UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
☒ |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of August 5, 2024,
TABLE OF CONTENTS
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Page |
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5 |
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Item 1. |
5 |
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Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (unaudited) |
5 |
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6 |
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7 |
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8 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
10 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
48 |
Item 3. |
69 |
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Item 4. |
69 |
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70 |
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Item 1. |
70 |
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Item 1A. |
71 |
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Item 2. |
77 |
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Item 3. |
77 |
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Item 4. |
77 |
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Item 5. |
77 |
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Item 6. |
78 |
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81 |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding general economic and market conditions, our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, including the impact of the Value Maximization Plan and Ecommerce Wind-Down, the ongoing activities of and potential growth of our UACC and CarStory businesses, the amendment and renewal of the Warehouse Credit Facilities (as defined herein), the retention of key employees, and the impact, if any, of identified errors in our financial statements, and the impact, if any, of identified errors in our financial statements, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," "contemplate," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," "target," "will," "would," or the negative of these terms or other similar terms or expressions, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including:
3
Other sections of this Quarterly Report on Form 10-Q include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference or incorporate by reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
4
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
VROOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
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As of |
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As of |
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2024 |
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2023 |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash (including restricted cash of consolidated VIEs of $ |
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Finance receivables at fair value (including finance receivables of consolidated VIEs of $ |
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Finance receivables held for sale, net (including finance receivables of consolidated VIEs of $ |
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Interest receivable (including interest receivables of consolidated VIEs of $ |
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Property and equipment, net |
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Intangible assets, net |
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Operating lease right-of-use assets |
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Other assets (including other assets of consolidated VIEs of $ |
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Assets from discontinued operations |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Warehouse credit facilities of consolidated VIEs |
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$ |
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$ |
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Long-term debt (including securitization debt of consolidated VIEs of $ |
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Operating lease liabilities |
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Other liabilities (including other liabilities of consolidated VIEs of $ |
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Liabilities from discontinued operations |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to these unaudited condensed consolidated financial statements.
5
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Interest income |
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$ |
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$ |
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$ |
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$ |
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Interest expense: |
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Warehouse credit facility |
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Securitization debt |
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Total interest expense |
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Net interest income |
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Realized and unrealized losses, net of recoveries |
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Net interest income after losses and recoveries |
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Noninterest income: |
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Servicing income |
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Warranties and GAP income (loss), net |
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( |
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CarStory revenue |
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Gain on debt extinguishment |
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— |
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— |
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Other income |
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Total noninterest income |
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Expenses: |
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Compensation and benefits |
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Professional fees |
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Software and IT costs |
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Depreciation and amortization |
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Interest expense on corporate debt |
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Impairment charges |
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— |
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— |
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— |
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Other expenses |
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Total expenses |
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Loss from continuing operations before provision for income taxes |
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( |
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( |
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( |
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( |
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(Benefit) provision for income taxes from continuing operations |
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( |
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Net loss from continuing operations |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss from discontinued operations |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders, continuing operations, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders, discontinued operations, basic and diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Total net loss per share attributable to common stockholders, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted |
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See accompanying notes to these unaudited condensed consolidated financial statements.
6
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to these unaudited condensed consolidated financial statements.
7
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended |
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2024 |
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2023 |
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Operating activities |
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Net loss from continuing operations |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Impairment charges |
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— |
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Profit share receivable |
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— |
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Gain on debt extinguishment |
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— |
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( |
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Depreciation and amortization |
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Amortization of debt issuance costs |
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Losses on finance receivables and securitization debt, net |
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Stock-based compensation expense |
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Provision to record finance receivables held for sale at lower of cost or fair value |
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( |
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Amortization of unearned discounts on finance receivables at fair value |
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( |
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( |
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Other, net |
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( |
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( |
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Changes in operating assets and liabilities: |
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Finance receivables, held for sale |
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Originations of finance receivables, held for sale |
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( |
) |
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( |
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Principal payments received on finance receivables, held for sale |
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Other |
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Interest receivable |
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( |
) |
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( |
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Other assets |
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Other liabilities |
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( |
) |
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( |
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Net cash used in operating activities from continuing operations |
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( |
) |
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( |
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Net cash provided by operating activities from discontinued operations |
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Net cash used in operating activities |
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( |
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( |
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Investing activities |
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Finance receivables, held for investment at fair value |
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Purchases of finance receivables, held for investment at fair value |
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— |
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( |
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Principal payments received on finance receivables, held for investment at fair value |
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Consolidation of VIEs |
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— |
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Principal payments received on beneficial interests |
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Purchase of property and equipment |
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( |
) |
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( |
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Net cash provided by investing activities from continuing operations |
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Net cash provided by (used in) investing activities from discontinued operations |
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( |
) |
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Net cash provided by investing activities |
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Financing activities |
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Proceeds from borrowings under secured financing agreements, net of issuance costs |
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Principal repayment under secured financing agreements |
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( |
) |
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( |
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Proceeds from financing of beneficial interests in securitizations |
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Principal repayments of financing of beneficial interests in securitizations |
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( |
) |
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( |
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Proceeds from warehouse credit facilities |
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Repayments of warehouse credit facilities |
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( |
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( |
) |
Repurchases of convertible senior notes |
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— |
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( |
) |
Other financing activities |
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( |
) |
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( |
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Net cash provided by financing activities from continuing operations |
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Net cash used in financing activities from discontinued operations |
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( |
) |
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( |
) |
Net cash used in financing activities |
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( |
) |
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( |
) |
Net decrease in cash, cash equivalents and restricted cash |
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( |
) |
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( |
) |
Cash, cash equivalents and restricted cash at the beginning of period |
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Cash, cash equivalents and restricted cash at the end of period |
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$ |
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$ |
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(Continued on following page)
8
VROOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Supplemental disclosure of cash flow information: |
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Cash paid for interest |
|
$ |
|
|
$ |
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||
Cash paid for income taxes |
|
$ |
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$ |
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||
Supplemental disclosure of non-cash investing and financing activities: |
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Finance receivables from consolidation of 2022-2 securitization transaction |
|
$ |
— |
|
|
$ |
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|
Elimination of beneficial interest from the consolidation of 2022-2 securitization transaction |
|
$ |
— |
|
|
$ |
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|
Securitization debt from consolidation of 2022-2 securitization transaction |
|
$ |
— |
|
|
$ |
|
|
Reclassification of finance receivables held for sale to finance receivables at fair value, net |
|
$ |
— |
|
|
$ |
|
|
See accompanying notes to these unaudited condensed consolidated financial statements.
9
1. Description of Business and Basis of Presentation
Description of Business and Organization
Vroom, Inc., through its wholly owned subsidiaries (collectively, the "Company”), is a leading automotive finance company that offers vehicle financing to consumers through third-party dealers and an artificial intelligence ("AI")-powered analytics and digital services platform for automotive retail.
In January 2021, the Company completed the acquisition of Vast Holdings, Inc. (d/b/a CarStory). On February 1, 2022 (the "Acquisition Date"), the Company completed the acquisition of Unitas Holdings Corp. (now known as Vroom Finance Corporation), including its wholly owned subsidiaries United PanAm Financial Corp. (now known as Vroom Automotive Financial Corporation) and United Auto Credit Corporation ("UACC").
The Company was incorporated in Delaware on January 31, 2012 under the name BCM Partners III, Corp. On June 25, 2013, the Company changed its name to Auto America, Inc. and on July 9, 2015, the Company changed its name to Vroom, Inc.
Value Maximization Plan
The Company was previously an end-to-end ecommerce platform to buy and sell used vehicles. On January 22, 2024, the Company announced that its Board of Directors ("Board") had approved a Value Maximization Plan, pursuant to which the Company discontinued its ecommerce operations and wound down its used vehicle dealership business in order to preserve liquidity and enable the Company to maximize stakeholder value through its remaining businesses. The Company ceased transacting through vroom.com, completed transactions for customers who had previously contracted with the Company to purchase or sell a vehicle, halted purchases of additional vehicles, sold substantially all of its used vehicle inventory through wholesale channels, paid off its vehicle floorplan financing facility dated November 4, 2022 with Ally Bank and Ally Financial Inc. (the "2022 Vehicle Floorplan Facility") and conducted a reduction-in-force commensurate with the reduced operations. As of March 29, 2024, the Company substantially completed the wind-down of its ecommerce operations and used vehicle dealership business (the "Ecommerce Wind-Down").
The Company owns and operates UACC, a leading automotive finance company that offers vehicle financing to consumers through third-party dealers under the UACC brand, and CarStory, an AI-powered analytics and digital services platform for automotive retail. The UACC and CarStory businesses continue to serve their third-party customers, with their operations substantially unaffected by the Ecommerce Wind-Down.
The accounting requirements for reporting the Company's ecommerce operations and used vehicle dealership business as a discontinued operation were met as of March 29, 2024. Accordingly, the condensed consolidated financial statements and notes to the condensed consolidated financial statements reflect the results of the Company's ecommerce operations and used vehicle dealership business as a discontinued operation for the periods presented. Refer to Note 5 — Discontinued Operations for further detail. The Company is now organized into two reportable segments: UACC and CarStory. The UACC reportable segment represents UACC’s operations with its network of third-party dealership customers, including the purchase and servicing of vehicle retail installment sales contracts. Prior to the Ecommerce Wind-Down, UACC also offered vehicle financing to Vroom’s customers through its ecommerce platform; the UACC reportable segment also includes the runoff of these previously originated contracts. The CarStory reportable segment represents sales of AI-powered analytics and digital services to automotive dealers, automotive financial services companies and others in the automotive industry. Refer to Note 15 — Segment Information for further detail.
10
Reverse Stock Split
On February 13, 2024, the Company effected a
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, 2023, 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 audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2023.
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 30, 2024 and its results of operations for the three and six months ended June 30, 2024 and 2023. The results for the three and six months ended June 30, 2024 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 related to discontinued operations and new financial statement presentation as a result of the Ecommerce Wind-Down and the reverse stock split.
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, expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to finance receivables, income taxes, stock-based compensation, contingencies, warranties and GAP (as defined below) income-related reserves, fair value measurements and useful lives of property and equipment and intangible assets. The Company bases its estimates on historical experience, market conditions, and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.
Comprehensive Loss
The Company did
Restricted Cash
Restricted cash primarily includes UACC restricted cash. UACC collects and services finance receivables under the securitization transactions and warehouse credit facilities. These collections are restricted for use until properly remitted each month under the terms of the servicing agreement. UACC also maintains a reserve account for each
11
securitization and warehouse credit facility to provide additional collateral for the borrowings. Refer to Note 9 — Warehouse Credit Facilities of Consolidated VIEs and Note 10 — Long Term Debt for further detail.
Finance Receivables
Finance receivables consist of retail installment sale contracts purchased or acquired by UACC from its existing network of third-party dealership customers at a discount as well as retail installment sale contracts UACC offered to Vroom’s customers through its ecommerce platform prior to the Ecommerce Wind-Down.
The Company's finance receivables are generally secured by the vehicles being financed.
Finance receivables that the Company intends to sell and not hold to maturity are classified as held for sale. The Company intends to sell finance receivables through securitization transactions. Finance receivables classified as held for sale are recorded at the lower of cost or fair value. Deferred acquisition costs and any discounts are deferred until the finance receivables are sold and are then recognized as part of the total gain or loss on sale. Refer to Note 3 – Revenue Recognition.
The Company records a valuation allowance to report finance receivables at the lower of cost or fair value. To determine the valuation allowance, finance receivables are evaluated collectively as they represent a large group of smaller-balance homogeneous loans. To the extent that actual experience differs from estimates, significant adjustments to the Company's valuation allowance may be needed. Fair value adjustments are recorded in "Realized and unrealized losses, net of recoveries" in the consolidated statements of operations. Principal balances and corresponding deferred acquisition costs and discounts of finance receivables are charged-off when the Company is unable to sell the finance receivable and the related vehicle has been repossessed and liquidated or the receivable has otherwise been deemed uncollectible. As of June 30, 2024 and December 31, 2023, the valuation allowance for finance receivables classified as held for sale was $
Finance receivables for which the fair value option was elected under ASC 825 are classified as finance receivables at fair value. Finance receivables at fair value include both finance receivables held for sale at fair value as well as finance receivables held for investment at fair value. Finance receivables held for sale at fair value represent finance receivables that the Company intends to sell but elected the fair value option. The aggregate principal balance and the fair value of the finance receivables held for sale at fair value was $
The Company reassesses the estimate for fair value at each reporting period with any changes reflected as a fair value adjustment and recorded in "Realized and unrealized losses, net of recoveries" in the consolidated statements of operations. For all finance receivables at fair value, the Company recognizes the fees it charges to dealers upon acquisition as other income at the time of issuance of the finance receivable and recognizes the acquisition costs to underwrite the finance receivables as an expense in the period incurred. For finance receivables held for sale at fair value, any discounts are deferred until the finance receivables are sold. For finance receivables held for investment at fair value, any discounts are amortized over the contractual life of the underlying finance receivables.
Refer to Note 14 – Financial Instruments and Fair Value Measurements.
12
Consolidated CFEs
The 2022-2, 2023-1, and 2024-1 securitization transaction VIEs are consolidated collateralized financing entities (CFEs). Refer to Note 4 – Variable Interest Entities and Securitizations.
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Interest income |
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$ |
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$ |
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$ |
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$ |
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Interest expense |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Realized and unrealized losses, net of recoveries |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Noninterest loss, net |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
The assets and liabilities of the CFEs are presented as part of "Restricted cash", “Finance receivables at fair value”, "Interest receivable", "Other Assets", "Long term debt", and "Other liabilities", respectively, on the consolidated balance sheets. Refer to Note 4 – Variable Interest Entities and Securitizations and Note 14 – Financial Instruments and Fair Value Measurements for further details.
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 finance receivables. The Company’s cash balances are maintained at various large, reputable financial institutions. Deposits held with financial institutions may at times exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management believes they bear minimal risk. The Company’s cash equivalents primarily consist of money market funds that hold investments in highly liquid U.S. government securities. Concentration of credit risk with respect to finance receivables is generally mitigated by a large consumer base.
Liquidity
As of June 30, 2024, the Company had cash and cash equivalents of $
In January 2024, the Company announced its Value Maximization Plan pursuant to which it discontinued its ecommerce operations and wound-down its used vehicle dealership business. Refer to Note 1 — Description of Business and Basis of Presentation — Value Maximization Plan. As a result of the liquidation of the Company's vehicle inventory as part of the Ecommerce Wind-Down, the Company repaid all amounts outstanding under the 2022 Vehicle Floorplan Facility in the first quarter of 2024 and the agreement was terminated.
As of June 30, 2024, UACC has
13
Failure to secure warehouse borrowing capacity beyond the expiration of the current facilities in 2025 or failure to satisfy the covenants therein and or any other requirements contained within the agreements would restrict access to the Warehouse Credit Facilities and would have a material adverse effect on the financial condition, results of operations and liquidity of the Company. Certain breaches of covenants may also result in acceleration of the repayment of borrowings prior to the scheduled maturity. Refer to Note 9 – Warehouse Credit Facilities of Consolidated VIEs for further discussion.
The Company expects to use cash and cash equivalents to finance future capital requirements and UACC’s Warehouse Credit Facilities to fund finance receivables. Certain advance rates available to UACC on borrowings from the Warehouse Credit Facilities have decreased as a result of the increasing credit losses in UACC’s portfolio and overall rising interest rates. Any future decreases on available advance rates may have an adverse impact on our liquidity.
The Company’s future capital requirements will depend on many factors, including the ability to realize the benefits of the Value Maximization Plan, available advance rates on and the amendment and renewal of the Warehouse Credit Facilities, the ability continue to meet the requirements of Nasdaq for continued listing on the Nasdaq Global Select Market, the ability to complete additional securitization transactions on terms favorable to the Company, and future credit losses.
The Company anticipates that existing cash and cash equivalents and UACC's Warehouse Credit Facilities will be sufficient to support the Company’s ongoing operations and obligations, inclusive of the Ecommerce Wind-Down, for at least the next twelve months from the date of issuance of the condensed consolidated financial statements.
While the Company has no significant debt maturities due until July 2026, if the Company undergoes a fundamental change (as defined in the indenture between the Company and U.S. Bank National Association, as trustee, with respect to the Company’s Convertible Senior Notes due 2026 (the “Notes”)), subject to certain conditions, holders of the Notes may require the Company to immediately repurchase for cash all or any portion of their Notes at a repurchase price equal to
Nasdaq maintains several standards for continued listing of the Company’s common stock on the Nasdaq Global Select Market. For example, under the “equity standard”, the Company is required to have stockholders’ equity of at least $10 million. Under the “total asset standard”, the Company’s market value of its publicly held shares must be at least $15 million. Only one standard has to be met to comply with Nasdaq requirements. The Company currently meets the "equity standard". If the Company is not able to satisfy a continued listing requirement from Nasdaq, it will be required to repurchase the Notes prior to its maturity, as discussed above.
As of June 30, 2024, and as of the date of issuance of the condensed consolidated financial statements, the Company does not have sufficient liquidity to repurchase the Notes in the event of a fundamental change and would be required to seek financing. Such financing may not be available to the Company on favorable terms, or at all.
Accounting Standards Adopted
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. The Company
Accounting Standards Issued But Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures of significant segment expenses. The guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and
14
requires retrospective application to all periods presented upon adoption, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. The guidance will be effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
3. Revenue Recognition
The Company’s revenue is disaggregated within the condensed consolidated statements of operations and is generated from consumers throughout the United States.
Interest Income
The Company’s interest income is related to finance receivables originated by UACC for its network of third-party dealership customers and vehicle financing UACC offered to Vroom’s customers through its ecommerce platform prior to the Ecommerce Wind-down. Interest income also includes discount income on finance receivables held for investment at fair value, which represents the amortization of unearned acquisition discounts over the contractual life of the underlying finance receivables using the interest method. Interest income on each automotive finance receivable is calculated based on the finance receivable’s outstanding principal balance multiplied by the contractual interest rate.
An account is considered delinquent if a scheduled payment has not been received by the date such payment was contractually due. Interest income deemed uncollectible is reversed at the time the finance receivable is charged off. Finance receivables over 90 days delinquent are considered nonaccrual finance receivables. Income is subsequently recognized only to the extent cash payments are received until the borrower is able to make periodic interest and principal payments in accordance with the finance receivable terms.
Servicing Income
Servicing income represents the annual fees earned on the outstanding principal balance of the finance receivables serviced as well as late charges, collection payments, and other fees. Fees are earned monthly at an annual rate of approximately
15
Warranties and GAP income
Prior to the Ecommerce Wind-Down, the Company offered third-party financing and third-party value-added products such as vehicle service contracts, guaranteed asset protection (“GAP”) and tire and wheel coverage, to its used vehicle customers pursuant to arrangements with the third parties that sell and administered these products and are responsible for their fulfillment.
UACC also offers third-party vehicle service contracts and United Auto Credit GAP to consumers who obtain financing through UACC. United Auto Credit GAP is a debt waiver product that is underwritten directly by UACC. It provides protection for consumers who purchase the product by waiving the difference between the actual cash value of the consumer’s vehicle and the balance of the consumer’s contract, subject to the terms and conditions of the United Auto Credit GAP, in the event of a total loss resulting from collision or theft. The total fees are earned over the contractual life of the related finance receivables on straight-line basis.
The Company concluded that it is an agent for any transactions with third-parties because it does not control the products before they are transferred to the consumer. The Company recognizes revenue on a net basis when the consumer enters into an arrangement for the products.
A portion of the fees earned on third-party financing and value-added products is subject to chargebacks in the event of early termination, default, or prepayment of the contracts by end-customers. The Company’s exposure for these 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 June 30, 2024 and December 31, 2023, the Company’s reserve for chargebacks was $
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 warranties and GAP income in the period identified. As of June 30, 2024 and December 31, 2023, the Company recognized $
CarStory Revenue
CarStory generates advertiser, publisher and other user service revenue. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been performed, collection of the fees is reasonably assured, the fees are fixed or determinable, and no significant obligations by the Company remain. Generally, this results in revenues billed and recorded monthly in the month that services were performed and earned.
Deferred revenue includes advances received from customers in excess of revenue recognized.
The Company may collect sales taxes and other taxes and government fees from customers on behalf of governmental authorities at the time of sale as required. These taxes are accounted for on a net basis and are not included in revenues or cost of sales.