What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-11 compared with 2021-05-12 · 153 added, 80 removed, 448 unchanged (34% of the section changed)

20 unchanged sentences

Total current liabilities

Convertible senior notes

Operating lease liabilities, excluding current portion

4 unchanged sentences

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

500,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

136,717,347 and 134,043,969 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in-capital

6 unchanged sentences

Three Months Ended

Six Months Ended

Retail vehicle, net

27 unchanged sentences

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

Stock-based compensation

Exercise of stock options

Exercise of common stock warrants

Vesting of restricted stock units

Common stock shares withheld to satisfy employee tax withholding obligations

Balance at June 30, 2020

Redeemable Convertible

8 unchanged sentences

Balance at March 31, 2021

Stock-based compensation

Exercise of stock options

Vesting of restricted stock units

Balance at June 30, 2021

See accompanying notes to these unaudited condensed consolidated financial statements .

1 unchanged sentence

(in thousands)

Three Months Ended

Six Months Ended

Operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Stock-based compensation expense

Provision for inventory obsolescence

Provision to record inventory at lower of cost or net realizable value

Revaluation of preferred stock warrant

6 unchanged sentences

Other liabilities

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities

6 unchanged sentences

Payment of vehicle floorplan upfront commitment fees

Proceeds from issuance of convertible senior notes

Issuance costs paid for convertible senior notes

Proceeds from the issuance of redeemable convertible preferred stock, net

Repurchase of common stock

Common stock shares withheld to satisfy employee tax withholding obligations

Proceeds from the issuance of common stock in connection with IPO, net of underwriting discount

Payments of costs related to IPO

1 unchanged sentence

Other financing activities

Net cash (used in) provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at the beginning of period

2 unchanged sentences

Cash paid for interest

Cash paid for income taxes

Supplemental disclosure of non-cash investing and financing activities:

2 unchanged sentences

Fair value of unvested stock options assumed for acquisition of business

Conversion of redeemable convertible preferred stock warrant to common stock warrant

Issuance of common stock as upfront payment to nonemployee

Accrued property and equipment expenditures

35 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 balance sheet as of June 3 0 , 2021 and its results of operations for the three and six months ended June 3 0 , 2021 and 2020.

The results for the three and six months ended June 3 0 , 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.

12 unchanged sentences

Comprehensive Loss

The Company did not have any other comprehensive income or loss for the three months ended March 31, 2021 and 2020.

The Company did no t have any other comprehensive income or loss for the three and six months ended June 30, 2021 and 2020.

Accordingly, net loss and comprehensive loss are the same for the periods presented.

1 unchanged sentence

Restricted cash includes cash deposits required under letter of credit agreements as explained in Note 11 – 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.

As of June 30, 2021 and December 31, 2020, restricted cash also includes $ 35.3 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

6 unchanged sentences

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.

Advertising expenses were $ 23.5 million and $ 11.6 million for the three months ended June 30, 2021 and 2020, respectively, and $ 53.1 million and $ 29.5 million for the six months ended June 30, 2021 and 2020, respectively.

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 $15.4 million and $5.8 million for the three months ended March 31, 2021 and 2020, respectively.

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 $ 20.2 million and $ 5.5 million for the three months ended June 30, 2021 and 2020, respectively, and $ 35.3 million and $ 11.3 million for the six months ended June 30, 2021 and 2020, respectively.

Concentration of Credit Risk and Significant Customers

5 unchanged sentences

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.

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.

For the three and six months ended June 30, 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 June 30, 2021 and December 31, 2020.

The Company has had negative cash flows and losses from operations since inception and expects to incur additional losses in the future.

The Company closed its IPO on June 11, 2020 in which it received proceeds of $ 504.0 million, net of the underwriting discount and before deducting offering expenses of $ 7.5 million.

Additionally, the Company closed its follow-on public offering on September 15, 2020 in which it received proceeds of $ 569.5 million, net of the underwriting discount and before deducting offering expenses of $ 1.5 million.

In June 2021, the Company issued $ 625.0 million aggregate principal amount of 0.75 % unsecured Convertible Senior Notes due 2026 .

Refer to Note 10 – Long-term Debt for further discussion.

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.

7 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

1 unchanged sentence

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

3 unchanged sentences

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.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the issuer’s accounting for convertible debt instruments and amended certain guidance related to the computation of earnings per share for convertible instruments and contracts in an entity’s own equity.

The Company early adopted the new guidance effective January 1, 2021 .

There was no impact on the date of adoption.

During the three months ended June 30, 2021, the Company issued convertible notes.

Refer to Note 10 – Long-term Debt for further discussion.

Revenue Recognition

14 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company offers a return p rogram 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.”

5 unchanged sentences

The transaction price is typically due and collected within a short period of time following the vehicle sales.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Product Revenue

11 unchanged sentences

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.”

As of June 30, 2021 and December 31, 2020, the Company’s reserve for chargebacks was $ 6.9 million and $ 3.8 million, respectively, of which $ 3.3 million and $ 1.7 million, respectively, are included within “Accrued expenses” and $ 3.6 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.

2 unchanged sentences

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.”

As of June 30, 2021 and December 31, 2020, the Company recognized $ 15.1 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 $ 14.2 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract Costs

5 unchanged sentences

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.

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 and six months ended June 30, 2021.

The transaction costs associated with its acquisition were not material for the three and six months ended June 30, 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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):

was approximately $ 117.1 million at the acquisition date and consisted of the following (in thousands):

Common stock issued (1)

14 unchanged sentences

All of the goodwill was assigned to the ecommerce reportable segment.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the preliminary identifiable intangible assets acquired and their estimated weighted average useful life at the date of acquisition (in thousands):

8 unchanged sentences

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

acquired, including intangible assets and goodwill, as well as the liabilities assumed is preliminary , pending the receipt of the final third-party valuation report.

The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, as well as the liabilities assumed is preliminary, pending the receipt of the final third-party valuation report.

Inventory consisted of the following (in thousands):

1 unchanged sentence

Total inventory

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.

As of June 30, 2021 and December 31, 2020, “Inventory” includes an adjustment of $ 16.0 million and $ 12.9 million, respectively, to record the balances at the lower of cost or net realizable value.

Property and Equipment, Net

6 unchanged sentences

Property and equipment, net

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Depreciation and amortization expense was $ 1.5 million and $ 1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $ 3.0 million and $ 1.8 million for the six months ended June 30, 2021 and 2020, respectively.

Depreciation and amortization expense included within “Cost of sales” in the condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020 was not material.

Implementation costs capitalized and accumulated amortization related to the Company’s cloud computing arrangements were $ 4.5 million and $ 1.5 million as of June 30, 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 $ 0.1 million was included within “Selling, general and administrative expenses” in the condensed statements of operations for the three months ended June 30, 2021 and 2020, respectively, and $ 0.6 million and $ 0.3 million for the six months ended June 30, 2021 and 2020, respectively.

Goodwill and Intangible Assets

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):

The following table summarizes the activity in the carrying value of goodwill by reportable segment for the three and six months ended June 30, 2021 and 2020 (in thousands):

Balance as of December 31, 2019

Change in carrying amount

Balance as of March 31, 2020

Balance as of June 30, 2020

Balance as of December 31, 2020

Balance as of March 31, 2021

Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the three months ended March 31, 2021.

Balance as of June 30, 2021

Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the six months ended June 30, 2021.

Intangible Assets

4 unchanged sentences

Intangible assets, net

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):

Refer to Note 4 – Acquisition for more information related to the acquisition that occurred in the six months ended June 30, 2021.

Amortization expense for intangible assets was $ 1.6 million and $ 0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $ 3.0 million and $ 0.3 million for the six months ended June 30, 2021 and 2020, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The estimated amortization expense for intangible assets subsequent to June 30, 2021 consists of the following (in thousands):

Year Ending December 31:

For remainder of 2021

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued Expenses and Other Current Liabilities

10 unchanged sentences

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.

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 June 30, 2021, the borrowing capacity of the 2020 Vehicle Floorplan Facility was $ 450.0 million, of which $ 86.4 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 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.

As of June 30, 2021 and December 31, 2020, outstanding borrowings on the 2020 Vehicle Floorplan Facility were $ 363.6 million and $ 329.2 million, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Interest expense incurred by the Company for the 2020 Vehicle Floorplan Facility was $ 3.6 million and $ 1.0 million for the three months ended June 30, 2021 and 2020, respectively, and $ 7.4 million and $ 3.7 million for the six months ended June 30, 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 4.35 % and 4.39 % as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021 and December 31, 2020, the Company was in compliance with all covenants related to the 2020 Vehicle Floorplan Facility.

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.

Interest credits earned by the Company were $ 2.0 million and $ 0.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 4.2 million and $ 2.4 million for the six months ended June 30, 2021 and 2020, respectively, which are recorded within “Interest income” in the condensed consolidated statements of operations.

Long-term Debt

On June 18, 2021, the Company issued $ 625.0 million aggregate principal amount of 0.75 % unsecured Convertible Senior Notes due 2026 (the “Notes”), including $ 75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the overallotment option granted to the initial purchasers.

The Notes were issued pursuant to an indenture (the “Indenture”), between the Company and U.S.

Bank National Association, as trustee.

The Notes bear interest at a rate of 0.75 % per annum, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2022 .

The Notes will mature on July 1, 2026 , subject to earlier repurchase, redemption or conversion.

The total net proceeds from the offering, after deducting commissions paid to the initial purchasers and debt issuance costs paid to third-parties, were approximately $ 608.8 million.

Each $ 1,000 principal amount of the Notes will initially be convertible into 17.8527 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $ 56.01 per share, subject to adjustment upon the occurrence of specified events.

The Notes are convertible, at the option of the noteholders, on or after April 1, 2026 .

Prior to April 1, 2026, the Notes are convertible only under the following circumstances:

During any fiscal quarter commencing after the fiscal quarter ending on September 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the Notes on each applicable trading day;

During the five consecutive business day period after any ten consecutive trading day period in which the trading price per $ 1,000 principal amount of the Notes for each day of that ten consecutive trading day period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate of the Notes on such trading day;

If the Company calls any or all of the Notes for redemption;

Upon the occurrence of specific corporate events such as a change in control or certain beneficial distributions to common stockholders (as set forth in the Indenture).

The Company may settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

The Company may not redeem the Notes prior to July 6, 2024.

On or after July 6, 2024, the Company may redeem all or any portion of the Notes for cash equal to 100 % of the principal amount of the Notes being redeemed plus any accrued and unpaid interest if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

If the Company undergoes a fundamental change (as defined in the Indenture), subject to certain conditions, holders of the Notes may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100 % of the principal amount of the Notes plus any accrued and unpaid interest.

In addition, if specific corporate events occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion rate by pre-defined amounts for a holder who elects to convert their Notes in connection with such a corporate event.

During the three months ended June 30, 2021, the conditions allowing holders of the Notes to convert were not met.

We account for the Notes as a single liability-classified instrument measured at amortized cost.

As of June 30, 2021, the unamortized debt discount and debt issuance costs was $ 16.0 million and the net carrying value was $ 609.0 million.

The total estimated fair value of the Notes as of June 30, 2021 was approximately $ 644.0 million.

The fair value was determined using commonly employed valuation methodologies applying observable market inputs and is classified within Level 2 of the fair value hierarchy.

The Notes were issued at par value and fees associated with the issuance of these Notes are amortized to interest expense using the effective interest method over the contractual term of the Notes.

The interest expense for the three and six months ended June 30, 2021 was not material.

The effective interest rate of the Notes is 1.3 %.

Commitments and Contingencies

14 unchanged sentences

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.

In August 2021, the Court consolidated the cases, appointed a lead plaintiff and lead counsel and ordered a consolidated amended complaint to be filed.

The consolidated case is in preliminary stages, and the Company has not yet responded.

The Company believes these lawsuits are without merit and intends to vigorously contest these claims.

2 unchanged sentences

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.

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 June 30, 2021 and December 31, 2020, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Matters

6 unchanged sentences

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Immediately upon closing of the IPO, the Company’s outstanding preferred stock was automatically converted into an aggregate of 85,533,394 shares of the Company’s common stock.

On June 11, 2020, the Company amended its certificate of incorporation to authorize the issuance of up to 10,000,000 shares of Preferred Stock.

As of March 31, 2021 , ther e was no preferred stock issued or outstanding.

As of June 30, 2021, there was no preferred stock issued or outstanding.

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.

11 unchanged sentences

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.

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.

As of June 30, 2021, there were 2,778,836 shares available for future issuance under the 2020 Plan.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

The Company recognized $ 0.6 million of stock-based compensation expense related to stock options for the three months ended June 30, 2021 and 2020, and $ 1.2 million for the six months ended June 30, 2021 and 2020.

As of June 30, 2021 and December 31, 2020, the Company had $ 4.0 million and $ 3.5 million, respectively, of unrecognized stock-based compensation expense that is expected to be recognized over a weighted-average period of 2.1 years and 2.2 years, respectively.

The Company recognized $ 4.8 million and $ 3.3 million of stock-based compensation expense related to RSUs for the three months ended June 30, 2021 and 2020, respectively, and $ 7.0 million and $ 3.3 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and December 31, 2020, the Company had $ 39.8 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.

Financial Instruments and Fair Value Measurements

9 unchanged sentences

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

As of June 30, 2021

Financial Assets

7 unchanged sentences

Total financial assets

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

1 unchanged sentence

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.

Refer to Note 10 – Long-term debt for further discussion related to the fair value of our convertible debt issuance.

Assets and liabilities acquired as part of a business combination are recorded at fair value on a nonrecurring basis.

Refer to Note 4 – Acquisition for additional information.

Segment Information

6 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accordingly, the Company does no t report segment asset information.

As of June 30, 2021 and December 31, 2020, long-lived assets were predominantly located in the United States.

The Ecommerce reportable segment represents retail sales of used vehicles through the Company’s ecommerce platform and fees earned on sales of value-added products associated with those vehicle sales.

1 unchanged sentence

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.

Revenues within the “All Other” 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

Three Months Ended June 30, 2021

Revenues from external customers

Three Months Ended June 30, 2020

All Other (1)

Revenues from external customers

Gross profit (loss)

Three Months Ended March 31, 2020

Six Months Ended June 30, 2021

Revenues from external customers

Six Months Ended June 30, 2020

All Other (1)

2 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Six Months Ended

Reconciliation to consolidated total revenue

17 unchanged sentences

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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’s effective tax rate for the three months ended June 30, 2021 and 2020 was ( 0.30 )% and ( 0.08 )%, respectively.

The effective tax rate for the six months ended June 30, 2021 and 2020 was ( 0.25 )% and ( 0.10 )%, respectively.

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

1 unchanged sentence

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.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as foreign tax and research tax credits, to offset its post-change income and taxes may be limited.

An “ownership change” generally occurs if there is a cumulative change exceeding 50 percentage points over a rolling-three-year period in ownership by “5% shareholders”.

Similar rules may apply under state tax laws

The Company experienced an ownership change in April 2021 and as a result, the utilization of the Company’s net operating loss, capital loss and U.S.

credit carryforwards to offset taxable income are subject to an annual limitation, pursuant to Internal Revenue Code (IRC) Sections 382 and 383.

The Company is currently evaluating the impact of the limitation on its ability to utilize tax attributes in the future.

The Company currently has a full valuation allowance against all its tax attributes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has no t identified any uncertain tax positions as of June 30, 2021 and December 31, 2020 .

Net Loss Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

(in thousands, except share and per share amounts)

2 unchanged sentences

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

Redeemable convertible preferred stock

As of June 30,

Convertible senior notes

Stock options

8 unchanged sentences

In May 2020, the MSA was terminated.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AutoNation Reconditioning Agreement

4 unchanged sentences

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