27.1 )% Other 917 726 (191 ) (20.8 )% Total TDA revenue $ 178,497 $ 113,628 $ (64,869 ) (36.3 )% TDA gross profit: Vehicle gross profit $ 6,125 $ 2,019 $ (4,106 ) (67.0 )% Product gross profit 5,628 4,105 (1,523 ) (27.1 )% Other gross profit 426 222 (204 ) (47.9 )% Total TDA gross profit $ 12,179 $ 6,346 $ (5,833 ) (47.9 )% Average vehicle selling price per TDA unit $ 27,905 $ 26,248 $ (1,657 ) (5.9 )% Gross profit per TDA unit: Vehicle gross profit per TDA unit $ 994 $ 487 $ (507 ) (51.0 )% Product gross profit per TDA unit 913 990 77 8.4 % Total gross profit per TDA unit $ 1,907 $ 1,477 $ (430 ) (22.5 )% TDA average days to sale 49 47 (2 ) (4.1 )% TDA units TDA units sold decreased 2,017, or 32.7%, from 6,162 for the six months ended June 30, 2019 to 4,145 for the six months ended June 30, 2020. Although our physical retail location remained open, consumer demand for vehicles at TDA declined significantly due to government mandated “stay-home” orders and other disruptions related to the COVID-19 pandemic. We expect our TDA units sold will continue to be negatively impacted by the COVID-19 pandemic, but the ultimate extent and duration of the impact is uncertain at this time. Vehicle Revenue TDA vehicle revenue decreased $63.2 million, or 36.7%, from $172.0 million for the six months ended June 30, 2019 to $108.8 million for the six months ended June 30, 2020. The decrease was driven by the 2,017 decrease in TDA units sold, which decreased vehicle revenue by $56.3 million and the lower average selling price per unit, which decreased from $27,905 for the six months ended June 30, 2019 to $26,248 for the six months ended June 30, 2020 and decreased vehicle revenue by $6.9 million. Product Revenue TDA product revenue decreased $1.5 million, or 27.1% from $5.6 million for the six months ended June 30, 2019 to $4.1 million for the six months ended June 30, 2020. The decrease was primarily driven by the 2,017 decrease in TDA units sold in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Other Revenue TDA other revenue decreased $0.2 million, or 20.8%, from $0.9 million for the six months ended June 30, 2019 to $0.7 million for the six months ended June 30, 2020. Vehicle Gross Profit TDA vehicle gross profit decreased $4.1 million, or 67.0%, from $6.1 million for the six months ended June 30, 2019 to 2.0 million for the six months ended June 30, 2020. The decrease was attributable to a decrease in TDA vehicle gross profit per unit of $507, which decreased vehicle gross profit by $2.1 million and the 2,017 decrease in TDA units sold in the six months ended June 30, 2020 as compared to June 30, 2019, which decreased vehicle gross profit by $2.0 million. We expect our vehicle gross profit to continue to be negatively impacted by the COVID-19 pandemic and limited consumer demand at TDA, but the ultimate extent and duration of the impact is uncertain at this time. 48 Product Gross Profit TDA product gross profit decreased $1.5 million, or 27.1%, from $5.6 million for the six months ended June 30, 2019 to $4.1 million for the six months ended June 30, 2020. The decrease was primarily attributable to the 2,017 decrease in TDA units sold during the six months ended June 30, 2020 as compared to June 30, 2019. Product gross profit per unit slightly increased from $913 for the six months ended June 30, 2019 to $990 for the six months ended June 30, 2020. Other gross profit TDA other gross profit decreased $0.2 million, or 47.9%, from $0.4 million for the six months ended June 30, 2019 to $0.2 million for the six months ended June 30, 2020. Wholesale The following table presents our Wholesale segment results of operations for the periods indicated: Six Months Ended June 30, 2019 2020 Change % Change (in thousands, except unit data) Wholesale units sold 10,626 7,944 (2,682 ) (25.2 )% Wholesale revenue $ 106,651 $ 106,497 $ (154 ) (0.1 )% Wholesale gross profit (loss) $ 629 $ (1,838 ) $ (2,467 ) (392.2 )% Average selling price per unit $ 10,037 $ 13,406 $ 3,369 33.6 % Wholesale gross profit (loss) per unit $ 59 $ (231 ) $ (290 ) (491.5 )% Units Wholesale units sold decreased 2,682, or 25.2%, from 10,626 for the six months ended June 30, 2019 to 7,944 for the six months ended June 30, 2020, primarily driven by a decrease in the number of trade-in vehicles as a result of the decrease in number of TDA units sold for the six months ended June 30, 2020 as compared to June 30, 2019. Revenue Wholesale revenue remained relatively flat for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decrease in wholesale revenue was attributable to the 2,682 decrease in wholesale units sold which decreased wholesale revenue by $26.9 million, offset by a higher average selling price per unit which increased from $10,037 million for the six months ended June 30, 2019 to $13,406 for the six months ended June 30, 2020 and increased revenue by 26.7 million. The increase in average selling price per unit was primarily driven by the sale of retail quality vehicles through the wholesale auctions as we initially reduced our inventory levels in order to respond to decreased consumer demand due to the COVID-19 pandemic. Gross Profit (Loss) Wholesale vehicle gross profit decreased $2.4 million, or 392.2%, from gross profit of $0.6 million for the six months ended June 30, 2019 to a loss of $1.8 million for the six months ended June 30, 2020. The decrease was primarily attributable to a $290 decrease in wholesale gross profit per unit for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. 49 Selling, general and administrative expenses Six Months Ended June 30, 2019 2020 Change % Change (in thousands) Compensation & benefits $ 32,968 $ 40,940 $ 7,972 24.2 % Marketing expense 19,836 29,488 9,652 48.7 % Outbound logistics 4,944 11,261 6,317 127.8 % Occupancy and related costs 5,271 4,964 (307 ) (5.8 )% Professional fees 5,880 3,924 (1,956 ) (33.3 )% Other 11,376 15,714 4,338 38.1 % Total selling, general & administrative expenses $ 80,275 $ 106,291 $ 26,016 32.4 % Selling, general and administrative expenses increased $26.0 million, or 32.4%, from $80.3 million for the six months ended June 30, 2019 to $106.3 million for the six months ended June 30, 2020. The increase was primarily due to a $9.7 million increase in advertising and marketing efforts as we expanded our national broad-reach advertising, an $8.0 million increase in compensation and benefits partially due to an increase in employee headcount throughout the organization as our business scales as well as a $3.4 million increase in stock-based compensation included within compensation and benefits, and a $6.3 million increase in outbound logistics costs attributable to the growth in our ecommerce business. Depreciation and amortization Depreciation and amortization expenses decreased $1.0 million, or 32.5%, from $3.0 million for the six months ended June 30, 2019 to $2.0 million for the six months ended June 30, 2020. The decrease was primarily due to reduced amortization expense as certain intangible assets were fully amortized. Interest expense Interest expense decreased $2.0 million, or 32.5%, from $6.1 million for the six months ended June 30, 2019 to $4.1 million for the six months ended June 30, 2020. The decrease was primarily attributable to the repayment of our term loan facility in December 2019 as well as the lower outstanding balance of the Vehicle Floorplan Facility due to the reduction in vehicle inventory levels as a result of our initial response to the COVID-19 pandemic. Interest Income Interest income decreased $0.6 million, or 18.2%, from $3.3 million for the six months ended June 30, 2019 to $2.7 million for the six months ended June 30, 2020. The decrease in interest income was primarily driven by lower interest earned on cash deposits maintained with Ally Bank as the results of the lower outstanding balance of the Vehicle Floorplan Facility. 50 Revaluation of preferred stock warrant The increase in revaluation of preferred stock warrant of $20.3 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was related to the revaluation of the warrant to purchase Series F preferred stock which was converted to the warrant to purchase common stock upon the IPO and subsequently exercised in June 2020. Liquidity and Capital Resources Our operations historically have been financed primarily from the sale of redeemable convertible preferred stock and borrowings under our Vehicle Floorplan Facility. On June 11, 2020, we completed our IPO in which we sold 24,437,500 shares of our common stock, which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, for proceeds of $504.0 million, net of the underwriting discount and before deducting offering expenses of $7.5 million. As of June 30, 2020, we had cash and cash equivalents of $651.0 million. For the six months ended June 30, 2020, we had positive cash flow from operations of approximately $4 thousand. We generated a net loss of approximately $63.2 million and $104.3 million for the three and six months ended June 30, 2020, respectively. We have not been profitable since our inception in 2012 and had an accumulated deficit of approximately $679.4 million as of June 30, 2020. We expect to incur additional losses in the future. Pursuant to a stock purchase agreement between us and certain accredited investors, (i) in November and December 2019 we sold an aggregate of 8,371,664 shares of Series H Preferred Stock at a purchase price of $27.19 per share, for aggregate proceeds of $227.7 million and (ii) in January 2020, we sold an aggregate of 982,383 shares of Series H Preferred Stock in exchange for gross proceeds of $26.7 million, in each case without giving effect to the Stock Split. We historically have funded vehicle inventory purchases primarily through our Vehicle Floorplan Facility and, as of June 30, 2020, we had approximately $90.2 million available under such facility to fund future vehicle inventory purchases. In March 2020, we entered into a new vehicle floorplan facility (the “2020 Vehicle Floorplan Facility”) with Ally Bank and Ally Financial, that provides a committed credit line of up to $450.0 million. The commitment on the new facility expires in March 2021. We believe that, upon expiration, we will be able to renew this facility or obtain alternative sources of financing on terms that are acceptable to us, as well as leverage our cash on hand to continue to fund our vehicle purchases. However, there can be no assurance we will be able to do so. Our cash flows from operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts. The timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received. We anticipate that our existing cash and cash equivalents and the vehicle floorplan facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months from the filing of this Form 10-Q. Our future capital requirements will depend on many factors, including our rate of revenue growth, our efforts to reduce costs per unit, the expansion of our inventory and sales and marketing activities, investment in our reconditioning and logistics operations, and enhancements to our ecommerce platform. We may be required to seek additional equity or debt financing in the future to fund our operations or to fund our needs for capital expenditures. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations, our business, results of operations and financial condition could be adversely affected. Vehicle Financing We entered into a vehicle floorplan facility in April 2016, as subsequently amended, with Ally Bank and Ally Financial, which we refer to as our 2016 Vehicle Floorplan Facility. As of December 31, 2019, the Vehicle Floorplan Facility consisted of a revolving line of credit with a borrowing capacity of up to $220.0 million that could be used to finance our vehicle inventory. In March 2020, we entered into the 2020 Vehicle Floorplan Facility, which replaces the 2016 Vehicle Floorplan Facility. The 2020 Vehicle Floorplan Facility provides a committed credit line of up to $450.0 million which expires in March 2021. 51 The amount of credit available to us under the 2020 Vehicle Floorplan Facility is determined on a monthly basis bas ed on a calculation that considers average outstanding borrowings and vehicle units paid off by us within the three immediately preceding months. Approximately $ 90.2 million was available under this facility as of June 30, 2020 . We may elect to increase ou r monthly credit line availability by an additional $25.0 million during any three months of each year. Outstanding borrowings are due as the vehicles financed are sold, or in any event, on the maturity date. The 2020 Vehicle Floorplan Facility bears inter est at a rate equal to the 1-Month LIBOR rate applicable in the immediately preceding month plus a spread of 425 basis points. Under the 2020 Vehicle Floorplan Facility, we are subject to financial covenants that require us to maintain a certain level of e quity in the vehicles that are financed, to maintain at least 10% of the outstanding borrowings in cash and cash equivalents, to maintain 10% of the monthly credit line availability on deposit with Ally Bank and to maintain a minimum tangible adjusted net worth of $167.0 million, which is defined as shareholder (deficit) equity plus redeemable convertible preferred stock as determined under U.S. GAAP. Cash Flows from Operating, Investing, and Financing Activities The following table summarizes our cash flows for the six months ended June 30, 2019 and 2020: Six Months Ended June 30, 2019 2020 Change % Change (in thousands) Net cash (used in) provided by operating activities $ (127,897 ) $ 4 $ 127,901 (100.0 )% Net cash used in investing activities (794 ) (3,128 ) (2,334 ) 294.0 % Net cash provided by financing activities 67,706 456,425 388,719 574.1 % Net (decrease) increase in cash and cash equivalents (60,985 ) 453,301 514,286 (843.3 )% Cash and cash equivalents at beginning of period 163,509 219,587 56,078 34.3 % Cash and cash equivalents at end of period $ 102,524 $ 672,888 $ 570,364 556.3 % Operating Activities Net cash flows from operating activities changed from net cash used in operating activities of $127.9 million for the six months ended June 30, 2019 to net cash provided by operating activities of $4 thousand for the six months ended June 30, 2020. The increase is primarily attributable to a decrease in working capital requirements, primarily related to lower inventory levels in response to the COVID-19 pandemic, resulting in a decrease in use of cash of $142.5 million. Additionally, this increase was partially offset by $24.8 million in incremental net loss after reconciling adjustments for the six months ended June 30, 2020, as compared with the six months ended June 30, 2019. Investing Activities Net cash flows used in investing activities increased $2.3 million, to $3.1 million for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019, primarily as a result of an increase in capitalization of software development costs. Financing Activities Net cash flows provided by financing activities increased $388.7 million, or 574.1%, to $456.4 million for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. The increase was primarily related to $502.3 million of net proceeds received upon completion of the IPO net of cash paid for transaction costs related to the IPO, partially offset by a net decrease in cash of $134.7 million related to lower balances of our Vehicle Floorplan Facility for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Proceeds from and payments for our Vehicle Floorplan Facility changed from a net cash inflow of $71.0 million for the six months ended June 30, 2019 to a net cash outflow of $63.7 million for the six months ended June 30, 2020 primarily due to a decrease in our working capital requirements related to the decreases in our inventory levels in order to respond to the COVID-19 disruptions. Additionally, for the six months ended June 30, 2020, net cash flow provided by financing activities included a $1.1 million payment of issuance costs related to the 2020 Vehicle Floorplan Facility and $1.7 million of payments related to planned IPO costs. These decreases were partially offset by the issuance of $21.7 million of Series H preferred stock, net of issuance costs paid, for the six months ended June 30, 2020. 52 Contractual Obligations and Commitments There have been no material changes to our obligations under operating leases as compared to those described in the Prospectus. Off Balance Sheet Arrangements We do not have any off balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. In preparing the condensed consolidated financial statements, we make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, revenue-related reserves, as well as impairment of goodwill and long-lived assets. We base our estimates on historical experience, market conditions and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates. The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include those described in “Note 2—Summary of Significant Accounting Policies” and “Note 3—Revenue Recognition” of the notes to our condensed consolidated financial statements in the section titled “—Summary of Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the Prospectus. Except as described in Note 2 to our condensed consolidated financial statements, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the Prospectus. Recently Issued and Adopted Accounting Pronouncements See “Note 2—Summary of Significant Accounting Policies—Adoption of New Accounting Standards” in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report.