Vroom, Inc. 10-Q

Item 1. Financial Statements VROOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (unaudited) As of As of March 31, December 31, 2021 2020 ASSETS Current Assets: Cash and cash equivalents $ 940,287 $ 1,056,213 Restricted cash 26,550 33,826 Accounts receivable, net of allowance of $4,380 and $2,803, respectively 93,215 60,576 Inventory 337,696 423,647 Prepaid expenses and other current assets 24,724 23,617 Total current assets 1,422,472 1,597,879 Property and equipment, net 16,937 15,092 Intangible assets, net 32,912 34 Goodwill 159,306 78,172 Operating lease right-of-use assets 18,569 17,137 Other assets 16,511 15,742 Total assets $ 1,666,707 $ 1,724,056 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 42,840 $ 32,925 Accrued expenses 71,966 59,405 Vehicle floorplan 253,038 329,231 Deferred revenue 48,236 24,822 Operating lease liabilities, current 6,365 6,052 Other current liabilities 32,700 30,275 Total current liabilities 455,145 482,710 Operating lease liabilities, excluding current portion 13,457 12,093 Other long-term liabilities 2,504 2,151 Total liabilities 471,106 496,954 Commitments and contingencies (Note 10) Stockholders’ equity: Common stock, $0.001 par value; 500,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 136,303,301 and 134,043,969 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 134 132 Additional paid-in-capital 2,050,527 2,004,841 Accumulated deficit (855,060 ) (777,871 ) Total stockholders’ equity 1,195,601 1,227,102 Total liabilities and stockholders’ equity $ 1,666,707 $ 1,724,056 See accompanying notes to these unaudited condensed consolidated financial statements . 5 Table of Contents VROOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) Three Months Ended March 31, 2021 2020 Revenue: Retail vehicle, net $ 454,323 $ 308,710 Wholesale vehicle 118,024 55,578 Product, net 15,572 11,044 Other 3,199 440 Total revenue 591,118 375,772 Cost of sales 554,942 357,385 Total gross profit 36,176 18,387 Selling, general and administrative expenses 109,114 58,380 Depreciation and amortization 2,594 966 Loss from operations (75,532 ) (40,959 ) Interest expense 3,812 2,826 Interest income (2,296 ) (1,956 ) Revaluation of preferred stock warrant — (790 ) Other income, net (15 ) (33 ) Loss before provision for income taxes (77,033 ) (41,006 ) Provision for income taxes 156 53 Net loss $ (77,189 ) $ (41,059 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.57 ) $ (4.85 ) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 135,497,511 8,471,456 See accompanying notes to these unaudited condensed consolidated financial statements. 6 Table of Contents VROOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands, except share amounts) (unaudited) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Deficit Balance at December 31, 2019 83,568,628 $ 874,332 8,650,922 $ 8 $ — $ (573,860 ) $ (573,852 ) Stock-based compensation — $ — — $ — $ 600 $ — $ 600 Exercise of stock options — — 2,774 — 6 — 6 Repurchase of common stock — — (200,000 ) — (606 ) (1,212 ) (1,818 ) Issuance of Series H redeemable convertible preferred stock, net of issuance costs 1,964,766 26,714 — — — — — Net loss — — — — — (41,059 ) (41,059 ) Balance at March 31, 2020 85,533,394 $ 901,046 8,453,696 $ 8 $ — $ (616,131 ) $ (616,123 ) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2020 — $ — 134,043,969 $ 132 $ 2,004,841 $ (777,871 ) $ 1,227,102 Issuance of common stock for acquisition of business — $ — 1,072,117 $ 1 $ 39,029 $ — $ 39,030 Fair value of unvested stock options assumed in acquisition of business — — — — 1,017 — 1,017 Stock-based compensation — — — — 2,820 — 2,820 Exercise of stock options — — 687,336 1 2,820 — 2,821 Vesting of restricted stock units — — 499,879 — — — — Net loss — — — — — (77,189 ) (77,189 ) Balance at March 31, 2021 — $ — 136,303,301 $ 134 $ 2,050,527 $ (855,060 ) $ 1,195,601 See accompanying notes to these unaudited condensed consolidated financial statements . 7 Table of Contents VROOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2021 2020 Operating activities Net loss $ (77,189 ) $ (41,059 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,906 970 Amortization of debt issuance costs 281 94 Stock-based compensation expense 2,820 600 Provision for inventory obsolescence (2,551 ) 4,427 Revaluation of preferred stock warrant — (790 ) Other 1,813 306 Changes in operating assets and liabilities: Accounts receivable (33,140 ) (4,530 ) Inventory 88,502 21,702 Prepaid expenses and other current assets (1,127 ) (2,084 ) Other assets (650 ) (807 ) Accounts payable 9,568 (2,937 ) Accrued expenses 12,194 (847 ) Deferred revenue 23,376 (4,499 ) Other liabilities 2,751 4,309 Net cash provided by (used in) operating activities 29,554 (25,145 ) Investing activities Purchase of property and equipment (3,239 ) (1,699 ) Acquisition of business, net of cash acquired (76,145 ) — Net cash used in investing activities (79,384 ) (1,699 ) Financing activities Proceeds from vehicle floorplan 396,849 293,854 Repayments of vehicle floorplan (473,042 ) (302,149 ) Payment of vehicle floorplan upfront commitment fees — (1,125 ) Proceeds from the issuance of redeemable convertible preferred stock, net — 21,694 Repurchase of common stock — (1,818 ) Payments of costs related to IPO — (828 ) Proceeds from exercise of stock options 2,821 6 Other financing activities — (34 ) Net cash (used in) provided by financing activities (73,372 ) 9,600 Net decrease in cash, cash equivalents and restricted cash (123,202 ) (17,244 ) Cash, cash equivalents and restricted cash at the beginning of period 1,090,039 219,587 Cash, cash equivalents and restricted cash at the end of period $ 966,837 $ 202,343 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,525 $ 2,743 Supplemental disclosure of non-cash investing and financing activities: Costs related to IPO included in accrued expenses and accounts payable $ — $ 2,162 Issuance of common stock for acquisition of business $ 39,030 $ — Fair value of unvested stock options assumed for acquisition of business $ 1,017 $ — Accrued property and equipment expenditures $ 136 $ 289 See accompanying notes to these unaudited condensed consolidated financial statements . 8 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Description of Business and Basis of Presentation Description of Business and Organization Vroom, Inc., and its wholly owned subsidiaries (collectively, “the Company”) is an innovative, end-to-end ecommerce platform that is transforming the used vehicle industry by offering a better way to buy and a better way to sell used vehicles. In December 2015, the Company acquired Houston-based Left Gate Property Holding, LLC (d/b/a Texas Direct Auto and Vroom). The acquisition included the Company's proprietary vehicle reconditioning center, the Texas Direct Auto ("TDA") dealership, and Sell Us Your Car® centers. Left Gate Property Holding, LLC was renamed Vroom Automotive, LLC in March 2021, and is the primary operating entity for the Company's purchases and sales of used vehicles. In January 2021, the Company acquired Vast Holdings, Inc.(d/b/a CarStory). The Company currently is organized into three reportable segments: Ecommerce, Wholesale, and TDA. The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicles sales. The Wholesale reportable segment represents sales of used vehicles through wholesale channels. The TDA reportable segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicles sales. The Company was incorporated in Delaware on January 31, 2012 under the name BCM Partners III, Corp. On June 25, 2013, the Company changed its name to Auto America, Inc. and on July 9, 2015, the Company changed its name to Vroom, Inc. Stock Split In connection with the closing of the Company’s initial public offering (“IPO”) on June 11, 2020, the Company effected a 2-for-1 forward stock split of the Company’s common stock, which became effective immediately prior to the consummation of the IPO. All shares of the Company’s common stock, stock-based instruments, and per-share data included in these condensed consolidated financial statements have been retroactively adjusted as though the stock split has been effected prior to all periods presented. Initial Public Offering The Company closed its IPO on June 11, 2020 in which it sold 24,437,500 shares of common stock at the public offering price of $22.00 per share, including 3,187,500 shares sold pursuant to exercise by the underwriters of their option to purchase additional shares. The Company received proceeds of $504.0 million from the IPO, net of the underwriting discount and before deducting offering expenses of $7.5 million. In addition, in accordance with their terms, 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 The condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2020. 9 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The unaudited 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 b alance sheet as of March 31, 2021 and its results of operations for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 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. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, contingencies, revenue-related reserves, fair value measurements, goodwill, and useful lives of property and equipment and intangible assets. The Company bases its estimates on historical experience, market conditions, and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates. Due to the evolving and uncertain nature of the COVID-19 pandemic, it is reasonably possible that it could materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions the Company may face. Comprehensive Loss The Company did not have any other comprehensive income or loss for the three months ended March 31, 2021 and 2020. Accordingly, net loss and comprehensive loss are the same for the periods presented. Restricted Cash Restricted cash includes cash deposits required under letter of credit agreements as explained in Note 10 – Commitments and Contingencies. As of March 31, 2021 and December 31, 2020, restricted cash also includes $24.7 million and $31.6 million, respectively, of cash deposits required under the Company’s 2020 Vehicle Floorplan Facility as explained in Note 9 – Vehicle Floorplan Facilities. Business Combinations The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company will continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the Company’s condensed consolidated statement of operations. 10 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Advertising Advertising costs are expensed as incurred and are included within “Selling, general and administrative expenses” in the condensed consolidated statements of operations. Advertising expenses were $29.6 million and $17.9 million for the three months ended March 31, 2021 and 2020, respectively. Shipping and Handling The Company’s logistics costs related to transporting its used vehicle inventory primarily include third-party transportation fees. The portion of these costs related to inbound transportation from the point of acquisition to the relevant reconditioning facility is included in cost of sales when the related used vehicle is sold. Logistics costs not included in cost of sales are accounted for as costs to fulfil contracts with customers and are included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations and were $15.4 million and $5.8 million for the three months ended March 31, 2021 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 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 months ended March 31, 2021 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 March 31, 2021 and December 31, 2020. Liquidity The Company has had negative cash flows and losses from operations since inception which it has funded primarily through issuances of common and preferred stock. The Company has historically funded vehicle inventory purchases through a vehicle floorplan facility. As further discussed in Note 9 – Vehicle Floorplan Facilities, the Company entered into a new facility in March 2020 which increased the borrowing capacity 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 On May 15, 2020, the Company entered into an agreement with Rocket Auto LLC and certain of its affiliates (collectively, “Rocket”) providing for the launch of an ecommerce platform under the “Rocket Auto” brand for the marketing and sale of vehicles directly to consumers (the “RA Agreement”). The Company will list its used vehicle inventory for sale on the Rocket Auto platform, but all sales of the Company’s inventory will be conducted through the Company’s platform. Rocket Auto is expected to launch publicly during 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. The Company determined that the grant date was May 15, 2020 for both the upfront shares issued and the additional shares that potentially are to be issued based on sales volume through the Rocket Auto platform. The fair value of the Company’s common stock on the grant date was determined to be $11.57 per share. The grant date fair value of the upfront shares issued was initially recognized as an asset within “Other assets” in the condensed consolidated balance sheet, which will subsequently be amortized within “Selling, general and administrative 11 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) expenses” over the term of the RA agreement commencing on the launch date. The grant date fair value of the potential shares to be issued will be recognized within “Selling, general and administrative expenses” as sales of Vroom’s inventory associated with the Rocket Auto platform occur and such shares are earned. Accounting Standards Adopted In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which enhances and simplifies various aspects of the income tax accounting guidance including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The Company adopted the guidance on January 1, 2021 which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. 3. Revenue Recognition The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company may collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale as required. These taxes are accounted for on a net basis and are not included in revenues or cost of sales. The Company’s revenue is disaggregated within the condensed consolidated statements of operations and is generated from customers throughout the United States. The Company recognizes revenue at a point in time as described below. Retail Vehicle Revenue The Company sells used vehicles to its retail customers through its ecommerce platform and TDA retail location. The transaction price for used vehicles is a fixed amount as set forth within the customer contract at the time of sale. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent non-cash consideration which the Company measures at fair value based on external and internal market data for each specific vehicle. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales generally at a point in time when the vehicles are delivered to the customer for ecommerce sales or picked up by the customer for TDA sales. The revenue recognized by the Company includes the agreed upon transaction price, including any delivery charges stated within the customer contract. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers. The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing. Payments received prior to delivery or pick-up of used vehicles are recorded as “Deferred revenue” within the condensed consolidated balance sheets. The Company offers a return program for used vehicle sales and establishes a provision for estimated returns based on historical information and current trends. The reserve for estimated returns is presented gross on the condensed consolidated balance sheets, with an asset recorded in “Prepaid expenses and other current assets” and a refund liability recorded in “Other current liabilities.” Wholesale Vehicle Revenue The Company sells vehicles that do not meet its retail sales criteria through wholesale channels. Vehicles sold through wholesale channels are acquired from customers who trade-in their vehicles when making a purchase from the Company, from customers who sell their vehicles to the Company in direct-buy transactions, and from liquidation of vehicles previously listed for retail sale. The transaction price for wholesale vehicles is a fixed amount. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales at a point in time when the vehicle is sold. The transaction price is typically due and collected within a short period of time following the vehicle sales. 12 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Product Revenue The Company’s product revenue consists of fees earned on selling vehicle service contracts, guaranteed asset protection (“GAP”) and tire and wheel coverage. The Company sells these products pursuant to arrangements with the third parties that provide these products and are responsible for their fulfillment. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. The Company recognizes product revenues on a net basis when the customer enters into an arrangement for the products, which is typically at the time of a used vehicle sale. Customers may enter into a retail installment sales contract to finance the purchase of used vehicles. The Company sells these contracts on a non-recourse basis to various financial institutions. The Company receives a fee from the financial institution based on the difference between the interest rate charged to the customer that purchased the used vehicle and the interest rate set by the financial institution. These fees are recognized upon sale and assignment of the installment sales contract to the financial institution, which occurs concurrently at the time of a used vehicle sale. 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 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 March 31, 2021 and December 31, 2020, the Company’s reserve for chargebacks was $4.7 million and $3.8 million, respectively, of which $2.2 million and $1.7 million, respectively, are included within “Accrued expenses” and $2.5 million and $2.1 million, respectively, are included in “Other long-term liabilities.” The Company also is contractually entitled to receive profit-sharing revenues based on the performance of the vehicle service policies once a required claims period has passed. The Company recognizes profit-sharing revenues to the extent it is probable that it will not result in a significant revenue reversal. The Company estimates the revenue based on historical claims and cancellation data from its customers, as well as other qualitative assumptions. The Company reassesses the estimate at each reporting period with any changes reflected as an adjustment to revenues in the period identified. As of March 31, 2021 and December 31, 2020, the Company recognized $12.1 million and $11.5 million, respectively, related to cumulative profit-sharing payments to which it expects to be entitled, of which $0.9 million and $0.8 million, respectively, are included within “Prepaid expenses and other current assets” and $11.2 million and $10.7 million, respectively, are included within “Other assets.” Other Revenue Other revenue consists of labor and parts revenue earned by the Company for vehicle repair services at TDA and, commencing in the first quarter of 2021, revenue from CarStory. Contract Costs The Company has elected, as a practical expedient, to expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within “Selling, general and administrative expenses” in the condensed consolidated statements of operations. 4. Acquisition On January 7, 2021, the Company completed the acquisition of 100% of Vast Holdings, Inc. (d/b/a CarStory), a leader in AI-powered analytics and digital services for automotive retail. Leveraging its machine learning, CarStory brings predictive market data to the Company’s national ecommerce and vehicle operations platform. The Company expects CarStory to continue to offer its digital retailing services to dealers, automotive financial services companies and others in the automotive industry. The financial results of CarStory were included in the condensed consolidated financial statements from the date of acquisition and were not material for the three months ended March 31, 2021. The transaction costs associated with its acquisition were not material for the three months ended March 31, 2021. Pro forma results of operations have not been presented as the effect of this acquisition was not material to the condensed consolidated financial statements. 13 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The fair value of the consideration transferred to acquire Vast Holdings, Inc. was approximatel y $117.1 million at the acquisition date and consisted of the following (in thousands): Fair Value Cash $ 77,010 Common stock issued (1) 39,030 Fair value of unvested stock options assumed (2) 1,017 Total $ 117,057 (1) The Company issued 1,072,117 shares of common stock. The fair value of common stock was determined based on the closing market price on the date of acquisition discounted for a lack of marketability of 10.0% to account for the 180 day lock up period. (2) The fair value of the unvested stock options assumed by the Company was determined using the Black-Scholes option pricing model. The share conversion ratio of 0.0392 was applied to convert CarStory’s outstanding equity awards for CarStory's common stock into equity awards for shares of the Company's common stock. The following table summarizes the fair value of the identified assets acquired and liabilities assumed as of the acquisition date (in thousands): Fair Value Cash and cash equivalents $ 865 Accounts receivable, prepaid expenses and other current assets 1,330 Property and equipment and other assets 371 Intangible Assets 34,300 Goodwill 81,134 Current liabilities (943 ) Net assets acquired $ 117,057 The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. Goodwill is primarily attributable to the workforce of the acquired business and benefits related to expanded market opportunities from integrating CarStory's technology with the Company's ecommerce offerings. All of the goodwill was assigned to the ecommerce reportable segment. The following table summarizes the preliminary identifiable intangible assets acquired and their estimated weighted average useful life at the date of acquisition (in thousands): Fair Value Weighted Average Useful Life Developed technology $ 25,700 5 Trademarks 5,200 8 Customer relationships 3,400 8 Total intangible assets subject to amortization $ 34,300 Developed technology, most of which is protected by a patent portfolio, represents the fair value of CarStory’s industry-specific AI powered analytics software. Trademarks represent the CarStory trademarks, trade names and domain names. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The estimated fair value of the intangible assets acquired was determined using a discounted cash flow (DCF) method under the income approach. Under this approach, the Company estimates future cash flows and discounts these cash flows at a rate of return that reflects the Company’s relative risk. The allocation of the total consideration transferred to the assets 14 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) acquired, including intangible assets and goodwill, as well as the liabilities assumed is preliminary , pending the receipt of the final third-party valuation report. 5. Inventory Inventory consisted of the following (in thousands): March 31, December 31, 2021 2020 Vehicles $ 335,703 $ 421,458 Parts and accessories 1,993 2,189 Total inventory $ 337,696 $ 423,647 As of March 31, 2021 and December 31, 2020, “Inventory” includes an adjustment of $10.4 million and $12.9 million, respectively, to record the balances at the lower of cost or net realizable value. 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): March 31, December 31, 2021 2020 Equipment $ 1,009 $ 1,061 Furniture and fixtures 1,778 1,746 Company vehicles 6,174 5,002 Leasehold improvements 7,094 7,068 Internal-use software 12,057 10,552 Other 3,634 2,997 31,746 28,426 Accumulated depreciation and amortization (14,809 ) (13,334 ) Property and equipment, net $ 16,937 $ 15,092 Depreciation and amortization expense was $1.5 million and $0.9 million for the three months ended March 31, 2021 and 2020, respectively. Depreciation and amortization expense included within “Cost of sales” in the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 was not material. Implementation costs capitalized and accumulated amortization related to the Company’s cloud computing arrangements were $3.9 million and $1.2 million as of March 31, 2021, respectively, and $3.6 million and $1.0 million as of December 31, 2020, respectively, and were included within “Other assets” in the condensed consolidated balance sheets. Amortization expense of $0.3 million and $0.2 million was included within “Selling, general and administrative expenses” in the condensed statements of operations for the three months ended March 31, 2021 and 2020, respectively. 15 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7 . Goodwill and Intangible Assets Goodwill The following table summarizes the activity in the carrying value of goodwill by reportable segment for the three months ended March 31, 2021 and 2020 (in thousands): Ecommerce Wholesale TDA Total Balance as of December 31, 2019 $ 72,231 $ 1,720 $ 4,221 $ 78,172 Change in carrying amount — — — — Balance as of March 31, 2020 $ 72,231 $ 1,720 $ 4,221 $ 78,172 Balance as of December 31, 2020 $ 72,231 $ 1,720 $ 4,221 $ 78,172 Acquisition 81,134 — — 81,134 Balance as of March 31, 2021 $ 153,365 $ 1,720 $ 4,221 $ 159,306 Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the three months ended March 31, 2021. Intangible Assets Intangibles assets, net consisted of the following (in thousands): March 31, December 31, 2021 2020 Developed Technology $ 25,700 $ — Trademarks 5,240 40 Customer Relationships 3,400 — Other 252 252 34,592 292 Accumulated Amortization (1,680 ) (258 ) Intangible assets, net $ 32,912 $ 34 Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the three months ended March 31, 2021. Amortization expense for intangible assets was $1.4 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively. The estimated amortization expense for intangible assets subsequent to March 31, 2021 consists of the following (in thousands): Year Ending December 31: For remainder of 2021 $ 4,705 2022 6,220 2023 6,215 2024 6,215 2025 6,215 Thereafter 3,342 $ 32,912 16 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 8 . Accrued Expenses and Other Current Liabilities The Company’s accrued expenses consisted of the following (in thousands): March 31, December 31, 2021 2020 Accrued marketing expenses $ 12,696 $ 9,106 Vehicle related expenses 14,555 13,062 Sales taxes 22,789 15,443 Accrued compensation and benefits 8,151 5,749 Accrued professional services 3,174 4,890 Other 10,601 11,155 Total accrued expenses $ 71,966 $ 59,405 The Company’s other current liabilities consisted of the following (in thousands): March 31, December 31, 2021 2020 Vehicle payable $ 23,289 $ 25,086 Other 9,411 5,189 Total other current liabilities $ 32,700 $ 30,275 9. Vehicle Floorplan Facilities In 2020, the Company entered into a new vehicle floorplan facility with Ally Bank and Ally Financial (the “2020 Vehicle Floorplan Facility”). The 2020 Vehicle Floorplan Facility provides a committed credit line of up to $450.0 million which is scheduled to expire in September 30, 2022.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. As of March 31, 2021, the borrowing capacity of the 2020 Vehicle Floorplan Facility was $415.2 million, of which $162.2 million was unutilized. Outstanding borrowings related to the 2020 Vehicle Floorplan Facility are due as the vehicles financed are sold, or in any event, on the maturity date. The 2020 Vehicle Floorplan Facility bears interest at a rate equal to the 1-Month LIBOR rate applicable in the immediately preceding month plus a spread of 425 basis points. The 2020 Vehicle Floorplan Facility is collateralized by the Company’s vehicle inventory and certain other assets and the Company is subject to covenants that require it to maintain a certain level of equity in the vehicles that are financed, to maintain at least 7.5% of the outstanding borrowings in cash and cash equivalents, and to maintain 10% of the daily floorplan principal balance outstanding on deposit with Ally Bank. The Company is required 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. As of March 31, 2021 and December 31, 2020, outstanding borrowings on the 2020 Vehicle Floorplan Facility were $253.0 million and $329.2 million, respectively. Interest expense incurred by the Company for the 2020 Vehicle Floorplan Facility was $3.8 million and $2.7 million for the three months ended March 31, 2021 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 4.37% and 4.39% as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company was in compliance with all covenants related to the 2020 Vehicle Floorplan Facility. 17 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) In connection with the 2020 Vehicle Floorplan Facility , 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 $ 2.2 million and $ 1.7 million for the three months ended March 31, 202 1 and 20 20 , respectively, which are recorded within “Interest income” in the condensed consolidated statements of operations. 10. Commitments and Contingencies Litigation From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business and an unfavorable resolution of any of these matters could materially affect the Company’s future results of operations, cash flows or financial position. The Company is also party to various disputes that the Company considers routine and incidental to its business. The Company does not expect the results of any of these routine actions to have a material effect on the Company’s business, results of operations, financial condition, or cash flows. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Beginning in March 2021, multiple putative class actions were filed in the U.S. District Court for the Southern District of New York by certain of the Company’s stockholders against the Company and certain of the Company’s officers alleging violations of federal securities laws. The lawsuits are captioned Zawatsky et al. v. Vroom, Inc. et al., Case No. 21-cv-2477; Holbrook v. Vroom, Inc. et al., Case No. 21-cv-2551; and Hudda v. Vroom, Inc. et al., Case No. 21-cv-3296. All three of the lawsuits assert similar claims under Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5. The complaints seek damages purportedly caused by alleged materially misleading statements and/or omissions by the Company and the named individual officers. In each case, the named plaintiff(s) seek to represent a proposed class of all persons who purchased or otherwise acquired the Company’s securities during a period from June 9, 2020 to March 3, 2021 (in the case of Holbrook and Hudda), or November 11, 2020 to March 3, 2021 (in the case of Zawatsky). These cases are in preliminary stages, and the Company has not yet responded to the complaints. The Company believes these lawsuits are without merit and intends to vigorously contest these claims. While the outcome of any complex legal proceeding is inherently unpredictable and subject to significant uncertainties, based upon information presently known to management, the Company believes that the potential liability, if any, will not have a material adverse effect on the Company’s financial condition, cash flows, or results of operations. Letters of Credit The Company obtained stand-by letters of credit to satisfy conditions under three lease agreements. The Company was required to maintain a cash deposit of $1.8 million and $2.2 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 March 31, 2021 and December 31, 2020, respectively. Other Matters The Company enters into agreements with third parties in the ordinary course of business that may contain indemnification provisions. In the event that an indemnification claim is asserted, the Company’s liability, if any, would be limited by the terms of the applicable agreement. Historically, the Company has not incurred material costs to defend lawsuits or settle claims related to indemnification provisions. 11. Redeemable Convertible Preferred Stock and Stockholders’ Equity Redeemable Convertible Preferred Stock On January 8, 2020, the Company completed an additional closing of its Series H Preferred Stock whereby it sold and issued an aggregate of 1,964,766 shares of Series H Preferred Stock in exchange for gross proceeds of $26.7 million. The proceeds were used for general corporate purposes and business development. 18 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Immediately upon closing of the IPO, the Company’s outstanding preferred stock was automati cally converted into an aggregate of 85,533,394 shares of the Company’s common stock. On June 11, 2020, the Company amended its certificate of incorporation to authorize the issuance of up to 10,000,000 shares of Preferred Stock. As of March 31, 2021 , ther e was no preferred stock issued or outstanding. Common Stock On June 11, 2020, the Company amended its certificate of incorporation to effect a 2-for-1 forward stock split of shares of the Company’s outstanding common stock, such that each share of common stock, $0.001 par value became two shares of common stock, $0.001 par value per share. The shares of common stock authorized for issuance was increased to 500,000,000. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Warrants In connection with the offering of shares of Series B Preferred Stock, the Company issued warrants to an investor in return for providing ongoing advisory services (“Series B Warrants”). The Series B Warrants allowed the investor to purchase up to 161,136 shares of common stock with an exercise price of $0.72 per share. The Series B Warrants vested in equal monthly installments through October 1, 2017. Upon the closing of the IPO, all of the Series B Warrants were exercised on a cashless basis by the holder which resulted in the net issuance of 155,862 shares of the Company’s common stock. In August 2017, the Company issued a warrant (the “Series F Preferred Stock Warrant”) which allowed the holders to purchase up to 589,970 shares of the Company’s Series F Preferred Stock, or common stock upon conversion of the Company’s preferred stock into common stock, with an exercise price of $8.53 per share. The holders exercised the warrant on June 23, 2020 on a cashless basis, which resulted in the net issuance of 480,250 shares of the Company’s common stock. Prior to the conversion of the Company’s preferred stock into common stock, the Series F Preferred Stock Warrant was classified as a liability due to the contingent redemption features of the Series F Preferred Stock and was measured at fair value at each reporting date. 12. Stock-based Compensation On May 28, 2020, the Company adopted the 2020 Incentive Award Plan (“the 2020 Plan”), which authorized the issuance of (i) up to 3,019,108 shares of the Company’s common stock, (ii) up to the number of shares representing a 4% annual increase on the first day of each year beginning on January 1, 2022 and ending on January 1, 2030, and (iii) any shares of the Company’s common stock subject to awards under the 2014 Plan which are forfeited or lapse unexercised and which following the effective date are not issued under the 2014 Plan. Awards may be issued in the form of restricted stock units, restricted stock, stock appreciation rights, and stock options. As of March 31, 2021, there were 2,788,577 shares available for future issuance under the 2020 Plan. Stock Options The Company recognized $0.6 million of stock-based compensation expense related to stock options for each of the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company had $4.6 million and $3.5 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.3 years and 2.2 years, respectively. RSUs The Company recognized $2.2 million and $0.0 million of stock-based compensation expense related to RSUs for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company had $22.0 million and $15.4 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 1.9 years and 1.8 years, respectively. 19 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1 3 . Financial Instruments and Fair Value Measurements U.S. GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes the following three levels of inputs that may be used to measure fair value: Level 1—Quoted prices in active markets for identical assets or liabilities Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Items Measured at Fair Value on a Recurring Basis The following tables present the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands): ` As of March 31, 2021 Level 1 Level 2 Level 3 Total Financial Assets Cash and cash equivalents: Money market funds $ 734,652 $ — $ — $ — Total financial assets $ 734,652 $ — $ — $ — ` As of December 31, 2020 Level 1 Level 2 Level 3 Total Financial Assets Cash and cash equivalents: Money market funds $ 814,681 $ — $ — $ — Total financial assets $ 814,681 $ — $ — $ — Fair Value of Financial Instruments The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term nature. The carrying value of the 2020 Vehicle Floorplan Facility was determined to approximate fair value due to its short-term duration and variable interest rate that approximates prevailing interest rates as of each reporting period. 14. Segment Information The Company has three reportable segments: Ecommerce, Wholesale, and TDA. No operating segments have been aggregated to form the reportable segments. The Company determined its operating segments based on how the chief operating decision maker (“CODM”) reviews the Company’s operating results in assessing performance and allocating resources. The CODM reviews revenue and gross profit for each of the reportable segments. Gross profit is defined as revenue less cost of sales incurred by the segment. The CODM does not evaluate operating segments using asset information as these are managed on an enterprise-wide group basis. Accordingly, the Company does not report segment asset information. As of March 31, 2021 and December 31, 2020, long-lived assets were predominantly located in the United States. 20 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales. The Wholesale reportable segment represents sales of used vehicles through wholesale channels . The TDA reportable segment represents retail sales of used vehicles from TDA and fees earned on sales of value-added products associated with those vehicle sales. Revenues within the “All O ther” category consist of the CarStory business and vehicle repair services at TDA. Information about the Company’s segments are as follows (in thousands): Three Months Ended March 31, 2021 Ecommerce Wholesale TDA All Other Total Revenues from external customers $ 422,308 $ 118,024 $ 47,587 $ 3,199 $ 591,118 Gross profit (loss) $ 31,837 $ (282 ) $ 2,791 $ 1,830 $ 36,176 Three Months Ended March 31, 2020 Ecommerce Wholesale TDA All Other (1) Total Revenues from external customers $ 233,172 $ 55,578 $ 86,582 $ 440 $ 375,772 Gross profit (loss) $ 14,267 $ (1,292 ) $ 5,258 $ 154 $ 18,387 (1) The Company reclassified other revenue and other gross profit related to the vehicle repair service at TDA from the TDA reportable segment to the ”All Other” category to conform to current year presentation. Reconciliations of total reportable segment revenue and gross profit to consolidated total revenue and consolidated loss before provision for income taxes are as follows (in thousands): Three Months Ended March 31, 2021 2020 Reconciliation to consolidated total revenue Total reportable segment revenue $ 587,919 $ 375,332 All Other revenues 3,199 440 Consolidated total revenue $ 591,118 $ 375,772 Reconciliation to consolidated loss before provision for income taxes Total reportable segment gross profit $ 34,346 $ 18,233 All Other gross profit 1,830 154 Selling, general and administrative expenses 109,114 58,380 Depreciation and amortization 2,594 966 Interest expense 3,812 2,826 Interest Income (2,296 ) (1,956 ) Revaluation of preferred stock warrant — (790 ) Other income, net (15 ) (33 ) Consolidated loss before provision for income taxes $ (77,033 ) $ (41,006 ) 15. Income Taxes The Company computes income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statements and the income tax basis of assets and liabilities. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that certain deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those specific jurisdictions prior to the dates on which such net operating losses expire. The Company maintained a full valuation allowance against its net deferred tax assets because the Company has determined that is it more likely than not that these assets will not be fully realized based on a current evaluation of expected future taxable income and the Company is in a cumulative loss position. 21 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company’s effective tax rate for the three months ended Mar ch 31, 2021 and 2020 was 0 . 20 % and 0 .13%, respectively. The Company is subject to tax in the United States and many state and local jurisdictions. The Company, with certain exceptions, is no longer subject to income tax examinations by U.S. federal, state and local for tax years 2015 and prior. The Internal Revenue Code (IRC) Section 382 provides for a limitation of the annual use of net operating loss and tax credit carryforwards following certain ownership changes (as defined by the IRC Section 382) that limits the Company’s ability to utilize these carryforwards. The Company completed a Section 382 study to determine the applicable limitation, if any. It was determined that the Company has undergone three ownership changes. 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 March 31, 2021 and December 31, 2020. 16. Net Loss Per Share The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders: Three Months Ended March 31, (in thousands, except share and per share amounts) 2021 2020 Net loss $ (77,189 ) $ (41,059 ) Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 135,497,511 8,471,456 Net loss per share attributable to common stockholders, basic and diluted $ (0.57 ) $ (4.85 ) 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: Three Months Ended March 31, 2021 2020 Redeemable convertible preferred stock — 85,533,394 Warrants — 161,136 Stock options 4,995,310 6,198,676 Restricted stock awards — 3,249,382 Restricted stock units 1,700,090 610,278 Total 6,695,400 95,752,866 17. Related Party Transactions Management Services Agreement In July 2015, the Company entered into a management services agreement (“MSA”) with Catterton Management Company, L.L.C. (“Catterton Management”), an affiliate of L Catterton (“Catterton”), a holder of more than 5% of the Company’s outstanding capital stock, pursuant to which Catterton Management agreed to provide consulting services on certain business and financial matters. Under the MSA, the Company agreed to pay Catterton Management an annual fee of $0.3 million until the expiration of the MSA upon the earlier of (i) termination by mutual consent of the parties and (ii) such time that Catterton and/or its affiliates cease to be one of the Company’s stockholders. For the year ended December 31, 2020, payments of the annual fees were waived. In May 2020, the MSA was terminated. 22 Table of Contents VROOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) AutoNation Reconditioning Agreement In January 2019, the Company entered into a vendor agreement (“Vendor Agreement”) with AutoNation, Inc. (“AutoNation”), an affiliate of Auto Holdings, Inc., a holder of more than 5% of the Company’s outstanding capital stock, pursuant to which AutoNation agreed to provide certain reconditioning and repair services for vehicles owned by the Company. Amounts due under the Vendor Agreement for parts supplied and services performed by AutoNation become due and payable as they accrue. The Vendor Agreement was terminated in February 2020. 23 Table of Contents