Vroom, Inc. (VRM) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those incorporated by reference into the section titled "Risk Factors" in Part I Item 1A of this Annual Report on Form 10-K. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Recent Events

Value Maximization Plan

On January 22, 2024, we announced that our Board had approved the Value Maximization Plan, pursuant to which we discontinued our ecommerce operations and are in the process of winding down our used vehicle dealership business in order to preserve liquidity and enable us to maximize stakeholder value through our remaining businesses. We have suspended transactions through vroom.com, completed transactions for customers who had previously contracted with us to purchase or sell a vehicle, halted purchases of additional vehicles, sold substantially all of our used vehicle inventory through wholesale channels and paid off our 2022 Vehicle Floorplan Facility. We continue to take other actions to maximize the value of our remaining ecommerce assets, reduce our outstanding commitments and preserve our liquidity, and have been executing a reduction-in-force commensurate with our reduced operations. Although we expect the ecommerce wind down to be substantially complete by the end of the first quarter of 2024, we may incur additional wind-down costs through the end of 2024.

We also own and operate UACC, a leading automotive finance company that offers vehicle financing to its customers through third-party dealers under the UACC brand, and CarStory, an artificial intelligence-powered analytics and digital services platform for automotive retail. The UACC and CarStory businesses will continue to serve their third-party customers, with their operations substantially unaffected by Vroom’s ecommerce wind-down. We will seek to grow and enhance the profitability of the UACC and CarStory businesses going forward.

As a result of the Value Maximization Plan, we estimate that we will incur total cash charges of approximately $16.5 million for severance and other personnel-related costs and approximately $15.0 million in contract and lease termination costs. As part of a planned reduction-in-force under the Value Maximization Plan, we anticipate that approximately 800 employees will be impacted upon substantial completion of the wind-down, resulting in a reduction of approximately 93% of the employees not engaged in UACC’s or CarStory’s ongoing operations.

We determined a triggering event existed as of December 31, 2023, resulting in long–lived asset impairment charges of $47.4 million. The impairment charges consist of $23.9 million related to "Property and equipment, net", $22.2 million related to "Operating lease right-of-use assets", and $1.3 million related to "Other assets" on our consolidated balance sheet. Refer to Note 7 — Property and Equipment, Net and Note 12 — Leases in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion.

Repayment of 2022 Vehicle Floorplan Facility

On January 19, 2024, we amended our 2022 Vehicle Floorplan Facility. As a result of the amendment, borrowings under the 2022 Vehicle Floorplan Facility were suspended for future vehicle purchases and we were required to maintain 40% of our outstanding borrowings in cash. In addition, all other financial covenants were eliminated. As a result of the liquidation of our vehicle inventory, we repaid the remaining outstanding balance related to the 2022 Vehicle Floorplan Facility in full and the agreement has been terminated.

Nasdaq Notice and Reverse Stock Split

On December 21, 2023, we received written notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the $1.00 per share

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minimum bid price requirement for continued inclusion on the Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Minimum Bid Price Requirement").

On February 13, 2024, after obtaining stockholder approval, we effected a 1-for-80 reverse stock split (the "Reverse Stock Split"), and our stock began trading on a post-split adjusted basis on February 14, 2024. On February 29, 2024, we were notified by the Nasdaq Listing Qualifications staff that the closing bid price of our common stock had been at $1.00 per share or greater for 11 consecutive business days, from February 14, 2024 to February 28, 2024. Accordingly, the Company has regained compliance with Nasdaq Listing Rule 5450(a)(1) and this matter is now closed. If our common stock again closes below the $1.00 per share minimum bid price required by Nasdaq for 30 consecutive business days, we would again receive another notice of non-compliance with Nasdaq's listing standards and face the risk of delisting.

All shares of the Company’s common stock, stock-based instruments, and per-share data included in this Annual Report on Form 10-K have been retroactively adjusted as though the Reverse Stock Split has been effected prior to all periods presented.

Overview

During the fiscal year ended December 31, 2023, the period covered by this Annual Report on Form 10-K, Vroom operated an end-to-end ecommerce platform to buy and sell used vehicles. Vroom also owns United Auto Credit Corporation, a leading automotive finance company that offers vehicle financing to its customers through third-party dealers under the UACC brand, and the CarStory business, a leader in AI-powered analytics and digital services for automotive retail.

Former Ecommerce Operations

Vroom's ecommerce platform combined automotive ecommerce, vehicle operations and data science and experimentation to bring all phases of the car buying and selling process to consumers wherever they are, offering an extensive selection of used vehicles, transparent pricing, competitive financing, and at-home pick-up and delivery. Vroom’s ecommerce platform offered thousands of vehicles that had undergone detailed inspections, met proprietary reconditioning standards and were backed by a Vroom 90-day limited warranty. The platform provided comprehensive and transparent information on each of the vehicles we sold and provided buyers with a personalized, intuitive interface with specific sorting, searching and filtering functionality. The platform offered integrated, real-time financing solutions through strategic partnerships with automotive finance lenders and through our subsidiary, UACC. For consumers looking to sell their vehicles, the platform offered the ease of online submission of basic vehicle information to receive an on-demand appraisal. Vroom’s vehicle operations encompassed a vertically integrated approach to sourcing, transporting, reconditioning, delivering, and picking up vehicles. Data science and experimentation was at the core of Vrooms operations, and we relied on data science, machine learning and A/B and multivariate testing to continually drive optimization and operating leverage across our ecommerce and vehicle operations. Pursuant to the Value Maximization Plan described above, we are conducting an orderly wind-down of our ecommerce business starting in 2024. Although we expect the ecommerce wind down to be substantially complete by the end of the first quarter of 2024, we may incur additional wind-down costs through the end of 2024.

UACC

UACC, which Vroom acquired in February 2022, is an indirect lender that offers vehicle financing to consumers through third-party dealers under the UACC brand, focusing primarily on the non-prime market. Prior to Vroom’s wind-down of its ecommerce operations, UACC also offered vehicle financing to Vroom’s customers through its ecommerce platform.

UACC, which has been engaged in automotive finance since 1996, currently offers financing services to a nationwide network of thousands of manufacturer-franchised and independent motor vehicle dealers in 49 states, and we seek to expand that network over time. UACC enables these dealers to finance their customers' purchases of new and used automobiles, medium and light duty trucks and vans with competitive financing terms. The credit programs offered by UACC are primarily designed to serve consumers who have limited access to traditional motor vehicle financing.

In addition to its financing expertise, the UACC platform brings with it extensive application processing, underwriting, and servicing capabilities. UACC services the retail installment sales contracts it originates or purchases and

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will continue to service the contracts it originated or purchased for customers of Vroom’s former ecommerce business. Because UACC focuses primarily on the non-prime market, it generally sustains a higher level of delinquencies and credit losses than that experienced by traditional motor vehicle financing sources. As of December 31, 2023, UACC serviced a portfolio of approximately 79,000 retail installment sales contracts with an aggregate principal outstanding balance of $1.1 billion.

Loss before provision for income taxes for UACC on a standalone basis was $41.2 million and $16.2 million for the years ended December 31, 2023 and 2022, respectively, including intercompany eliminations of $17.7 million and $6.2 million, respectively.

CarStory

CarStory is a leader in AI-powered analytics and digital services for automotive retail. CarStory offers its digital retailing services to dealers, automotive financial services companies and others in the automotive industry, which use CarStory’s solutions to enhance their customer experience and drive increased vehicle purchases.

CarStory drives automotive retail innovation by aggregating, optimizing and distributing data from thousands of automotive sources. CarStory tracks over three and a half million unique vehicle identification numbers ("VINs") listed for sale every day. This data is aggregated with demand insights from millions of consumer sessions and VIN data from CarStory's proprietary VIN database to generate accurate price and sales predictions. CarStory helps dealers optimize their pricing by leveraging data science models for retail pricing that provide predictive pricing for marketing, buying, selling and VIN-level features.

In addition to its data analytics and digital services, CarStory powers white labeled storefronts for automotive marketplaces and finance companies. In developing its white label capabilities, CarStory also has developed a variety of consumer-focused functions designed to enhance the customer experience and drive conversion. CarStory's data and data science assets create significant opportunity for automotive AI product development, with over 200 million VINs, over three billion photos and price and price elasticity models.

Our Segments

In the year ended December 31, 2023 and prior periods, we managed and reported operating results through three reportable segments:

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Ecommerce (64.5% of 2023 revenue; 70.0% of 2022 revenue): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform, revenue earned on vehicle financing originated by UACC or our third-party financing sources and sales of value-added products associated with those vehicles sales.

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Wholesale (11.7% of 2023 revenue; 15.1% of 2022 revenue): The Wholesale segment represents sales of used vehicles through wholesale channels.

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Retail Financing (17.6% of 2023 revenue; 7.8% of 2022 revenue): The Retail Financing segment represents UACC’s operations with its network of third-party dealership customers.

As a result of the Value Maximization Plan and the wind-down of our ecommerce operations, we will discontinue reporting our results through our Ecommerce and Wholesale segments starting in the first quarter of 2024.

Gross profit is defined as revenue less cost of sales for each segment. Reflected below is a summary of segment revenue and segment gross profit for the years ended December 31, 2023 and 2022:

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Key Operating and Financial Metrics

Prior to the wind-down of our ecommerce operations, including the periods presented in this Annual Report on Form 10-K, we regularly reviewed a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial forecasts and make strategic decisions. We believe these operational measures were useful in evaluating our performance, in addition to our financial results prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. You should read the key operating and financial metrics in conjunction with the following discussion of our results of operations and together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We focused heavily on metrics related to unit economics as improved gross profit per unit was a key element of our growth and profitability strategies. As a result of the Value Maximization Plan and the wind-down of our ecommerce operations, we have discontinued evaluating our business using these key operating and financial metrics in the first quarter of 2024.

The calculation of our key operating and financial metrics is straightforward and does not rely on significant projections, estimates or assumptions. Nevertheless, each of our key operating and financial metrics has limitations because each focuses specifically on only one standard by which to evaluate our business, without taking into account other applicable standards, performance measures or operating trends by which our business could be evaluated. Accordingly, no single metric should be viewed as the bellwether by which our business should be measured. Rather, each key operating and financial metric should be considered in conjunction with other metrics and components of our results of operations, such as each of the other key operating and financial metrics and our revenues, inventory, loss from operations and segment results.

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Ecommerce Units Sold

Ecommerce units sold is defined as the number of vehicles sold and shipped to customers through our ecommerce platform, net of returns under our Vroom 7-Day Return Program. Ecommerce units sold exclude on-site sales of vehicles at Texas Direct Auto ("TDA") and through the Wholesale segment. Each vehicle sale through our ecommerce platform also created the opportunity to leverage such sale to provide vehicle financing, sell value-added products and acquire trade-in vehicles from our customers, which we could either recondition and add to our inventory or sell through wholesale channels.

Vehicle Gross Profit per Ecommerce Unit

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

Product Gross Profit per Ecommerce Unit

Product Gross Profit per ecommerce unit, which we refer to as Product GPPU, for a given period is defined as the aggregate fees earned on sales of third-party vehicle financing and value-added products in that period, net of the reserves for chargebacks on such products in that period, divided by the number of ecommerce units sold in that period. Because we were paid fees on the vehicle financing and value-added products we sold, our gross profit was equal to the revenue we generated from the sale of such products. Starting in 2022, Product Gross Profit also included (i) interest income earned on finance receivables from Vroom customers to finance vehicle sales that we originated through UACC before the contracts are sold, (ii) interest income on finance receivables held in consolidated VIEs less the interest expense incurred on securitization debt, and when applicable (iii) gain on sales of securitized finance receivables, divided by the number of ecommerce units sold in that period.

Total Gross Profit per Ecommerce Unit

Total Gross Profit per ecommerce unit, which we refer to as Total GPPU, for a given period is calculated as the sum of Vehicle GPPU and Product GPPU.

Average Monthly Unique Visitors

Average monthly unique visitors is defined as the average number of individuals who access our ecommerce platform within a calendar month. We calculate the average monthly unique visitors over any period by dividing the aggregate monthly unique visitors during such period by the number of months in that period.

Average monthly unique visitors is calculated using data provided by Google Analytics. The computation of average monthly unique visitors excludes individuals who access our platform multiple times within a calendar month, counting such individuals only one time for purposes of the calculation. If an individual accesses our ecommerce platform using different devices or different browsers on the same device within a given month, the first access through each such device or browser is counted as a separate monthly unique visitor.

Ecommerce Average Days to Sale

We define ecommerce average days to sale as the average number of days between our acquisition of vehicles and the final delivery of such vehicles to customers through our ecommerce platform. We calculate average days to sale for a given period by dividing the aggregate number of days between the acquisition of all vehicles sold through our ecommerce platform during such period and final delivery of such vehicles to customers by the number of ecommerce units sold in that period. Ecommerce average days to sale excludes vehicles sold on-site at TDA and through the Wholesale segment.

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Inventory turnover

We calculate inventory turnover for a given period as total retail and wholesale cost of sales for the respective period annualized and divided by average inventory (computed using the current and immediately preceding quarter-end balances).

Inventory days to supply

We calculate inventory days to supply for a given period by dividing average inventory by total retail and wholesale cost of sales per day for the respective period.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance: EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain. These non-GAAP financial measures have limitations as analytical tools in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. Because of these limitations, these non-GAAP financial measures should be considered along with other operating and financial performance measures presented in accordance with U.S. GAAP. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. We have reconciled all non-GAAP financial measures with the most directly comparable U.S. GAAP financial measures.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain are supplemental performance measures that our management uses to assess our operating performance and the operating leverage in our business. Because EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain

We calculate EBITDA as net loss before interest expense, interest income, income tax expense and depreciation and amortization expense.

We calculate Adjusted EBITDA as EBITDA adjusted to exclude severance costs, gain on debt extinguishment, severe weather-related costs, long-lived asset impairment charges, goodwill impairment charge, realignment costs, acquisition related costs, and the acceleration of non-cash stock-based compensation. Changes in fair value of financial instruments can fluctuate significantly from period to period and were previously related primarily to historical finance receivables and debt that have been securitized, and were acquired on February 1, 2022 from UACC. As a result of market conditions at the time, the financial instruments related to the 2022-2 and 2023-1 securitization transactions are recognized on balance-sheet and accounted for under the fair value option. See Note 17 — Financial Instruments and Fair Value Measurements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As a result, the majority of our finance receivables are now carried at fair value and a significant portion of the risk of loss associated with these finance receivables have been retained by UACC. We therefore have determined we will no longer make any adjustments for such fluctuations in fair value to our Adjusted EBITDA results. We have recast the prior periods presented to conform to current period presentation. We may account for future securitizations as on balance sheet transactions depending on market conditions.

We calculate Adjusted EBITDA excluding securitization gain as Adjusted EBITDA adjusted to exclude the securitization gain from the sale of UACC's finance receivables as it provides a useful perspective on the underlying operating results and trends as well as a means to compare our period-over-period results.

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The following table presents a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA excluding securitization gain to net loss, which is the most directly comparable U.S. GAAP measure:

Other Key Factors and Trends Affecting our Operating Results

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors and trends, including the following:

Ability to expand our dealer network to increase vehicle finance offerings

We intend to grow our automotive financing business. UACC will continue to provide financing services to its existing dealer network and will seek to expand its network over time. UACC provides funding that allows manufacturer-franchised and independent motor vehicle dealers to finance new and used vehicles. Currently, UACC serves a nationwide network of thousands of dealers in 49 states. UACC's credit programs are primarily designed to serve consumers who have limited access to traditional vehicle financing, although UACC intends to expand its offerings across a broader range of the credit spectrum going forward.

As of December 31, 2023, automobile contracts originated from Vroom customers or purchased from Vroom represented approximately 30% of UACC's total serviced loan portfolio. If UACC is unable to replace the volume of automobile contracts it previously received from the Vroom ecommerce business, our business, financial condition, and results of operations could be materially adversely affected.

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Ability to manage credit losses and enhance profitability at UACC

While credit losses are inherent in the automotive finance receivables business, several variables have affected UACC’s recent loss and delinquency rates, including rising interest rates, the current inflationary environment and vehicle depreciation. UACC is currently experiencing higher loss severity and higher losses on its finance receivables, which has negatively impacted the fair value of our finance receivables and the losses recognized for the year ended December 31, 2023. Higher than anticipated credit losses contributed to a pre-tax net loss at UACC of approximately $41.2 million for the year ended December 31, 2023, and are expected to continue to negatively impact our business in 2024, especially because UACC primarily operates in the non-prime sector of the market which is expected to have more volatility. 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.

Ability to securitize UACC's loan portfolio

The success of UACC's business is highly dependent on the ability to securitize and sell the automotive finance receivables that it underwrites or acquires. As a result of high interest rates, the current inflationary environment and vehicle depreciation in the used automotive industry, UACC is experiencing higher loss severity. As a result, UACC may not be able to securitize its loan portfolio on favorable terms, or may not be able to sell the subordinate notes or residual certificates issued in its securitizations at a favorable price or at all.

If UACC fails to sell the subordinate notes or the residual interests, it will preclude us from recognizing the sale and result in the securitization trust being consolidated and therefore remaining on balance sheet. In January 2023, UACC completed the 2023-1 securitization transaction, selling the investment grade rated asset-backed securities, and in April 2023, UACC sold the non-investment grade rated securities. As a result of market conditions at the time, which led to unfavorable pricing, UACC retained the residual interests and we accounted for the 2023-1 securitization transaction as secured borrowings. The related finance receivables and securitization debt remain on balance sheet. In the future, we may account for UACC securitizations as on balance sheet transactions depending on the market conditions.

In addition, due to the increased loss severity, UACC elected to waive monthly servicing fees related to the 2022-2 securitization transaction in the first quarter of 2023. The waiver of monthly servicing fees related to the 2022-2 securitization transaction resulted in consolidation of the related finance receivables and securitization debt on our financial statements. Waiver of monthly servicing fees also resulted in reduced servicing income.

Seasonality

Used vehicle sales have historically been seasonal. The used vehicle industry typically experiences an increase in sales early in the calendar year and reaches its highest point late in the first quarter and early in the second quarter. Vehicle sales then level off through the rest of the year, with the lowest level of sales in the fourth quarter. This seasonality has historically corresponded with the timing of income tax refunds, which are an important source of funding for vehicle purchases. Additionally, used vehicles typically depreciate at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year. However, the past few years have not followed typical depreciation trends and there remains continued uncertainty surrounding market trends. Consistent with market trends, UACC generally experiences increased funding activity during the first quarter through tax season. Delinquencies also tend to be lower during the first quarter through tax season and higher during the latter half of the year. See “Risk Factors—Risks Related to Our Financial Condition and Results of Operations—We may experience seasonal and other fluctuations in our quarterly results of operations, which may not fully reflect the underlying performance of our business” in our Annual Report.

Macroeconomic Factors

Both the United States and global economies are experiencing a sustained inflationary environment and the Federal Reserve’s efforts to tame inflation have led to increased interest rates, which affects automotive finance rates, reducing discretionary spending and making vehicle financing more costly and less accessible to many consumers. In December 2023, the Federal Reserve announced that it expects to cut interest rates in 2024; however it is too soon to know the degree to which rates may be cut and the impact it may have on the economy. Moreover, geopolitical conflicts and war, including those in Europe and the Middle East, have increased global economic and political uncertainty, which has caused dramatic fluctuations in global financial markets. A significant escalation or expansion of economic disruption

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could continue to impact consumer spending, broaden inflationary costs, and could have a material adverse effect on our results of operations. We will continue to actively monitor and develop responses to these disruptions, but depending on duration and severity, these trends could continue to negatively impact our business in 2024.

Components of Results of Operations

Revenue

In connection with the Value Maximization Plan, in January 2024 we started to wind-down our ecommerce operations, including both retail and wholesale vehicle sales which also reduced associated product revenue. Therefore, each of the retail vehicle revenue, wholesale vehicle revenue, and the associated product revenue described below will not be applicable to our results of operations going forward.

Retail vehicle revenue

Historically, we sold retail vehicles through both our ecommerce platform and TDA. Revenue from vehicle sales, including any delivery charges, was recognized when vehicles were delivered to the customers or picked up at our TDA retail location, net of a reserve for estimated returns. The number of units sold and the average selling price (“ASP”) per unit were the primary factors impacting our retail revenue stream.

Wholesale vehicle revenue

Historically, we sold vehicles that do not meet our Vroom retail sales criteria through wholesale channels. Vehicles sold through wholesale channels were acquired from customers who traded-in their vehicles when making a purchase from us, from customers who sold their vehicle to us in direct-buy transactions, and from liquidation of vehicles previously listed for retail sale. The number of wholesale vehicles sold and the ASP per unit were the primary drivers of wholesale revenue.

Product revenue

Historically, we generated revenue by financing vehicle sales through UACC, earning fees on sales of third-party financing, and sales of value-added products to our customers in connection with vehicle sales, such as vehicle service contracts, GAP protection and tire and wheel coverage.

We generate ecommerce product revenue from receivables generated by financing provided to Vroom customers through UACC. We earn interest income on such finance receivables before the contracts are sold, interest income on finance receivables held in consolidated VIEs, and, when applicable, gain on the sales of securitized finance receivables. We account for sales of finance receivables in accordance with ASC Topic 860, Transfers and Servicing of Financial Assets ("ASC 860"). Refer to "Finance revenue" below for further details.

We also earned fees on third-party financing and value-added products pursuant to arrangements with the third parties that sold and administered these products. For accounting purposes, we were an agent for these transactions and, as a result, we recognized fees on a net basis when the customer entered into an arrangement to purchase these products or obtain third-party financing, which was typically at the time of a vehicle sale. Our gross profit on product revenue is equal to the revenue we generate. Product revenue was affected by the number of vehicles sold, the attachment rate of value-added products and the amount of fees we receive on each product. Product revenue also consisted of estimated profit-sharing amounts to which we were entitled based on the performance of third-party protection products once a required claims period has passed. A portion of the fees we received was subject to chargeback in the event of early termination, default, or prepayment of the contracts by our customers. We recognized product revenue net of reserves for estimated chargebacks.

Finance revenue

Our finance revenue is related to finance receivables originated or acquired by UACC through its network of third-party dealership customers and consists of interest income earned on finance receivables before the contracts are sold,

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interest income earned on finance receivables held in consolidated VIEs, and, when applicable, gains on the sale of securitized finance receivables.

UACC acquires and services finance receivables from its network of third-party dealership customers and generates revenue through the sales of these financing receivables. We account for sales of finance receivables in accordance with ASC Topic 860, Transfers and Servicing of Financial Assets ("ASC 860"). In order for transfers of the finance receivables to qualify as sales, the finance receivables being transferred must be legally isolated, may not be constrained by restrictions from further transfer, and must be deemed to be beyond our control.

For any securitization transactions that are accounted for as secured borrowings, we recognize interest income, which includes finance charges and servicing fees in accordance with the terms of the related customer agreements.

In February 2022, UACC completed the 2022-1 securitization transaction, which qualified as a sale, therefore we recorded a gain on the sale of the finance receivables. The amount of the gain is equal to the fair value of the net proceeds received less the carrying amount of the finance receivables. In July 2022, UACC sold a pool of finance receivables in the 2022-2 securitization transaction. Originally, we concluded that we were not the primary beneficiary of the 2022-2 securitization trust, and therefore we did not consolidate the 2022-2 trust. From January to March 2023, although not contractually required, UACC elected to waive its servicing fee on the 2022-2 securitization, due to higher-than-expected losses. Since UACC has the power to direct the significant activities of the VIE, as it is the servicer, and additionally it absorbs the risk of loss, we concluded that we are the primary beneficiary of the VIE. In March 2023, we accounted for the transaction as secured borrowings and consolidated the 2022-2 securitization trust. The beneficial interest was then eliminated. In January 2023, UACC completed the 2023-1 securitization transaction, selling the investment grade rated asset-backed securities, and in April 2023, UACC sold the non-investment grade rated securities. As a result of market conditions at the time, which led to unfavorable pricing, UACC retained the residual interests and we accounted for the 2023-1 securitization transaction as secured borrowings. The related finance receivables and securitization debt remain on the balance sheet. We may account for future securitizations as on balance sheet transactions depending on the market conditions.

Servicing income represents the annual fees earned on the outstanding principal balance of the finance receivables serviced. Fees are earned monthly at an annual rate of approximately 4% for the 2022-1 securitization transaction and 3.25% for the 2022-2 and 2023-1 securitization transactions of the outstanding principal balance of the finance receivables serviced.

As a result of high interest rates, the current inflationary environment and vehicle depreciation in the used automotive industry, UACC is experiencing higher loss severity. The increased loss severity could lead to reduced servicing income if UACC elects to waive monthly servicing fees going forward as it did in the first quarter of 2023.

See “Note 3—Revenue Recognition” and "Note 4 – Variable Interest Entities and Securitizations" to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Cost of sales

In connection with the Value Maximization Plan, we started to wind-down our ecommerce operations in January 2024. Therefore, each of the retail cost of sales, wholesale cost of sales, and the associated product cost of sales described below will not be applicable to our results of operations going forward.

Retail cost of sales

Retail cost of sales primarily included the costs to acquire vehicles, inbound transportation costs and direct and indirect reconditioning costs associated with preparing vehicles for sale. Costs to acquire vehicles were primarily driven by the inventory source, vehicle mix and general supply and demand conditions of the used vehicle market. Inbound transportation costs included costs to transport the vehicle to our VRCs. Reconditioning costs included parts, labor and third-party reconditioning costs directly attributable to the vehicle and allocated overhead costs. Cost of sales also included any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

Wholesale cost of sales

Wholesale cost of sales primarily included costs to acquire vehicles sold through wholesale channels as well as any accounting adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

Product cost of sales

Product cost of sales consists of interest expense incurred on securitization debt related to finance receivables originated by UACC for Vroom customers.

Finance cost of sales

Finance cost of sales consists of interest expense incurred on securitization debt originated by UACC for its network of third-party dealership customers and collection expenses related to servicing finance receivables.

Total gross profit

Total gross profit is defined as total revenue less costs associated with such revenue.

Selling, general and administrative expenses

Our selling, general, and administrative expenses, which we refer to as SG&A expenses, historically consisted primarily of advertising and marketing expenses, outbound transportation costs, employee compensation, occupancy costs of our facilities, professional fees for accounting, auditing, tax, legal and consulting services and software and IT costs. Going forward, we expect our SG&A expenses to decrease significantly as a result of the wind-down of our ecommerce operations.

Depreciation and amortization

Our depreciation and amortization expense primarily includes: depreciation related to our leasehold improvements and logistics fleet; amortization related to intangible assets in acquired businesses; and capitalized internal use software costs incurred in the development of our platform and website applications. Depreciation expense related to our Vroom VRC and the portion of depreciation expense for our proprietary logistics fleet related to inbound transportation is included in cost of sales in the consolidated statements of operations.

Impairment Charges

Impairment charges represent charges to write down the carrying amount of goodwill and other long-lived assets to fair value as well as lease impairment charges related to closing physical office locations and Sell Us Your Car® centers.

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Gain on debt extinguishment

Gain on debt extinguishment represents the gain recognized from the repurchase of a portion of our outstanding Convertible Senior Notes due 2026 (the "Notes") in open-market transactions.

Interest expense

Our interest expense primarily includes (i) interest expense related to our 2022 Vehicle Floorplan Facility, which was used to finance our inventory, (ii) interest expense on our Notes, (iii) interest expense on UACC's Warehouse Credit Facilities, which are used to fund our finance receivables, and (iv) interest expense on UACC's financing of beneficial interests in securitizations.

Interest Income

Interest income primarily represents interest credits earned on cash deposits maintained in relation to our 2022 Vehicle Floorplan Facility as well as interest earned on cash and cash equivalents.

Other Loss, net

Other loss, net primarily represents realized and unrealized losses on finance receivables, securitization debt and beneficial interests in securitizations as well as recoveries from losses previously recognized on finance receivables.

Results of Operations

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

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Segments

We have historically managed and reported operating results through three reportable segments:

•
Ecommerce (64.5% of 2023 revenue; 70.0% of 2022 revenue): The Ecommerce segment represents retail sales of used vehicles through our ecommerce platform, revenue earned on vehicle financing originated by UACC or our third-party financing sources and sales of value-added products associated with those vehicles sales.

•
Wholesale (11.7% of 2023 revenue; 15.1% of 2022 revenue): The Wholesale segment represents sales of used vehicles through wholesale channels.

•
Retail Financing (17.6% of 2023 revenue; 7.8% of 2022 revenue): The Retail Financing segment represents UACC’s operations with its network of third-party dealership customers.

As a result of the Value Maximization Plan and the wind-down of our ecommerce operations, we will discontinue reporting our results through our Ecommerce and Wholesale segments starting in the first quarter of 2024.

Years Ended December 31, 2023 and 2022

Ecommerce

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

Ecommerce units

Ecommerce units sold decreased 21,877, or 55.7%, from 39,278 for the year ended December 31, 2022 to 17,401 for the year ended December 31, 2023. This decrease was driven by our strategic decision to prioritize unit economics over unit sales volume starting in the second quarter of 2022, our decision to reduce vehicle acquisitions during the fourth quarter of 2023, pressure on servicing our demand as a result of reducing third-party sales support staff and scaling our internal sales team, as well as macroeconomic factors.

Ecommerce average days to sale increased from 131 days for the year ended December 31, 2022 to 217 days for the year ended December 31, 2023. We undertook various initiatives to address the operational challenges created by our prior rapid growth from 2020 through the first quarter of 2022, in particular with titling and registration processes. While these initiatives were designed to improve our transaction processing, enhance our customer experience, and

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reduce our regulatory risk, they resulted in delays in listing vehicles for sale and caused a higher portion of our unit sales throughout 2023 to be from aged inventory, which increased the number of days between our acquisition of vehicles and the final delivery of such vehicles to customers.

Vehicle Revenue

Ecommerce vehicle revenue decreased $780.9 million, or 59.8%, from $1,304.8 million for the year ended December 31, 2022 to $523.9 million for the year ended December 31, 2023. The decrease in ecommerce vehicle revenue was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased vehicle revenue by $726.8 million, and a decrease in ASP per unit, which decreased from $33,220 for the year ended December 31, 2022 to $30,110 for the year ended December 31, 2023 and decreased vehicle revenue by $54.1 million. The decrease in ASP per unit was primarily due to significant market appreciation in the first half of 2022.

Product Revenue

Ecommerce product revenue decreased $7.2 million, or 12.1%, from $59.4 million for the year ended December 31, 2022 to $52.2 million for the year ended December 31, 2023. The decrease in ecommerce product revenue was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased product revenue by $33.1 million, partially offset by an increase in product revenue per unit, which increased from $1,512 for the year ended December 31, 2022 to $3,001 for the year ended December 31, 2023 and increased product revenue by $25.9 million. The increase in product revenue per unit was primarily due to an increase in interest income earned on finance receivables from Vroom customers originated or serviced by UACC as compared to the year ended December 31, 2022.

Vehicle Gross Profit

Ecommerce vehicle gross profit decreased $30.3 million, or 74.5%, from $40.6 million for the year ended December 31, 2022 to $10.3 million for the year ended December 31, 2023. The decrease in vehicle gross profit was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased vehicle gross profit by $22.7 million. Additionally, vehicle gross profit per unit decreased $439 from $1,033 for the year ended December 31, 2022 to $594 for year ended December 31, 2023, which decreased vehicle gross profit by $7.6 million. The decrease was primarily driven by lower sales margin on aged inventory and higher reconditioning costs per unit related to an increased mix of higher mileage and aged vehicles along with significant parts inflation. The decreases were partially offset by a lower inventory reserve as a result of a decrease in inventory levels as we continued to sell through our aged inventory.

As we made progress on our initiatives to address the operational challenges created by our prior rapid growth from 2020 through the first quarter of 2022, a higher portion of our unit sales in 2023 was from aged inventory, which negatively impacted our sales margin and GPPU.

Product Gross Profit

Ecommerce product gross profit decreased $10.5 million, or 17.7%, from $59.4 million for the year ended December 31, 2022 to $48.9 million for the year ended December 31, 2023. The decrease in ecommerce product gross profit was primarily attributable to the 21,877 decrease in ecommerce units sold, which decreased product gross profit by $33.1 million, partially offset by a $1,297 increase in product gross profit per unit, which increased product gross profit by $22.6 million. Product gross profit per unit increased from $1,512 for the year ended December 31, 2022 to $2,809 for the year ended December 31, 2023, primarily due to an increase in interest income earned, partially offset by interest expense on securitization debt related to Vroom customers' finance receivables originated or serviced by UACC.

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Wholesale

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

Wholesale Units

Wholesale units sold decreased 13,782, or 66.0%, from 20,876 for the year ended December 31, 2022 to 7,094 for the year ended December 31, 2023, primarily driven by a decrease in wholesale units purchased from consumers and a lower number of trade-in vehicles associated with the decrease in the number of ecommerce units sold.

Wholesale Revenue

Wholesale revenue decreased $189.4 million, or 64.5%, from $293.5 million for the year ended December 31, 2022 to $104.1 million for the year ended December 31, 2023. The decrease was primarily attributable to a 13,782 decrease in wholesale units sold, which decreased wholesale revenue by $193.8 million, partially offset by a higher ASP per wholesale unit, which increased wholesale revenue by $4.4 million.

Wholesale Gross Loss

Wholesale gross loss increased $23.8 million, or 223.5%, from $10.6 million for the year ended December 31, 2022 to $34.4 million for the year ended December 31, 2023. The change was primarily attributable to a $4,334 increase in wholesale gross loss per unit from $509 for the year ended December 31, 2022 to $4,843 for the year ended December 31, 2023, which increased wholesale gross loss by $30.8 million, partially offset by a 13,782 decrease in wholesale units sold, which decreased wholesale gross loss by $7.0 million.

The increase in wholesale gross loss per unit was primarily driven by lower sales margins as a result of wholesale liquidations for aged inventory and vehicles damaged by hail storms in the second and third quarter of 2023 and a higher inventory reserve.

Retail Financing

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

Retail Financing Revenue

Retail Financing revenue increased $4.4 million, or 2.9%, from $152.5 million for the year ended December 31, 2022 to $156.9 million for the year ended December 31, 2023. The increase was primarily driven by an increase in interest and discount income from $78.6 million for the year ended December 31, 2022 to $140.6 million for the year ended December 31, 2023 related to income earned on finance receivables with third-party dealership customers as a result of new originations and the consolidation of the 2022-2 and 2023-1 securitization transactions. The increase was

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partially offset by the gain on sale of finance receivables of $45.6 million for the year ended December 31, 2022 related to the 2022-1 and 2022-2 securitization transactions.

Retail Financing Gross Profit

Retail Financing gross profit decreased $12.8 million, or 9.2%, from $138.4 million for the year ended December 31, 2022 to $125.6 million for the year ended December 31, 2023. The decrease was primarily driven by the gain on sale of finance receivables of $45.6 million for the year ended December 31, 2022 related to the 2022-1 and 2022-2 securitization transactions. Additionally, the decrease was a result of an increase in collection expenses related to servicing finance receivables originated or acquired by UACC and an increase in interest expense on securitization debt from $3.4 million for the year ended December 31, 2022 to $18.6 million for the year ended December 31, 2023. The decrease was partially offset by an increase in interest and discount income earned on finance receivables with third-party dealership customers as a result of new originations and the consolidation of the 2022-2 and 2023-1 securitization transactions, as described above.

Selling, general and administrative expenses

(1)
Outbound logistics primarily includes third-party transportation fees as well as cost related to operating our proprietary logistics network, including fuel, tolls, and maintenance expenses associated with vehicle deliveries. Inbound transportation costs, from the point of acquisition to the relevant reconditioning facility, are included in cost of sales.

SG&A expenses decreased $225.7 million, or 39.9%, from $566.4 million for the year ended December 31, 2022 to $340.7 million for the year ended December 31, 2023. The total decrease was primarily caused by:

•
a $85.1 million decrease in compensation and benefits primarily as a result of workforce reductions;

•
a $31.2 million decrease in marketing expense contemplated by our long-term roadmap, our previous business strategy for our ecommerce business;

•
a $30.6 million decrease in outbound logistics costs attributable to the decrease in ecommerce units sold as well as a decrease in outbound logistics cost per ecommerce unit;

•
a $13.3 million decrease in professional fees primarily related to costs incurred in connection with the UACC Acquisition during the first quarter of 2022 as well as a decrease in legal and other consulting fees;

•
a $8.1 million decrease in software and IT costs primarily related to volume-based fees as a result of reduced headcount and more efficient targeted software use;

•
a $5.4 million decrease in occupancy expense primarily as a result of physical office location closures from the second quarter of 2022 through the second quarter of 2023; and

•
a $52.1 million decrease in other SG&A expenses primarily due to a decrease in our non-recurring costs, including legal settlements and rental car expenses, as we worked to address our operational challenges created by our rapid growth from 2020 through the first quarter of 2022 as well as reduced fixed and variable costs contemplated by our long-term roadmap.

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We expect SG&A expenses to decrease in the future driven by further reductions in both fixed and variable cost components as we wind-down our ecommerce business and complete our announced workforce reduction.

Depreciation and amortization

Depreciation and amortization expenses increased $4.5 million, or 11.7%, from $38.3 million for the year ended December 31, 2022 to $42.8 million for the year ended December 31, 2023. The increase was primarily due to an additional month of amortization expense of intangible assets acquired as part of the UACC Acquisition for the year ended December 31, 2023 and amortization related to our capitalized internal use software costs incurred in the development of our platform and website applications.

Impairment Charges

Impairment charges of $48.7 million for the year ended December 31, 2023 primarily consist of $47.4 million long–lived asset impairment charges as a result of a triggering event as of December 31, 2023. Impairment charges of $211.9 million for the year ended December 31, 2022 represent an impairment charge to write down the carrying amount of the goodwill to fair value, lease impairment charges related to closing physical office locations, Stafford reconditioning facility and Sell Us Your Car® centers, and impairment of long-lived assets no longer in use.

Gain on debt extinguishment

Gain on debt extinguishment represents a gain of $37.9 million and $164.7 million for the years ended December 31, 2023 and 2022, respectively, related to the repurchase of $74.2 million and $254.3 million in aggregate principal balance of the Notes, net of deferred issuance costs, for $36.5 million and $90.2 million, respectively.

Interest expense

Interest expense increased $4.7 million, or 11.7%, from $40.7 million for the year ended December 31, 2022 to $45.4 million for the year ended December 31, 2023. Interest expense incurred on UACC's Warehouse Credit Facilities increased as a result of an increase in the outstanding balance. The increase was offset by a decrease in interest expense related to a lower outstanding balance on the 2022 Vehicle Floorplan Facility, as well as a decrease in interest expense on the Notes due to the repurchase of a portion of the Notes during the second half of 2022 and during 2023.

Interest income

Interest income increased $1.8 million, or 9.3%, from $19.4 million for the year ended December 31, 2022 to $21.2 million for the year ended December 31, 2023. The increase in interest income was primarily driven by higher interest rates earned on cash and cash equivalents.

Other loss, net

Other loss, net increased $65.1 million, or 150.8%, from $43.2 million for the year ended December 31, 2022 to $108.3 million for the year ended December 31, 2023. The increase in other loss was primarily driven by an increase in realized and unrealized losses on finance receivables as a result of a larger loan portfolio as well as higher loss rates on our overall portfolio as of December 31, 2023 as compared to December 31, 2022.

Liquidity and Capital Resources

As of December 31, 2023, we had cash and cash equivalents of $135.6 million and restricted cash of $73.2 million. Restricted cash primarily includes restricted cash required under UACC's securitization transactions and Warehouse Credit Facilities of $49.1 million and cash deposits required under our 2022 Vehicle Floorplan Facility of $22.7 million. Prior to the wind-down of our ecommerce operations, our primary source of liquidity was cash generated through financing activities. Additionally, we had excess borrowing capacity of $56.9 million under UACC's Warehouse Credit Facilities as of December 31, 2023.

On January 19, 2024, we amended our 2022 Vehicle Floorplan Facility. As a result of the amendment, borrowings under the 2022 Vehicle Floorplan Facility were suspended for future vehicle purchases and we were required to maintain 40% of our outstanding borrowings in cash. In addition, all other financial covenants were eliminated. As a result of the

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liquidation of our vehicle inventory, we repaid all amounts outstanding under the 2022 Vehicle Floorplan Facility in full and the agreement has been terminated.

We expect to use our cash and cash equivalents to finance our future capital requirements and UACC’s Warehouse Credit Facilities to fund our 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.

As of February 29, 2024, we had cash and cash equivalents of approximately $94.0 million. We anticipate that our existing cash and cash equivalents and UACC's Warehouse Credit Facilities will be sufficient to support the Company for at least the next twelve months from the date of this Annual Report on Form 10-K.

In addition to our ongoing cash requirements, our liquidity will also be used to fund costs related to the announced wind-down of our ecommerce operations, primarily in relation to severance and early contract and lease termination payments. Such payments could be significant and have a material effect on our cash flows from operations. Our future capital requirements will depend on many factors, including our ability to successfully implement the Value Maximization Plan and realize its benefits, available advance rates on our Warehouse Credit Facilities, our ability to complete additional securitization transactions at terms favorable to us, and our future credit losses. We have no significant debt maturities due until July 2026 and the payments on our securitization debt are funded by cashflows on the finance receivables within the securitization trusts.

Convertible Senior Notes

On June 18, 2021, we issued $625.0 million aggregate principal amount of the Notes pursuant to an indenture between us and U.S. Bank National Association, as trustee (the “Indenture”).

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, were approximately $608.9 million. During the year ended December 31, 2023, the conditions allowing holders of the Notes to convert were not met.

During the year ended December 31, 2023, we repurchased $74.2 million in aggregate principal amount of the Notes, net of deferred issuance costs, for $36.5 million, respectively, in open-market transactions. We recognized a gain on extinguishment of debt of $37.9 million for the year ended December 31, 2023. As a result of these repurchases and repurchases made in 2022, as of December 31, 2023, $286.8 million aggregate principal amount of the Notes remain outstanding, net of deferred issuance costs of $3.7 million. Subject to market conditions and availability, we may continue to opportunistically repurchase Notes from time to time to reduce our outstanding indebtedness at a discount. Refer to Note 13 — Long Term Debt of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for further discussion.

Finance Receivables

Subject to market conditions, we plan to sell finance receivables originated by UACC through asset-backed securitization transactions. In January 2023, UACC sold approximately $238.7 million of investment grade rated asset-backed securities in the 2023-1 auto loan securitization transaction for proceeds of $237.8 million. On April 19, 2023, UACC sold the non-investment grade rated securities related to the 2023-1 securitization transaction for $23.1 million. The securitization trust is collateralized by finance receivables with an aggregate principal balance of $326.4 million. As a result of market conditions at the time, which led to unfavorable pricing, UACC retained the residual interests, and we accounted for the 2023-1 securitization transaction as secured borrowings.

In the year ended December 31, 2022, UACC sold $523.7 million of rated asset-backed securities and $49.6 million of residual certificates in 2022-1 and 2022-2 auto loan securitization transactions for proceeds of $582.9 million. The securitization trusts are collateralized by finance receivables with an aggregate principal balance of $603.5 million and have a carrying value of $534.6 million at the time of sale.

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Finance receivables are serviced by UACC. UACC retains at least 5% of the notes and residual certificates sold as required by applicable risk retention rules and generally uses the proceeds of the securitization transactions to pay down outstanding debt under its Warehouse Credit Facilities.

Depending on market conditions, future securitization transactions may be accounted for as secured borrowings and remain on balance sheet.

As a result of high interest rates, the current inflationary environment and vehicle depreciation in the used automotive industry, UACC is experiencing higher loss severity. The increased loss severity could lead to reduced servicing income if UACC elects to waive monthly servicing fees going forward as it did in the first quarter of 2023. The waiver of monthly servicing fees related to the 2022-2 securitization transaction resulted in consolidation of the related finance receivables and securitization debt on our financial statements.

Refer to Note 4 — Variable Interest Entities and Securitizations to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for further discussion.

UACC Risk Retention Financing Facility

On May 3, 2023, UACC entered into a Risk Retention Financing Facility enabling it to finance asset-backed securities issued in its securitization transactions and held by UACC pursuant to applicable risk retention rules. Under this facility, UACC sells such retained interests and agrees to repurchase them at fair value on a future date. In its initial transaction under this facility, UACC pledged $24.5 million of its retained beneficial interests as collateral, and received proceeds of $24.1 million, with expected repurchase dates ranging from March 2025 to September 2029. The securitization trusts will distribute payments related to UACC's pledged beneficial interests in securitizations directly to the lenders, which will reduce the beneficial interests in securitizations and the related debt balance.

Warehouse Credit Facilities

UACC has four senior secured warehouse facility agreements the (“Warehouse Credit Facilities”) with banking institutions. The Warehouse Credit Facilities are collateralized by eligible finance receivables and available borrowings are computed based on a percentage of eligible finance receivables. The aggregate borrowing limit is $825.0 million with maturities between June 2025 and September 2025. As of December 31, 2023, outstanding borrowings related to the Warehouse Credit Facilities were $421.3 million and we were in compliance with all covenants related to the Warehouse Credit Facilities. Failure to satisfy these and or any other requirements contained within the agreements would restrict access to the Warehouse Credit Facilities and could have a material adverse effect on our financial condition, results of operations and liquidity. Certain breaches of covenants may also result in acceleration of the repayment of borrowings prior to the scheduled maturity. Refer to Note 11 — Warehouse Credit Facilities of Consolidated VIEs to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for further discussion.

Operating Leases

Prior to the wind-down of our ecommerce operations, we entered into various noncancelable operating lease agreements for office space, the Company’s reconditioning facility, the TDA retail location, the Company’s Sell Us Your Car centers, regional logistics hubs, parking lots, other facilities, and equipment used in the normal course of business, and, as of December 31, 2023 operating lease obligations were $33.9 million, with $10.7 million payable within 12 months. As of December 31, 2023, UACC had an additional operating lease that has not yet commenced with future lease payments of approximately $1.2 million. The lease is expected to commence over the next 12 months with initial lease terms of approximately 7 years. As a result of the Value Maximization Plan, we have been negotiating early terminations of our lease obligations. As of March 8, 2024, we have reduced our aggregate future operating lease obligations by $4.9 million. Our ongoing lease obligations will depend on the outcomes of discussions and negotiations (a number of which are currently ongoing) with counterparties to the leases we still intend to terminate or modify. See "Note 12—Leases,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail of our obligations and the timing of expected future payments.

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Cash Flows from Operating, Investing, and Financing Activities

The following table summarizes our cash flows for the years ended December 31, 2023 and 2022:

Operating Activities

Net cash flows used in operating activities increased by $424.6 million, from $109.1 million for the year ended December 31, 2022 to $533.7 million for the year ended December 31, 2023. For the year ended December 31, 2022, the cash used in operating activities was partially offset by the proceeds from the sale of finance receivables held for sale related to the 2021-2 and 2022-2 securitization transactions of $509.6 million. The remaining increase in net cash used in operating activities is due to a change in working capital of $155.1 million, primarily related to the change in inventory levels. The increases were partially offset by a $149.3 million decrease in net loss after reconciling adjustments for the year ended December 31, 2023, as compared to the year ended December 31, 2022, a decrease of originations of finance receivables held for sale of $43.4 million, and an increase in principal payments received on finance receivables held for sale of $41.3 million

As the 2023-1 securitization transaction was accounted for as secured borrowings, the proceeds are included as a financing activity in our consolidated statement of cash flows.

We financed a majority of our inventory with the 2022 Vehicle Floorplan Facility. In accordance with U.S. GAAP, we report all cash flows arising in connection with the 2022 Vehicle Floorplan Facility as a financing activity in our consolidated statement of cash flows.

Investing Activities

Net cash flows from investing activities changed $337.4 million, from net cash used in investing activities of $164.2 million for the year ended December 31, 2022 to net cash provided by investing activities of $173.2 million for the year ended December 31, 2023. The change was primarily a result of the UACC Acquisition in February 2022 which resulted in cash outflow of $267.5 million during the year ended December 31, 2022, a decrease in purchases of finance receivables at fair value of $53.1 million, an increase in principal payments received on finance receivables at fair value of $42.4 million, and the consolidation of the 2022-2 securitization transaction which resulted in a cash inflow of $11.4 million during the year ended December 31, 2023. The changes were partially offset by a decrease in proceeds from the sale of finance receivables at fair value for the 2022-1 and 2022-2 securitization transactions of $43.3 million, which resulted in a cash inflow during the year ended December 31, 2022.

Financing Activities

Net cash flows from financing activities changed $566.8 million, from net cash used in financing activities of $469.5 million for the year ended December 31, 2022 to net cash provided by financing activities of $97.3 million for the year ended December 31, 2023. The change was primarily related to proceeds from borrowings under secured financing arrangements of $262.0 million, an increase in net cash inflow of $136.0 million related to our Warehouse Credit Facilities, a decrease in net repayments of $110.0 million related to our 2022 Vehicle Floorplan Facility, a decrease in the repurchase of convertible senior notes of $53.7 million, and proceeds from financing beneficial interests in securitizations of $24.5 million for the year ended December 31, 2023. The changes were partially offset by an increase in principal repayments under secured financing agreements and financing beneficial interests in securitizations of $15.6 million and $8.7 million, respectively.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including, among others, those related to income taxes, the realizability of inventory, stock-based compensation, revenue-related reserves, as well as impairment of goodwill and long-lived assets. We base our estimates on historical experience, market conditions and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.

The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those described in Note 2—Summary of Significant Accounting Policies and Note 3—Revenue Recognition to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Recently Issued and Adopted Accounting Pronouncements

Refer to “Note 2—Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report.

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