What changed in this filing

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Item 1. Financial Statements

2020-11-12 compared with 2020-08-13 · 466 added, 453 removed, 969 unchanged (49% of the section changed)

2 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

Current Assets:

22 unchanged sentences

Redeemable convertible preferred stock, $0.001 par value;

and 10,000,000 shares authorized as of December 31, 2019 and June 30, 2020,

and 10,000,000 shares authorized as of December 31, 2019 and September 30, 2020,

respectively;

83,568,628 and zero shares issued and outstanding as of

December 31, 2019 and June 30, 2020, respectively

December 31, 2019 and September 30, 2020, respectively

Stockholders’ (deficit) equity:

1 unchanged sentence

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

December 31, 2019 and September 30, 2020, respectively;

8,650,922 and

130,230,591 shares issued and outstanding as of December 31, 2019 and September

30, 2020, respectively

Additional paid-in-capital

6 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Retail vehicle, net

10 unchanged sentences

Other income, net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Loss before provision for income taxes

Provision for income taxes

Accretion of redeemable convertible preferred stock

17 unchanged sentences

Repurchase of common stock

Accretion of redeemable convertible

preferred stock

Accretion of redeemable convertible preferred stock

Balance at March 31, 2019

Stock-based compensation

Exercise of stock options

Repurchase of common stock

Accretion of redeemable convertible

preferred stock

Accretion of redeemable convertible preferred stock

Balance at June 30, 2019

Stock-based compensation

Exercise of stock options

Vesting of restricted stock awards

Repurchase of common stock

Accretion of redeemable convertible preferred stock

Balance at September 30, 2019

Redeemable Convertible

6 unchanged sentences

Repurchase of common stock

Issuance of Series H redeemable

convertible preferred stock, net

of issuance costs

Issuance of Series H redeemable convertible preferred stock, net of issuance costs

Balance at March 31, 2020

Issuance of common stock

Conversion of redeemable convertible

preferred stock to common stock

Conversion of redeemable convertible

preferred stock warrant to common

stock warrant

Issuance of common stock in IPO,

net of offering costs

Conversion of redeemable convertible preferred stock to common stock

Conversion of redeemable convertible preferred stock warrant to common stock warrant

Issuance of common stock in IPO, net of offering costs

Stock-based compensation

2 unchanged sentences

Vesting of restricted stock units

Common stock shares withheld to

satisfy employee tax withholding

Common stock shares withheld to satisfy employee tax withholding obligations

Balance at June 30, 2020

Issuance of common stock in follow-on public offering,

net of offering costs

Stock-based compensation

Exercise of stock options

Vesting of restricted stock units

Common stock shares withheld to satisfy employee tax withholding obligations

Balance at September 30, 2020

See accompanying notes to these unaudited condensed consolidated financial statements .

1 unchanged sentence

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

13 unchanged sentences

Other liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing activities

11 unchanged sentences

Payments of costs related to IPO

Proceeds from the issuance of common stock in connection with follow-on public offering, net of underwriting discount

Payments of costs related to follow-on public offering

Proceeds from exercise of stock options

10 unchanged sentences

Costs related to IPO included in accrued expenses and accounts payable

Costs related to follow-on public offering included in accrued expenses and accounts payable

Conversion of redeemable convertible preferred stock warrant to common stock warrant

6 unchanged sentences

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.

In December 2015, the Company acquired Houston-based Left Gate Property Holding, LLC (d/b/a Texas Direct Auto and Vroom) which operates the Company’s sole physical retail location under the Texas Direct Auto brand (“TDA”).

The Company currently is organized into three reportable segments:

12 unchanged sentences

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.

Follow-on Public Offering

The Company closed its follow-on public offering on September 15, 2020 in which it sold 10,800,000 shares of common stock at the public offering price of $54.50 per share.

The Company received proceeds of $569.5 million from the offering, net of the underwriting discount and before deducting offering expenses of $1.5 million.

Basis of Presentation

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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.

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 September 10, 2020 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, (the "Securities Act"), on September 11, 2020 (the "Prospectus").

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited i nterim 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 September 30, 2020 and its results of operations for the three and nine months ended September 30, 2019 and 2020 .

The results for the three and nine months ended September 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.

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.

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Comprehensive Loss

The Company did not have any other comprehensive income or loss for three and six months ended June 30, 2019 and 2020.

The Company did not have any other comprehensive income or loss for the three and nine months ended September 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.

Restricted cash includes cash deposits required under letter of credit agreements as explained in Note 8 – Commitments and Contingencies.

As of September 30, 2020, restricted cash also includes a $26.1 million cash deposit required under the Company’s 2020 Vehicle Floorplan Facility as explained in Note 7 – Vehicle Floorplan Facilities.

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.

Advertising expenses were $14.6 million and $15.3 million for the three months ended September 30, 2019 and 2020, respectively, and $34.4 million and $44.8 million for the nine months ended September 30, 2019 and 2020, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Shipping and Handling

1 unchanged sentence

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Conc entration of Credit Risk and Significant Customers

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 $4.3 million and $8.5 million for the three months ended September 30, 2019 and 2020, respectively, and $9.2 million and $19.8 million for the nine months ended September 30, 2019 and 2020, respectively.

Concentration of Credit Risk and Significant Customers

The Company’s principal financial instruments subject to potential concentration of credit risk are cash and cash equivalents and accounts receivable, which are unsecured.

The Company’s cash and cash equivalents are maintained at various large financial institutions.

The Company’s cash balances 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.

The Company’s cash equivalents primarily consist of money market funds that hold investments in highly liquid US treasury securities.

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.

For the three and nine months ended September 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 September 30, 2020.

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.

The Company has historically funded vehicle inventory purchases through a vehicle floorplan facility.

As further discussed in Note 7 – Vehicle Floorplan Facilities, the Company entered into a new facility in March 2020 which increased the borrowing capacity up to $450.0 million.

In October 2020, the Vehicle Floorplan Facility was amended to extend the maturity date to September 2022.

Nonemployee Share-Based Payments

1 unchanged sentence

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.

Rocket Auto is expected to launch publicly during the first quarter of the year ending December 31, 2021 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 issued Rocket 183,870 shares of the Company’s common stock upon execution of the RA Agreement.

The Company will pay Rocket a combination of cash and stock for vehicle sales made through the platform.

Rocket may earn up to 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.

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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):

2 unchanged sentences

The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

4 unchanged sentences

The Company recognizes revenue at a point in time as described below.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Retail Vehicle Revenue

12 unchanged sentences

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.

Vehicles sold at auction are acquired from customers who trade-in their vehicles when making a purchase from the Company, from customers who sell their vehicles to the Company in direct-buy transactions, and from liquidation of vehicles previously listed for retail sale.

The transaction price for wholesale vehicles is a fixed amount that is determined at the auction.

10 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

A portion of the fees earned on these products is subject to chargebacks in the event of early termination, default, or prepayment of the contracts by end-customers.

The Company’s exposure for these 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.

An estimated refund liability for chargebacks against the revenue recognized from sales of these products is recorded in the period in which the related revenue is recognized and is based primarily on the Company’s historical chargeback experience.

The Company updates its estimates at each reporting date.

As of December 31, 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.”

As of December 31, 2019 and September 30, 2020, the Company’s reserve for chargebacks was $3.3 million and $4.0 million, respectively, of which $1.8 million and $2.1 million, respectively, are included within “Accrued expenses” and $1.5 million and $1.9 million, respectively, are included in “Other long-term liabilities.”

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 recognizes profit-sharing revenues to the extent it is probable t hat 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.”

As of December 31, 2019 and September 30, 2020 , the Company recognized $6.9 million and $ 9.4 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 $ 8.6 million, respectively, are included within “Other assets.”

Other Revenue

4 unchanged sentences

Inventory consisted of the following (in thousands):

September 30,

Parts and accessories

Total inventory

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019 and September 30, 2020, “Inventory” includes an adjustment of $6.3 million, and $9.2 million, respectively, to record the balances at the lower of cost or net realizable value.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

September 30,

Furniture and fixtures

4 unchanged sentences

Property and equipment, net

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.

Depreciation and amortization expense was $0.6 million and $1.1 million for the three months ended September 30, 2019 and 2020, respectively, and $2.0 million and $2.8 million for the nine months ended September 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 nine months ended September 30, 2019.

For the three months ended September 30, 2019 and the three and nine months ended September 30, 2020, depreciation and amortization expense included within “Cost of sales” was immaterial.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued Expenses and Other Current Liabilities

The Company’s accrued expenses consisted of the following (in thousands):

September 30,

Accrued marketing expenses

5 unchanged sentences

The Company’s other current liabilities consisted of the following (in thousands):

September 30,

Vehicle payable

Total other current liabilities

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 2020 Vehicle Floorplan Facility provides a committed credit line of up to $450.0 million which originally 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 per iod.

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.

As of September 30, 2020, the borrowing capacity of the 2020 Vehicle Floorplan Facility was $261.1 million, of which $12.1 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.

2 unchanged sentences

The Company was required to pay an upfront commitment fee of $1.1 million upon execution of the 2020 Vehicle Floorplan Facility.

In October 2020, the Company amended its 2020 Vehicle Floorplan Facility to extend the maturity date to September 30, 2022.

The amendment requires the Company to pay an availability fee each quarter on the average unused capacity from the prior quarter if it was greater than 50% of the calculated floorplan allowance, as defined.

The amendment reduces the minimum liquidity requirement to maintain in cash and cash equivalents a percentage of the credit line from 10.0% to 7.5%.

The amendment eliminated the minimum tangible adjusted net worth covenant.

The Company was required to pay an upfront commitment fee upon execution of the amendment.

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interest rate on the 2016 Vehicle Floorplan Facility was equal to the 1-Month LIBOR rate applicable in the immedia tely preceding month plus a spread of 425 basis points and was payable on a monthly basis.

As of December 31, 2019 and September 30, 2020, outstanding borrowings on the vehicle floorplan facilities were $173.5 million and $249.0 million, respectively.

Interest expense incurred by the Company for the vehicle floorplan facilities was $3.0 million and $2.0 million for the three months ended September 30, 2019 and 2020, respectively, and $7.4 million and $5.7 million for the nine months ended September 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 4.41% as of December 31, 2019 and September 30, 2020, respectively.

As of December 31, 2019 and September 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 permit the Company to deposit cash with the bank for the purpose of reducing the amount of interest payable for borrowings.

Interest credits earned by the Company were $1.2 million and $1.2 million for the three months ended September 30, 2019 and 2020, respectively, and $4.0 million and $3.6 million for the nine months ended September 30, 2019 and 2020, respectively, which are recorded within “Interest income” in the condensed consolidated statements of operations.

Commitments and Contingencies

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.

The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated.

When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made.

Legal fees are expensed as incurred.

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.

As of December 31, 2019 and September 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

7 unchanged sentences

The Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

10 unchanged sentences

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 of September 30, 2020, the weighted-average remaining lease term and discount rate for the Company’s operating leases were 3.8 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.

1 unchanged sentence

The Company determines its incremental borrowing rate based on a synthetic credit rating that was developed with the assistance of a third-party specialist.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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):

The Company’s lease costs and activity for the three and nine months ended September 30, 2020 were as follows (in thousands):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating lease cost

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Other information

2 unchanged sentences

Right-of-use assets obtained in exchange for operating lease liabilities

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Maturity of Lease Liabilities

The maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on the Company’s condensed consolidated balance sheet as of June 30, 2020 were as follows (in thousands):

For remainder of 2020

7 unchanged sentences

Total future minimum lease payments

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 .

In accordance with ASC Topic 840, rent expense was $1.8 million and $5.2 million for the three and nine months ended September 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.

Deferred rent under ASC Topic ASC 840 is recorded within “Accrued expenses” in the condensed consolidated balance sheet.

Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

6 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Pr eferred Stock in exchange for gross proceeds of $26.7 million.

The proceeds were used for general corporate purposes and business development.

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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.

As of September 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:

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(in thousands, except share and per share amounts)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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Refer to Note 12 – Financial Instruments and Fair Value Measurements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-based Compensation

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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.

As of September 30, 2020, there were 3,145,828 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:

The following table summarizes stock option activity for the nine months ended September 30, 2020:

Exercise Price

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Forfeited / cancelled

Outstanding as of June 30, 2020

Outstanding as of September 30, 2020

Vested and exercisable as of December 31, 2019

Vested and exercisable as of June 30, 2020

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Vested and exercisable as of September 30, 2020

The Company recognized $0.6 million and $0.5 million of stock-based compensation expense related to stock options for the three months ended September 30, 2019 and 2020, respectively, and $2.1 million and $1.7 million for the nine months ended September 30, 2019 and 2020, respectively.

As of December 31, 2019 and September 30, 2020, the Company had $5.2 million, and $4.1 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.6 years, and 2.5 years, respectively.

The grant date fair value of stock options granted during the nine months ended September 30, 2020 was estimated at the time of grant using the Black-Scholes option-pricing model and utilized the following weighted average assumptions:

Nine Months Ended

September 30,

Fair value of common stock (per share)

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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.

The following table summarizes activity for restricted stock units (“RSUs”) for the six months ended June 30, 2020:

The weighted average fair value of stock options granted during the nine months ended September 30, 2020 was estimated to be $3.97 per share.

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2020 was $1.5 million, and the aggregate intrinsic value of options outstanding and options exercisable as of September 30, 2020 was $296.7 million and $175.1 million, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity for restricted stock units (“RSUs”) for the nine months ended September 30, 2020:

Weighted Average

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Forfeited / cancelled

Unvested and outstanding as of June 30, 2020

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.

Unvested and outstanding as of September 30, 2020

The Company recognized $0.0 million and $3.7 million of stock-based compensation expense related to RSUs for the three months ended September 30, 2019 and 2020, respectively, and $0.1 million and $7.0 million for the nine months ended September 30, 2019 and 2020, respectively.

As of December 31, 2019 and September 30, 2020, the Company had $1.3 million and $17.9 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.4 years and 1.8 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.

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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.

During the years ended December 31, 2014 and 2015, the Company granted awards of 4,751,874 shares of restricted common stock (the “RSAs”).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity related to the Co mpany’s RSAs for the six months ended June 30, 2020 :

The following table summarizes the activity related to the Company’s RSAs for the nine months ended September 30, 2020:

Unvested at December 31, 2019

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.

Unvested at September 30, 2020

For the three and nine months ended September 30, 2019, the expense related to the RSAs was immaterial.

For the three and nine months ended September 30, 2020, the expense related to the RSAs was $0.0 and $0.2 million, respectively.

As of September 30, 2020, there was no remaining unrecognized stock-based compensation expense related to the RSAs.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments and Fair Value Measurements

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Total financial liabilities

As of June 30, 2020

As of September 30, 2020

(in thousands)

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Total financial assets

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of the Series F Preferred Stock Warrant, which is measured at fair value using Level 3 inputs:

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Conversion to common stock warrant

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.

Balance as of September 30, 2020

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prior to the closing of the IPO on June 11, 2020 and the related conversion of the Company’s preferred stock into common stock, t he Company estimate d the fair value of the Series F Preferred Stock Warrant based on the Black-Scholes option-pricing model which utilize d the value of shares sold in the Company’s latest preferred stock financing and allocate d 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 Prefer red 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 P referred Stock Warrant.

Fair Value of Financial Instruments

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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.

As of December 31, 2019 and September 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.

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The Wholesale reportable segment represents sales of used vehicles through wholesale auctions.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information about the Company’s reportable segments are as follows (in thousands):

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Revenues from external customers

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Revenues from external customers

Gross profit (loss)

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Revenues from external customers

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Revenues from external customers

Gross profit (loss)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation between reportable segment gross profit to consolidated loss before provision for income taxes is as follows (in thousands):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Segment gross profit

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Other income, net

Loss before provision (benefit) for income taxes

Loss before provision for income taxes

The Company computes income taxes using the liability method.

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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’s effective tax rate for the three months ended September 30, 2019 and 2020 was (0.12)% and 0.09%, respectively.

The effective tax rate for the nine months ended September 30, 2019 and 2020 was (0.12)% and (0.10)%, respectively.

The Company is subject to tax in the United States and many state and local jurisdictions.

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federal, state and local for tax years 2015 and prior.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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There were ownership changes in July 2013, November 2014 and July 2015 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.

The Company has not identified any uncertain tax positions as of December 31, 2019 or September 30, 2020.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net Loss Per Share

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except share and per share amounts)

1 unchanged sentence

Net loss attributable to common stockholders

Weighted-average number of shares outstanding used to

compute net loss per share attributable to common

stockholders, basic and diluted

Net loss per share attributable to common stockholders,

basic and diluted

Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

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 September 30,

Redeemable convertible preferred stock

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Restricted stock units

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions

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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.

For the three and nine months ended September 30, 2019, the Company incurred $0.3 million and $0.7 million, respectively, of costs under the Vendor Agreement.

The Vendor Agreement was terminated in February 2020.

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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.

Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those incorporated by reference into the section titled "Risk Factors" in Part 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.

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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.

For consumers looking to sell or trade in their vehicles, we provide attractive market-based pricing, real-time price quotes and convenient, contact-free at-home vehicle pick-up.

Vehicle Operations:

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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.

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.

For the three and nine months ended September 30, 2020 , we generated $ 323.0 million and $ 951.9 million in total revenue, respectively, representing a 5.1% decrease and a 13.8% increase , respectively, over $ 340.3 million and $ 836.2 million for the three and nine months ended September 30, 2019 .

Our business generated a net loss of $ 39.8 million and $ 37.9 million for the three months ended September 30, 2019 and 2020 , and a net loss of $ 100.2 million and $ 142.1 million for the nine months ended September 30, 2019 and 2020 , respectively .

We intend to continue to invest in growth to scale our company res ponsibly and drive towards profitability.

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.

As the largest segment in our business, Ecommerce revenue grew 24.5% from the three months ended September 30, 2019 to the three months ended September 30, 2020 and 62.1% from the nine months ended September 30, 2019 to the nine months ended September 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.

For the three months ended September 30, 2020, our Ecommerce, TDA and Wholesale segments represented 68.7%, 11.5% and 19.8% of our total revenue, respectively.

For the nine months ended September 30, 2020, our Ecommerce, TDA and Wholesale segments represented 66.2%, 15.9% and 17.9% of our total revenue, respectively.

Our retail gross profit consists of two components:

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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.

We also have begun to offer third party inventory listings, which 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.”

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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.

Utilizing this hybrid approach, we have increased our total reconditioning capacity to approximately 400 units per day as of September 30, 2020, with more than half from 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.

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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.

For our logistics operations, we primarily have used national third-party carriers, which has allowed us to efficiently deliver vehicles to customers throughout the United States while focusing on expanding other critical components of our business, such as the volume and selection of vehicles in our inventory.

We optimized our third-party logistics network nationally through the development of strategic carrier arrangements with national haulers and consolidated our carrier base into dedicated operating regions.

This strategy enhances the flexibility, agility and speed of our growth while reducing the need for additional capital commitments as we scale our business.

Recently, as a result of the continued prevalence of the COVID-19 pandemic, we have experienced a reduced supply of carriers, increased shipping prices and deteriorating service levels.

Thus, we are accelerating our strategy to optimize our hybrid approach by expanding our proprietary logistics network.

Currently, we are prioritizing investment in our last-mile delivery operations where we can have the greatest impact on the customer experience and expect over time to expand our operations to include hub-to-hub shipments.

Consistent with our hybrid approach, as we continue to scale our business, we intend to strategically combine the operation of our expanded proprietary fleet with the use of third-party carriers, which we expect will enable us to both accommodate our growth and provide the highest level of customer service.

See “—Key Factors and Trends Affecting our Operating Results—Ability to expand and develop our logistics network.”

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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.

As we scale our business, we intend to introduce additional value-added products that will be attractive to our customers and drive revenue and profitable growth.

We expect that both expanded product offerings and increased attachment rates in value-added product sales will have a positive impact on our profitability.

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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):

Ecommerce (68.7% and 66.2% of revenue for the three and nine months ended September 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):

TDA ( 11.5% and 15.9% of revenue for the three and nine months ended Sept ember 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):

Wholesale (19.8% and 17.9% of revenue for three and nine months ended September 30, 2020, respectively):

The Wholesale segment represents sales of used vehicles through wholesale auctions.

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 :

Reflected below is a summary of reportable segment revenue and reportable segment gross profit for the three and nine months ended September 30, 2019 and 2020:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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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,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Ecommerce units sold

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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.

Vehicle Gross Profit per Ecommerc e Unit

Vehicle Gross Profit per Ecommerce Unit

Vehicle Gross Profit per ecommerce unit, which we refer to as Vehicle GPPU, for a given period is defined as the aggregate retail sales price and delivery charges for all vehicles sold through our Ecommerce segment less the aggregate costs to acquire those vehicles, the aggregate costs of inbound transportation to the VRCs and the aggregate costs of reconditioning those vehicles in that period, divided by the number of ecommerce units sold in that period.

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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.

Listed vehicles includes both vehicles that are available for sale and “coming soon” vehicles.

Listed vehicles is a key indicator of our performance because we believe that the number of vehicles listed on our platform is a key driver of vehicle sales and revenue growth.

Increasing the number of vehicles listed on our platform results in a greater selection of vehicles for our customers, creating demand and increasing conversion.

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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.

Ecommerce average days to sale excludes vehicles sold through the TDA and Wholesale segments.

Ecommerce average days to sale is an important metric because a reduction in the number of days between the acquisition of a vehicle and the delivery of such vehicle typically results in a higher gross profit per unit.

Non-GAAP Financial Measures

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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Interest income

Provision (benefit) for income taxes

Provision for income taxes

Depreciation and amortization expense

One-time, IPO related acceleration of non-cash

stock-based compensation

One-time, IPO related non-cash revaluation of preferred

stock warrant

One-time IPO related acceleration of non-cash stock-based compensation

One-time IPO related non-cash revaluation of preferred stock warrant

Adjusted EBITDA

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Loss from operations

One-time IPO related acceleration of non-cash stock

based compensation

One-time IPO related acceleration of non-cash stock based compensation

Adjusted loss from operations

5 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except share and per share amounts)

1 unchanged sentence

Net loss attributable to common stockholders

One-time IPO related acceleration of non-cash stock

based compensation

One-time IPO related non-cash revaluation of

preferred stock warrant

One-time IPO related acceleration of non-cash stock based compensation

One-time IPO related non-cash revaluation of preferred stock warrant

Non-GAAP net loss

Weighted-average number of shares outstanding used to

compute net loss per share, basic and diluted

Weighted-average number of shares outstanding used to compute net loss per share,

basic and diluted

Net loss per share, basic and diluted

Impact of one-time IPO related acceleration of non-cash stock

based compensation

Impact of one-time IPO related non-cash revaluation of

preferred stock warrant

Impact of one-time IPO related acceleration of non-cash stock based compensation

Impact of one-time IPO related non-cash revaluation of preferred stock warrant

Non-GAAP net loss per share, basic and diluted

Non-GAAP net loss per share, as adjusted, basic and

Non-GAAP net loss per share, as adjusted, basic and diluted (a)

(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.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except share and per share amounts)

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Non-GAAP net loss, as adjusted

Weighted-average number of shares outstanding used to

compute net loss per share, basic and diluted

unweighted adjustment for common stock issued in

connection with IPO

unweighted adjustment for conversion of

redeemable convertible preferred stock in connection

Adjustment for the impact of the above items

already included in weighted-average number of

shares outstanding for the periods presented

Weighted-average number of shares outstanding used to

compute net loss per share, as adjusted, basic and

Weighted-average number of shares outstanding used to compute net loss per share,

basic and diluted

unweighted adjustment for common stock issued in connection with IPO

unweighted adjustment for conversion of redeemable convertible preferred stock in connection with IPO

unweighted adjustment for common stock issued in connection with follow-on public offering

Adjustment for the impact of the above items already included in weighted-average number of shares outstanding for the periods presented

Weighted-average number of shares outstanding used to compute net loss per share, as adjusted, basic and diluted

Non-GAAP net loss per share, as adjusted, basic and diluted

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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.

On June 11, 2020, we completed an initial public offering, or 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 over-allotment 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.

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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.

Follow-on Public Offering

On September 15, 2020, we closed on our follow-on public offering in which we sold 10,800,000 shares of common stock at the public offering price of $54.50 per share.

We received proceeds of approximately $569.5 million from the offering, net of the underwriting discount and before deducting offering expenses of $1.5 million.

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”).

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 ecommerce 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.

Rocket Auto is expected to launch publicly during the first quarter of 2021 and, during the term of the RA Agreement, Rocket has agreed to ensure that a minimum percentage of all used vehicles sold or leased through the platform on a monthly basis will be Vroom inventory We issued Rocket 183,870 shares of our common stock upon execution of the RA Agreement.

We will pay Rocket a combination of cash and stock for vehicle sales made through the platform.

Rocket may earn up to 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:

We expect our operations will continue to be adversely impacted through the end of 2020 and continuing into in 2021, 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;

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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;

uncertainty regarding the potential for and timing of a “second wave” of the COVID-19 crisis to occur in the future.

the deterioration of economic conditions in the United States, as well as high unemployment levels, which could have an adverse impact on discretionary consumer spending;

uncertainty regarding the potential for, timing and duration of, and severity of future “waves” of the COVID-19 crisis;

uncertainty as to whether and to what degree governmental economic relief will be provided to soften the negative economic effects of the COVID-19 crisis and the resulting governmental orders and restrictions.

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.

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.

After the initial disruption in our ecommerce operations due to the COVID-19 pandemic, c onsumer demand for used vehicles has returned to pre-COVID-19 levels, and, in the three months ended September 30, 2020, we experienced continued strong consumer demand for our ecommerce solutions and contact-free delivery.

Ecommerce units sold increased, as compared to the three months ended June 30, 2020, 31.4% to 8,823 units primarily driven by increased inventory levels and marketing spend.

Ecommerce revenue increased 26.3% to $221.8 million as the result of a higher number of ecommerce units sold.

Ecommerce gross profit and gross profit per unit experienced strong growth of 167.4% to $19.3 million and 103.5% to $2,188 per unit, respectively.

Impact on TDA

Both TDA and our back-office facility in Houston continued to remain open during the three months ended September 30, 2020.

However, as a result of continuous impact of the COVID-19 pandemic, we have seen a significant reduction in foot traffic at TDA.

Although we experienced an approximate 31.8% increase in unit sales for the three months ended September 30, 2020, as compared to the three months ended June 30, 2020, our unit sales at TDA continued to be 51.8% lower as compared to the first quarter of 2020.

As COVID-19 disruptions continue, we are unsure when TDA will return to normal operations.

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 the three months ended September 30, 2020, our Vroom VRC and all third-party VRCs remained open.

However, we continued to experience disruption across our logistics network due to the COVID-19 pandemic, with a reduced 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.

Most of our corporate, engineering and back-office operations have been able to successfully sustain the transition to a remote working environment.

However, certain of our back-office functions that require handling documents in person have experienced productivity challenges due to the government-ordered limitations on office capacity.

The COVID-19-related restrictions also continue to have a significant effect in areas such as the titling and registration of vehicles sold to customers, due to processing backlogs and limited service capacity of state division of motor vehicle offices across the United States.

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.

In response to the COVID-19 disruptions, we 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.

We are following the guidance from public health officials and government agencies, including limiting the number of employees in our office facilities, 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

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.

Where feasible, we operate on a rotating team schedule to reduce exposure and also require any diagnosed or exposed employees to self-isolate for up to two weeks.

We also continue to take 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.

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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.

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 vehic les 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 t ypes 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.

Ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing effo rts

As we continue to i nvest 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.

Ability to capitalize on the continued migration of vehicle purchasers to ecommerce platforms through data-driven marketing efforts

While the overall ecommerce penetration rate in used vehicle sales remains low, over the last several years, ecommerce used vehicle sales have experienced significant growth.

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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.

Increased conversion also depends on our ability to provide the necessary customer service and sales support to respond to increased demand.

Over the fourth quarter, we intend to pursue further expansion of our customer experience team as we ramp up our sales support in anticipation of continued sales growth in 2021.

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.

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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.

Auctions, consumers, and rental car companies represent the vast majority of our inventory sources, accounting for approximately 51%, 36%, and 13% of our retail inventory sold for the three months ended September 30, 2020, respectively, and 52%, 32%, and 15% for the nine months ended September 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.

We continually evaluate the optimal mix of sourcing channels and strive to source vehicles in a way that maximizes our average gross profit per unit and improves our unit economics.

For example, purchasing vehicles at third-party auctions is competitive and, consequently, vehicle prices at third-party auctions tend to be higher than vehicle prices for vehicles sourced directly from consumers.

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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.

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 focuse d 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.

We have begun to offer third-party inventory listings, which 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

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We employ a hybrid approach that combines the use of our Vroom VRC and third-party VRCs to best meet our reconditioning needs.

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 .

In 2019, we significantly increased 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 increased 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.

Additionally, 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.

We have continued to expand our third-party VRC operations and, as of the date of this Quarterly Report on Form 10-Q, have a current total of eighteen.

See “—Liquidity and Capital Resources.”

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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.

We primarily use third-party carriers and have optimized our third-party logistics network nationwide through the development of strategic carrier arrangements with national haulers and the consolidation of our carrier base into dedicated operating regions.

We expect that these enhanced logistics operations, combined with the expansion of strategically located VRCs, will drive efficiency in our logistics operations.

Our VRCs also serve as pooling points to aggregate acquired vehicles and we intend to begin using certain VRCs as hubs for staging vehicles for last-mile delivery to customers, which we expect to provide an improved experience for customers.

Recently, as a result of the continued prevalence of the COVID-19 pandemic, we have experienced a reduced supply of carriers, increased shipping prices and deteriorating service levels.

Thus, we are accelerating our strategy to optimize our hybrid approach by expanding our proprietary logistics network.

As we invest in our expanded logistics operations, we expect to incur increased operating expenses and capital expenditures associated with purchasing or leasing fleet vehicles, leasing space for delivery hubs, hiring qualified drivers, and operating and maintaining fleet vehicles, offset in part by reduced third-party logistics expense.

Consistent with our hybrid approach, we intend to strategically combine the operation of our expanded proprietary fleet with the use of third-party carriers, which we expect will enable us to both accommodate our growth and provide the highest level of customer service.

Over time, as our business scales, we expect that optimizing our logistics network through this hybrid approach will result in improved unit economics, increased profitability and an enhanced customer experience.

Ability to increase and better monetize value-added products

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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.

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.

We expect that, as we scale our business, we will increase the breadth and variety of value-ad ded products offered to customers and improve attachment rates to our vehicle sales, which in turn will grow revenue and drive profitability.

Used vehicle sales are seasonal.

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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.”

Components of R esults of Operations

Components of Results of Operations

Retail vehicle revenue

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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 and the average selling price (“ASP”) per unit are the primary factors impacting our retail revenue stream.

The number of units sold depends on the volume of inventory and the selection of vehicles listed on our ecommerce platform, our ability to attract new customers, our brand awareness and our ability to expand our reconditioning operations and logistics network.

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”.

ASP depends primarily on our acquisition and pricing strategies, retail used car market prices, our average days to sale and our reconditioning and logistics costs.

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.

As a data-driven company, we acquire inventory based upon demand predicted by our data analytics.

Since the COVID-19 pandemic, that data has been moving towards lower-priced inventory, which we expect to continue to result in a lower ASP per unit than historical levels.

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.

Vehicles sold at auction are acquired from customers who trade-in their vehicles when making a purchase from us, from customers who sell their vehicle to us in direct-buy transactions, and from liquidation of vehicles previously listed for retail sale .

The number of wholesale vehicles sold and the ASP per unit are the primary drivers of wholesale revenue.

The ASP per unit is affected by the mix of the vehicles we acquire and general supply and demand conditions in the wholesale market.

Product revenue

We generate revenue by earning fees on sales of value-added products to our customers in connection with vehicle sales, including fees earned on customer vehicle financing from third-party lenders and fees earned on sales of other value-added products, such as 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.

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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.

We expect that our SG&A expenses will increase in the future as we expand our operations, including our planned expansion of our proprietary logistics operations, hire additional employees and continue to increase our marketing spend to build brand awareness and increase consumer traffic on our platform.

Over the fourth quarter, we intend to pursue further expansion of our customer experience team as we ramp up our sales support in anticipation of continued sales growth in 2021.

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 the Nasdaq Global Select Market requirements, director and officer insurance costs, and investor and public relations costs.

Depreciation and amortization

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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.

Our interest expense includes interest expense related to our 2020 Vehicle Floorplan Facility (as defined herein), 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

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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Total gross profit

Selling, general and

administrative expenses

Selling, general and administrative expenses

Depreciation and amortization

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Other income, net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Loss before provision for income taxes

Provision for income taxes

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):

Ecommerce (68.7% and 66.2% of revenue for the three and nine months ended September 30, 2020):

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):

TDA (11.5% and 15.9% of revenue for the three and nine months ended September 30, 2020):

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):

Wholesale (19.8% and 17.9% of revenue for the three and nine months ended September 30, 2020):

The Wholesale segment represents sales of used vehicles through wholesale auctions.

Three Months Ended June 30 , 2019 and 2020

Three Months Ended September 30 , 2019 and 2020

The following table presents our Ecommerce segment results of operations for the periods indicated:

Three Months Ended

September 30,

(in thousands, except unit

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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.

Ecommerce units sold increased 3,260, or 58.6%, from 5,563 for the three months ended September 30, 2019 to 8,823 for the three months ended September 30, 2020.

This increase was driven by higher inventory levels, 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, and process improvements in our ecommerce platform.

Average monthly unique visitors to our website grew from 777,313 for the three months ended September 30, 2019 to 928,277 for the three months ended September 30, 2020, representing year over year growth of 19.4%.

We expect ecommerce units sold to continue to grow in the future as we increase our inventory selection and marketing efforts as well as improve conversion.

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.

Ecommerce vehicle revenue increased $39.5 million, or 22.6%, from $174.5 million for the three months ended September 30, 2019 to $214.0 million for the three months ended September 30, 2020.

The increase in ecommerce vehicle revenue was primarily attributable to the 3,260 increase in ecommerce units sold, which increased vehicle revenue by $102.3 million, partially offset by a lower ASP per unit, which decreased from $31,370 for the three months ended September 30, 2019 to $24,248 for the three months ended September 30, 2020 and decreased vehicle revenue by $62.8 million.

The decrease in ASP per unit was driven by demand predicted by our data analytics.

Since the COVID-19 pandemic, that data has been moving towards lower-priced inventory, which we expect to continue to result in a lower ASP per unit than historical levels.

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

$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.

Ecommerce product revenue increased $4.2 million, or 117.0%, from $3.6 million for the three months ended September 30, 2019 to $7.8 million for the three months ended September 30, 2020.

The increase in ecommerce product revenue was primarily attributable to the 3,260 increase in ecommerce units sold, which increased product revenue by $2.1 million and a $238 increase in product revenue per unit which increased product revenue by $2.1 million.

Product revenue per unit increased from $648 for the three months ended September 30, 2019 to $886 for the three months ended September 30, 2020, which was primarily due to higher attachment rates, improved financing features in our ecommerce platform as well as 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.

Ecommerce vehicle gross profit increased $6.3 million, or 122.1%, from $5.2 million for the three months ended September 30, 2019 to $11.5 million for the three months ended September 30, 2020.

The increase in vehicle gross profit was primarily attributable to a $373 increase in vehicle gross profit per unit, which increased vehicle gross profit by $3.3 million and the 3,260 increase in ecommerce units sold, which increased vehicle gross profit by $3.0 million for the three months ended September 30, 2020 .

Vehicle gross profit per unit increased from $929 for the three months ended September 30, 2019 to $1,302 for the three months ended September 30, 2020 primarily attributable to improvements in inbound logistics and reconditioning costs.

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 continue 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.

Ecommerce product gross profit increased $4.2 million, or 117.0%, from $3.6 million for the three months ended September 30, 2019 to $7.8 million for the three months ended September 30, 2020.

The increase in ecommerce product gross profit was primarily attributable to the 3,260 increase in ecommerce units sold which increased product gross profit by $2.1 million and a $238 increase in product gross profit per unit which increased product gross profit by $2.1 million for the three months ended September 30, 2020.

The increase in product gross profit per unit was primarily attributable to higher attachment rates, improved financing features in our ecommerce platform as well as our strategic partnerships.

The increase was partially offset by the lower ASP 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.

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Three Months Ended

September 30,

(in thousands, except unit

15 unchanged sentences

TDA average days to sale

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.

TDA units sold decreased 1,819, or 55.4%, from 3,282 for the three months ended September 30, 2019 to 1,463 for the three months ended September 30, 2020.

The Houston area has been a relative COVID-19 hotspot in the country and, as a result, TDA foot traffic continues to be negatively impacted by the pandemic.

In addition, despite the fact that we have dramatically expanded our total inventory in excess of pre-COVID levels, the supply of used vehicles in Houston has not returned to the pre-COVID levels.

We believe that TDA units sold will rebound with an eventual recovery in the area, but the timing is uncertain.

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 .

TDA vehicle revenue decreased $63.6 million, or 64.2%, from $99.2 million for the three months ended September 30, 2019 to $35.6 million for the three months ended September 30, 2020.

The decrease in TDA vehicle revenue was primarily due to the 1,819 decrease in TDA units sold which decreased TDA vehicle revenue by $55.0 million and a lower ASP per unit, which decreased from $30,236 for the three months ended September 30, 2019 to $24,316 for the three months ended September 30, 2020 and decreased revenue by $8.6 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 .

TDA product revenue decreased $2.0 million, or 59.7%, from $3.4 million for the three months ended September 30, 2019 to $1.4 million for the three months ended September 30, 2020.

The decrease in TDA product revenue was primarily attributable to the 1,819 decrease in TDA units sold, which decreased TDA product revenue by $1.9 million and the decrease in product revenue per unit which decreased revenue by $0.1 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.

TDA other revenue decreased $0.1 million, or 29.1%, from $0.4 million for the three months ended September 30, 2019 to $0.3 million for the three months ended September 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.

TDA vehicle gross profit decreased $1.8 million, or 57.6%, from $3.1 million for the three months ended September 30, 2019 to $1.3 million for the three months ended September 30, 2020.

The decrease was primarily attributable to the 1,819 decrease in TDA units sold, which decreased TDA vehicle gross profit by $1.7 million and a decrease in TDA vehicle gross profit per unit, which decreased vehicle gross profit by $0.1 million .

We expect our TDA vehicle gross profit to 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 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 .

TDA product gross profit decreased $2.0 million, or 59.7% from $3.4 million for the three months ended September 30, 2019 to $1.4 million for the three months ended September 30, 2020.

The decrease in TDA product gross profit was primarily attributable to the 1,819 decrease in TDA units sold, which decreased TDA product gross profit by $1.9 million and the decrease in product gross profit per unit which decreased gross profit by $0.1 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.

TDA other gross profit decreased $0.1 million, or 28.5%, from $0.2 million for the three months ended September 30, 2019 to $0.1 million for the three months ended September 30, 2020.

The following table presents our Wholesale segment results of operations for the periods indicated:

Three Months Ended

September 30,

(in thousands, except unit data)

1 unchanged sentence

Wholesale revenue

Wholesale gross profit (loss)

Wholesale gross profit

Average selling price per unit

Wholesale gross profit (loss) per unit

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.

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.

Wholesale gross profit per unit

Wholesale Units

Wholesale units sold increased 746, or 13.8%, from 5,420 for the three months ended September 30, 2019 to 6,166 for the three months ended September 30, 2020, primarily driven by an increase in wholesale units purchased from customers.

Wholesale Revenue

Wholesale revenue increased $4.9 million, or 8.3%, from $59.1 million for the three months ended September 30, 2019 to $64.0 million for the three months ended September 30, 2020.

The increase was primarily attributable to the 746 increase in wholesale units sold which increased wholesale revenue by $8.1 million, partially offset by a lower ASP per wholesale unit which decreased from $10,896 for the three months ended September 30, 2019 to $10,375 for the three months ended September 30, 2020 and decreased wholesale revenue by $3.2 million.

Wholesale Gross Profit

Wholesale vehicle gross profit increased $3.1 million from $0.2 million for the three months ended September 30, 2019 to $3.3 million for the three months ended September 30, 2020.

The increase was primarily attributable to a $496 increase in wholesale gross profit per unit, which increased from $46 per unit to $542 per unit primarily as the result of favorable used car prices.

Selling, general and administrative expenses

Three Months Ended

September 30,

(in thousands)

5 unchanged sentences

Total selling, general & administrative expenses

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.

Selling, general and administrative expenses increased $10.2 million, or 20.0%, from $50.9 million for the three months ended September 30, 2019 to $61.1 million for the three months ended September 30, 2020 .

The increase was primarily due to a $3.6 million increase in stock-based compensation included within compensation and benefits, a $4.2 million increase in outbound logistics costs partially attributable to the growth in ecommerce units sold, which increased outbound logistics costs by $2.5 million, and increases in market rates of logistics providers, which increased outbound logistics costs by $1.7 million, and a $3.3 million increase in other selling, general, and administrative expenses primarily related to additional insurance costs associated with being a publicly traded company.

These increases were offset by a $1.7 million decrease in professional services due to a reduction in consulting expenses, primarily in the finance and reconditioning departments, as a result of completion of certain process improvement projects and hiring more employees.

We expect selling, general and administrative expenses to increase in the future as we scale our business and sell more ecommerce units.

We will also continue to invest in and improve our customer experience and invest in expanding our proprietary logistics network including our last-mile delivery operations.

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 .

Depreciation and amortization expenses decreased $0.3 million, or 21.5%, from $1.5 million for three months ended September 30, 2019 to $1.2 million for the three months ended September 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 expense decreased $1.5 million, or 40.5%, from $3.8 million for the three months ended September 30, 2019 to $2.3 million for the three months ended September 30, 2020.

The decrease was primarily attributable to lower interest rates for the 2020 Vehicle Floorplan Facility as a result of decreases in the1-Month LIBOR rate 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

Interest income increased $0.1 million, or 8.3%, from $1.2 million for the three months ended September 30, 2019 to $1.3 million for the three months ended September 30, 2020.

The increase in interest income was primarily driven by higher cash and cash equivalent balances as a result of the IPO and follow-on public offering which was offset by lower interest rates.

Nine Months Ended September 30, 2019 and 2020

The following table presents our Ecommerce segment results of operations for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except unit

16 unchanged sentences

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.

Ecommerce units sold increased 10,860, or 86.1%, from 12,606 for the nine months ended September 30, 2019 to 23,466 for the nine months ended September 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 605,820 for the nine months ended September 30, 2019 to 958,397 for the nine months ended September 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.

Ecommerce vehicle revenue increased $228.3 million, or 59.8%, from $381.7 million for the nine months ended September 30, 2019 to $610.0 million for the nine months ended September 30, 2020.

The increase in ecommerce vehicle revenue was primarily attributable to the 10,860 increase in ecommerce units sold, which increased revenue by $328.8 million, partially offset by a lower ASP per unit, which decreased from $30,280 for the nine months ended September 30, 2019 to $25,995 for the nine months ended September 30, 2020 and decreased revenue by $100.5 million.

The decrease in ASP per unit was driven by our strategic decision to reduce vehicle pricing in order to sell pre-COVID-19 inventory during the second quarter of 2020 as well as demand predicted by our data analytics.

Since the COVID-19 pandemic, that data has been moving towards lower-priced inventory, which we expect to continue to result in a lower ASP per unit than historical levels.

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.

Ecommerce product revenue increased $13.3 million, or 184.2%, from $7.2 million for the nine months ended September 30, 2019 to $20.5 million for the nine months ended September 30, 2020.

The increase was attributable to the increase in product revenue per unit of $301, which increased product revenue by $7.1 million, and the 10,860 increase in ecommerce units sold which increased product revenue by $6.2 million.

Product revenue per unit increased from $572 for the nine months ended September 30, 2019 to $873 for the nine months ended September 30, 2020, which was primarily due to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships.

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.

Ecommerce vehicle gross profit increased $5.7 million, or 38.9%, from $14.6 million for the nine months ended September 30, 2019 to $20.3 million for the nine months ended September 30, 2020.

The increase was attributable to the 10,860 increase in ecommerce units sold which increased vehicle gross profit by $12.6 million partially offset by a lower vehicle gross profit per unit, which decreased vehicle gross profit by $6.9 million.

Vehicle gross profit per unit decreased by $294 from $1,159 for the nine months ended September 30, 2019 to $865 for the nine months ended September 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.

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.

Ecommerce product gross profit increased $13.3 million, or 184.2%, from $7.2 million for the nine months ended September 30, 2019 to $20.5 million for the nine months ended September 30, 2020.

The increase was attributable to the increase in product gross profit per unit of $301, which increased product gross profit by $7.1 million, and the 10,860 increase in ecommerce units sold which increased product gross profit by $6.2 million.

Product gross profit per unit increased from $572 for the nine months ended September 30, 2019 to $873 for the nine months ended September 30, 2020, which was primarily due to higher attachment rates, improved financing features in our ecommerce platform and our strategic partnerships.

The following table presents our TDA segment results of operations for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except unit

15 unchanged sentences

TDA average days to sale

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.

TDA units sold decreased 3,836, or 40.6%, from 9,444 for the nine months ended September 30, 2019 to 5,608 for the nine months ended September 30, 2020.

Although our physical retail location remained open, during the second quarter consumer demand for vehicles at TDA declined significantly due to government mandated “stay-home” orders and other disruptions related to the COVID-19 pandemic.

In addition, despite the fact that during the third quarter we dramatically expanded our total inventory in excess of pre-COVID levels, the supply of used vehicles in Houston has not returned to pre-COVID levels.

We believe that TDA units sold will rebound with an eventual recovery in the area, but the timing is uncertain.

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.

TDA vehicle revenue decreased $126.8 million, or 46.8%, from $271.2 million for the nine months ended September 30, 2019 to $144.4 million for the nine months ended September 30, 2020.

The decrease was driven by the 3,836 decrease in TDA units sold, which decreased vehicle revenue by $110.2 million and the lower ASP per unit, which decreased from $28,715 for the nine months ended September 30, 2019 to $25,744 for the nine months ended September 30, 2020 and decreased vehicle revenue by $16.6 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.

TDA product revenue decreased $3.6 million, or 39.4%, from $9.1 million for the nine months ended September 30, 2019 to $5.5 million for the nine months ended September 30, 2020.

The decrease was primarily driven by the 3,836 decrease in TDA units sold.

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.

TDA other revenue decreased $0.3 million, or 23.5%, from $1.3 million for the nine months ended September 30, 2019 to $1.0 million for the nine months ended September 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.

TDA vehicle gross profit decreased $5.9 million, or 63.9%, from $9.2 million for the nine months ended September 30, 2019 to $3.3 million for the nine months ended September 30, 2020.

The decrease was attributable to the 3,836 decrease in TDA units sold, which decreased vehicle gross profit by $3.7 million and a decrease in TDA vehicle gross profit per unit of $381, which decreased vehicle gross profit by $2.2 million.

We expect our vehicle gross profit to 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 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.

TDA product gross profit decreased $3.6 million, or 39.4%, from $9.1 million for the nine months ended September 30, 2019 to $5.5 million for the nine months ended September 30, 2020.

The decrease was primarily driven by the 3,836 decrease in TDA units sold.

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.

TDA other gross profit decreased $0.3 million, or 42.3%, from $0.6 million for the nine months ended September 30, 2019 to $0.3 million for the nine months ended September 30, 2020.

The following table presents our Wholesale segment results of operations for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except unit data)

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Wholesale revenue

Wholesale gross profit (loss)

Wholesale gross profit

Average selling price per unit

Wholesale gross profit (loss) per unit

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.

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.

Wholesale gross profit per unit

Wholesale Units

Wholesale units sold decreased 1,936, or 12.1%, from 16,046 for the nine months ended September 30, 2019 to 14,110 for the nine months ended September 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.

Wholesale Revenue

Wholesale revenue increased $4.8 million, or 2.9%, from $165.7 million for the nine months ended September 30, 2019 to $170.5 million for the nine months ended September 30, 2020.

The increase in wholesale revenue was attributable to a higher ASP per unit which increased from $10,327 million for the nine months ended September 30, 2019 to $12,081 for the nine months ended September 30, 2020 and increased revenue by $24.8 million, offset by the 1,936 decrease in wholesale units sold, which decreased wholesale revenue by $20.0 million.

The increase in ASP 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.

Wholesale Gross Profit

Wholesale vehicle gross profit increased $0.6 million, or 72.1%, from $0.9 million for the nine months ended September 30, 2019 to $1.5 million for the nine months ended September 30, 2020.

The increase was primarily attributable to a $52 increase in wholesale gross profit per unit.

Selling, general and administrative expenses

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Total selling, general & administrative expenses

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.

Selling, general and administrative expenses increased $36.2 million, or 27.6%, from $131.2 million for the nine months ended September 30, 2019 to $167.4 million for the nine months ended September 30, 2020.

The increase was primarily due to an $11.8 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 $3.6 million increase in stock-based compensation included within compensation and benefits, a $10.6 million increase in outbound logistics costs attributable to the growth in our ecommerce business, a $10.4 million increase in advertising and marketing efforts as we expanded our national broad-reach advertising, and a $7.6 million increase in other selling, general and administrative expenses, primarily related to increases in volume-based subscription fees as our business continues to scale and additional insurance costs associated with being a publicly traded company.

The increases were partially offset by a $3.7 million decrease in professional services due to a reduction in consulting expenses, primarily in the finance and reconditioning departments, as a result of completion of certain process improvement projects and hiring more employees.

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.

Depreciation and amortization expenses decreased $1.4 million, or 28.8%, from $4.6 million for the nine months ended September 30, 2019 to $3.2 million for the nine months ended September 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 expense decreased $3.5 million, or 35.6%, from $9.9 million for the nine months ended September 30, 2019 to $6.4 million for the nine months ended September 30, 2020.

The decrease was primarily attributable to the repayment of our term loan facility in December 2019 as well as lower interest rates for the 2020 Vehicle Floorplan Facility as a result of decreases in the 1-Month LIBOR rate.

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.

Interest income decreased $0.5 million, or 11.1%, from $4.5 million for the nine months ended September 30, 2019 to $4.0 million for the nine months ended September 30, 2020.

The decrease in interest income was primarily driven decreases in deposits with Ally Bank, lower interest rate yields, and decreases in the LIBOR rate.

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.

The increase in revaluation of preferred stock warrant of $20.0 million from the nine months ended September 30, 2019 to the nine months ended September 30, 2020 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.

On June 11, 2020, we completed our IPO in which we sold 24,437,500 shares of our common stock, which included 3,187,500 shares sold pursuant to the exercise by the underwriters of an over-allotment option to purchase additional shares, for proceeds of $504.0 million, net of the underwriting discount and before deducting offering expenses of $7.5 million.

On September 15, 2020, we completed our follow-on public offering in which we sold 10,800,000 shares of common stock for proceeds of $569.5 million, net of the underwriting discount and before deducting offering expenses of $1.5 million.

As of September 30, 2020, we had cash and cash equivalents of $1,161.4 million.

We anticipate that our existing cash and cash equivalents and the 2020 Vehicle Floorplan Facility will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months from the date of this Form 10-Q.

For the nine months ended September 30, 2020, we had negative cash flow from operations of approximately $182.9 million.

We generated a net loss of approximately $37.9 million and $142.1 million for the three and nine months ended September 30, 2020, respectively.

We have not been profitable since our inception in 2012 and had an accumulated deficit of approximately $717.2 million as of September 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.

We historically have funded vehicle inventory purchases primarily through our Vehicle Floorplan Facility.

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.

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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.

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.

As of September 30, 2020, we finance our inventory with a vehicle floorplan facility (the “2020 Vehicle Floorplan Facility”) with Ally Bank, which provides a committed credit line of up to $450.0 million.

The amount of credit available to us under the 2020 Vehicle Floorplan Facility is determined on a monthly basis based on a calculation that considers average outstanding borrowings and vehicle units paid off by us within the three immediately preceding months.

Approximately $12.1 million was available under this facility as of September 30, 2020.

In October 2020, we amended our 2020 Vehicle Floorplan Facility to extend the maturity date to September 30, 2022.

The amendment requires us to pay an availability fee on the average unused capacity from the prior quarter if it was greater than 50% of the calculated floorplan allowance, as defined.

We are subject to financial covenants that require us to maintain a certain level of equity in the vehicles that are financed, to maintain at least 7.5% of the credit line in cash and cash equivalents and to maintain 10% of the monthly credit line availability on deposit with Ally Bank.

We were required to pay an upfront commitment fee upon execution of the amendment.

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.

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.

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

The following table summarizes our cash flows for the nine months ended September 30, 2019 and 2020:

Nine Months Ended

September 30,

(in thousands)

Net cash (used in) provided by operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net (decrease) increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

Cash and cash equivalents and restricted cash at end of period

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.

Net cash flows used in operating activities increased from $180.0 million for the nine months ended September 30, 2019 to $182.9 million for the nine months ended September 30, 2020.

The increase is primarily attributable to $16.9 million in incremental net loss after reconciling adjustments for the nine months ended September 30, 2020, as compared to nine months ended September 30, 2019 offset by changes in working capital.

We finance substantially all our inventories with the 2020 Vehicle Floorplan Facility.

In accordance with U.S.

GAAP relating to the statement of cash flows, we report all cash flows arising in connection with the 2020 Vehicle Floorplan Facility, as a financing activity in our statement of cash flows.

Investing Activities

Net cash flows used in investing activities increased $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.

Net cash flows used in investing activities increased $3.1 million, from $2.0 million for the nine months ended September 30, 2019 to $5.1 million for the nine months ended September 30, 2020, 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.

Net cash flows provided by financing activities increased $1,070.0 million from $87.7 million for the nine months ended September 30, 2019 to $1,157.7 million for the nine months ended September 30, 2020.

The increase was primarily related to $497.2 million of net proceeds received upon completion of the IPO net of cash paid for offering expenses related to the IPO, $569.3 million of net proceeds received upon completion of the follow-on public offering net of cash paid for offering expenses related to the follow-on public offering, and the issuance of $21.7 million of Series H preferred stock, net of issuance costs paid.

These increases were partially offset by a net decrease in cash of $17.9 million related to our Vehicle Floorplan Facility.

Proceeds from and payments for our Vehicle Floorplan Facility decreased from a net cash inflow of $93.4 million for the nine months ended September 30, 2019 to $75.5 million for the nine months ended September 30, 2020.

Contractual Obligations and Commitments

There have been no material changes to our obligations under operating leases as compared to those described in the Prospectus.

There have been no material changes to our contractual obligations or commitments outside of the ordinary course of business as compared to those described in our Prospectus (File No.

333-248655) filed pursuant to Rule 424(b)(4) on September 11, 2020.

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

Critical Account ing 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements