Vroom, Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Reported amounts reflect the revisions discussed in Note 18 to the condensed consolidated financial statements. 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 in the section titled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”), as updated by reference into the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Recent Events

Recapitalization of Balance Sheet Debt: Entry into the RSA and Anticipated Prepackaged Chapter 11 Case

On November 12, 2024, we entered into a Restructuring Support Agreement (together with all exhibits and schedules thereto, the “RSA”) with creditors holding, in the aggregate, over 80% of the aggregate outstanding principal amount of the Notes (as defined below) and the largest shareholder. The RSA contemplates a comprehensive restructuring of the Company’s debt obligations and capital structure to be implemented through a prepackaged plan of reorganization (the “Plan”) to be implemented through the anticipated filing of the Prepackaged Chapter 11 Case (as defined below). Capitalized terms used in this section but not defined herein have the meanings ascribed to them in the RSA.

In connection with the restructuring contemplated by the anticipated filing of the Prepackaged Chapter 11 Case, the ordinary course operations of Vroom, Inc.’s subsidiaries are expected to continue with minimal impact, if any, and trade creditors and all other general unsecured creditors are expected to be unimpaired. If the Plan is consummated, we will emerge without any remaining Notes, but will maintain UACC’s Warehouse Credit Facilities (as defined below), securitization debt, financing of beneficial interest in securitizations, and junior subordinated debentures.

Vroom, Inc. (in the context of the anticipated Prepackaged Chapter 11 Case, the “Debtor”) is expected to commence a voluntary proceeding (the “Prepackaged Chapter 11 Case”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). We plan to continue to operate our business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. We plan to seek approval of certain “first day” motions containing customary relief intended to assure our ability to continue ordinary course operations. None of Vroom, Inc.’s subsidiaries are expected to commence Chapter 11 proceedings.

Our pursuit of the Prepackaged Chapter 11 Case is intended to address the impact of the Notes and their upcoming maturity, or any potential acceleration, while providing the potential for our stockholders to retain value in their investment, limiting disruption to our ongoing ordinary course operations, emerging as a public company without any long-term debt at the Vroom, Inc. level, and maximizing the ability to utilize a substantial portion of our net operating losses. See “Liquidity and Capital Resources” for more information on our Notes and the potential restructuring of our debt obligations as a result of the Prepackaged Chapter 11 Case, and Part II, Item 1A Risk Factors for risks associated with the Prepackaged Chapter 11 Case and our ability to realize its intended benefits.

Commitments and Representations. Each of the Debtor and the Consenting Stakeholders have made certain customary commitments and representations in the RSA. The Debtor has agreed, among other things, to support and take all commercially reasonable actions necessary and appropriate to facilitate the restructuring and meet milestones set forth in the RSA. The Consenting Stakeholders have committed to the Debtor, among other things, to support and vote for the Plan and use their commercially reasonable efforts to consummate and complete the restructuring.

Milestones. The RSA contains milestones ("Milestones") relating to the progress of the Prepackaged Chapter 11 Case, which include, among other things, entry of an order by the Bankruptcy Court confirming the Plan and approving the related disclosure statement no later than 60 days following the Petition Date and the occurrence of the date on which the Plan has become effective in accordance with its terms (the “Plan Effective Date”) no later than 75 days following the Petition Date.

Termination. Each of the parties to the RSA may terminate the agreement (and thereby their support for the Plan) under certain limited circumstances, including, among other things: (i) in the case of the Company and the Consenting Noteholders, the failure to meet the Milestones; (ii) the occurrence of certain breaches of the RSA; (iii) the mutual agreement of the parties; and (iv) in the case of the Company, if the Board, members, or managers, as applicable, of the Company reasonably determines in good faith and based upon advice of outside legal counsel that performance under the RSA would be inconsistent with its applicable fiduciary duties.

Consummation. Consummation of the restructuring contemplated by the RSA is subject to approval of the Plan by the Bankruptcy Court and other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated.

Summary of Material Terms. The following is a summary of the material terms of the restructuring that are set forth in the Plan:

• The capital structure of the reorganized Debtor upon the Plan Effective Date will consist of the new common stock to be issued by the reorganized Debtor on the Plan Effective Date (the “New Common Stock”), distributed to (a) the holders of Unsecured Notes Claims; and (b) the holders of Existing Equity Interests, and resulting in pro forma ownership percentages of (x) 92.94% of the New Common Stock held by the holders of Unsecured Notes Claims; and (y) 7.06% of the New Common Stock held by holders of Existing Equity Interests; in each case, subject to dilution by the (i) New Warrants, (ii) the MIP Awards, and (iii) the Post-Effective Date Equity Awards.
• Promptly following the Plan Effective Date, the New Board will approve and implement the Management Incentive Plan (the “MIP”). The RSU Awards and the ESO Grants will be granted subject to approval by the New Board, with the allocation of such grants to be determined in good faith by the New Board in consultation with the reorganized company’s chief executive officer.
• The reorganized company reserves the right to register the New Warrants with the U.S. Securities and Exchange Commission (“SEC”) by filing a Registration Statement on Form S-1 in its discretion if it determines that doing so would be necessary or desirable in connection with the trading of such securities. As contemplated, the New Warrants will have the following key terms:
• Number: The New Warrants will be for the purchase of an aggregate of 1,808,243 shares of New Common Stock, equal to the number of presently existing outstanding shares of common stock of the Company;
• Exercise Price: The New Warrants will have an exercise price of $12.19 per share;
• Expiration: The New Warrants will expire on the 5th anniversary of the Plan Effective Date;
• Anti-Dilution Protections: The New Warrants will contain customary anti-dilution protection for stock splits, stock dividends, and similar events but will not have Black-Scholes protections; and
• Transferability: The New Warrants will be freely transferable, subject to applicable securities laws.

The Plan is attached as an exhibit to the RSA, which is filed as Exhibit 10.1 hereto. Under the Plan, certain classes of claims will receive upon consummation the following treatment:

• Holders of Other Priority Claims, Secured Claims, General Unsecured Claims, and 510(b) Claims will be unimpaired.
• Each holder of Claims under the Unsecured Notes Indenture (the “Unsecured Notes Claims”) will receive, except to the extent that such holder agrees in writing to less favorable treatment, on the Effective Date, its pro rata share of 92.94% of the New Common Stock (subject to dilution by (i) the New Warrants, (ii) the MIP Awards, and (iii) the Post-Effective Date Equity Awards).
• Each holder of any Equity Security or other ownership interest in the Debtor as in existence immediately before the Plan Effective Date, but excluding any Existing Equity Awards (the “Existing Equity Interests”), will receive, except to the extent that such holder agrees in writing to less favorable treatment, on the Effective Date, (i) its pro rata share of 7.06% of the New Common Stock (subject to dilution by (a) the New Warrants, (b) the MIP Awards, and (c) the Post-Effective Date Equity Awards) and (ii) the right to receive New Warrants in an amount equal to its pro rata share of Existing Equity Interests.
• Except to the extent the holder of any options or restricted stock units representing rights to purchase or acquire any Equity Securities of the Debtor as in existence immediately before the Plan Effective Date (the “Existing Equity Awards,” and together with the Existing Equity Interests, the “Equity Interests”) agrees in writing to less favorable treatment, on the Effective Date, all Existing Equity Awards will be converted into new awards (the “Post-Effective Date Equity Awards”) exchangeable into New Common Stock on the same terms and conditions, and for the same number of units, applicable to the Existing Equity Awards in respect of the Existing Equity Interests, as of immediately prior to the Plan Effective Date.

In connection with the restructuring, trade creditors and all other general unsecured creditors are expected to be unimpaired.

As described above, the Plan contemplates for the amendment and restatement, effective upon approval by the New Board, of the Company’s 2020 Incentive Award Plan in order to implement the MIP, pursuant to which 10% of the New Common Stock (as defined in the Plan) outstanding on a fully diluted basis as of immediately following emergence may be issued in the form of restricted stock unit awards and 5% of the New Common Stock outstanding on a fully diluted basis as of immediately following emergence may be issued in the form of stock options to certain employees of the Debtor, in each case on the terms set forth in the MIP Term Sheet.

Going Concern

As described above, we are contemplating the filing of the Prepackaged Chapter 11 Case. We believe we will be able to emerge from bankruptcy and continue to operate as a viable going concern. However, there is no assurance that: (a) the Plan will become effective, (b) the Plan will ultimately be approved by the requisite voting creditors and interest holders and confirmed by the Bankruptcy Court, (c) the Bankruptcy Court will grant or deny motions in a manner that is not adverse to the Debtor, and (d) the anticipated Prepackaged Chapter 11 Case will not be converted into cases under chapter 7 of the Bankruptcy Code. The transactions contemplated by the RSA and Plan are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, we can provide no assurance that the transactions described therein will be consummated.

Due to the uncertainties described above, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent upon our plans, which includes, among other things, our ability to, subject to the approval by the Bankruptcy Court, implement a comprehensive restructuring and successfully emerge from the anticipated Prepackaged Chapter 11 Case. Despite the anticipated Chapter 11 filing, we retain sufficient liquidity, with approximately $51.1 million of unrestricted cash on our Condensed Consolidated Balance Sheet as of September 30, 2024, and we continue to meet our obligations to customers, vendors, counterparties and employees in the ordinary course of business.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for twelve months following the issuance date. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

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 wound down our used vehicle dealership business in order to preserve liquidity and enable us to maximize stakeholder value through our remaining businesses. We have ceased transacting 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 stakeholder value by seeking to monetize our legacy ecommerce platform, reduce our outstanding commitments and preserve our liquidity, and have executed a reduction-in-force commensurate with our reduced operations. On March 29, 2024, we substantially completed the wind-down of our ecommerce operations and used vehicle dealership business (the "Ecommerce Wind-Down"), however, 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 consumers through third-party dealers under the UACC brand, and CarStory, an artificial intelligence ("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. 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 during 2024 of approximately $15.9 million for severance and other personnel-related costs, with $15.8 million incurred during the nine months ended September 30, 2024, and approximately $13.9 million in contract and lease termination costs, with the total amount settled during the nine months ended September 30, 2024. As part of a planned reduction-in-force under the Value Maximization Plan, approximately 800 employees were impacted by the wind-down, resulting in a reduction of approximately 93% of the employees not engaged in UACC’s or CarStory’s ongoing operations.

Overview

Vroom owns United Auto Credit Corporation, a leading automotive finance company that offers vehicle financing to consumers through third-party dealers under the UACC brand, and the CarStory business, a leader in AI-powered analytics and digital services for automotive retail.

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 the Ecommerce Wind-Down, 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 independent motor vehicle dealers and manufacturer-franchised dealers in 49 states, and we seek to optimize that network over time. UACC enables these dealers to finance their customers' purchases of 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 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 September 30, 2024, UACC serviced a portfolio of approximately 80,000 retail installment sales contracts with an aggregate principal outstanding balance of $1.1 billion.

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.

Long-term Strategic Plan

Since the announcement of the Value Maximization Plan in January 2024, we have been focused on building a long-term strategic plan leveraging our remaining assets to improve the profitability of the business and achieve three key objectives: achieve pre-COVID Cumulative Net Losses (CNL) or lower, grow origination with pre-COVID CNL or lower, and lower operating cost.

In order to achieve these objectives, we are focused on four strategic initiatives:

• Build a world class lending program: Focus on using advanced models and analytics to predict losses and drive profitable growth, bringing subprime CNL to pre-COVID levels. Expand the near-prime program to enable UACC to become a more significant partner to dealers.
• Build a world class sales and marketing program: Attract and retain the best dealers and drive deeper dealer engagement to enable growth. Improve the Fast Lane, a portal built to provide the dealer with everything they need from application through contracting.
• Build operational excellence in originations: Enhance systemic capabilities and decisioning for a more efficient process. Integrate Vroom patent-pending AI agent into UACC's funding process to reduce costs, improve accuracy, and reduce fraud. Build a pre-verification automated engine to improve dealer service, improve credit quality and increase capture rates.
• Build operational excellence in servicing: Utilize data science, advanced analytics and technology to enable an improved approach to servicing effectiveness. Utilize the native consumer mobile app, which was launched in September 2024, to improve customer engagement and communication and target more on-time payments.

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

EBITDA and Adjusted EBITDA

We calculate EBITDA as net loss before interest expense on corporate debt, interest income on cash and cash equivalents, income tax expense and depreciation and amortization expense.

We calculate Adjusted EBITDA as EBITDA adjusted to exclude stock compensation expense, severance expense related to the continuing operations, gain on debt extinguishment and long-lived asset impairment charges.

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

(in thousands)

(in thousands)

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:

Anticipated Prepackaged Chapter 11 Case

We are subject to risks and uncertainties associated with the anticipated Prepackaged Chapter 11 Case, including the impact on our liquidity, cash balances, and Nasdaq listing status. In addition, the entry into the RSA and the anticipated filing of the Prepackaged Chapter 11 Case has consumed, and is expected to continue to consume, a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may experience increased levels of employee attrition. Our business could also suffer from a long and protracted restructuring. Furthermore, we may not realize any or all of the intended benefits of the Prepackaged Chapter 11 Case. All of these factors could limit our ability to pursue growth strategies for our business in the near- to mid-term.

Ability to manage credit losses

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 nine months ended September 30, 2024 and are expected to continue to negatively impact our business for the remainder of 2024. UACC primarily operates in the non-prime sector of the market which tends to have more volatility. In 2020 and 2021, COVID related stimulus and used vehicle appreciation resulted in significantly lower delinquencies and subsequent losses. In late 2022 and 2023, delinquencies and loss rates rose as a result of the aforementioned factors and, in response, we implemented changes to our credit program, such as tightening credit, which is starting to return our delinquencies and expected portfolio performance on those vintages to normalized levels. We also intend to leverage CarStory data to improve VIN-level valuations to support underwriting decisions and servicing operations. 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.

Enhance profitability at UACC

In addition to higher credit losses, UACC’s ability to achieve profitability has been negatively affected by increased operating expenses and productivity challenges. Also, we have identified vulnerabilities in certain IT systems and determined additional investment will be needed to update and secure those systems. We are undertaking a number of initiatives designed to reduce operating expenses, introduce improved processes, and reporting metrics across UACC’s operations, invest in IT systems, improve origination and servicing productivity, and leverage CarStory data to improve underwriting and servicing performance. We intend to grow UACC’s business profitably by reducing credit losses, increasing UACC’s market share, and streamlining its operations.

Ability to continue to access capital

UACC has four Warehouse Credit Facilities, which are primarily used to finance the origination of finance receivables as well as to provide funding for general operating activities. UACC has also developed a securitization program that involves selling finance receivables to securitization trusts through the private issuance of asset-backed securities which are collateralized by the finance receivables.

The success of UACC's business is highly dependent on the ability to continue to access capital through both its warehousing arrangements and securitization program. 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. Certain advance rates available to UACC on borrowings from UACC’s four senior secured warehouse credit facility agreements (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. Currently, all four Warehouse Credit Facilities expire between June and September 2025. We have commenced discussions with our lenders to extend the terms beyond the current expiration dates and, consistent with prior periods, expect those facilities to be amended and renewed. We believe that our ability to eliminate our long-term debt obligations under the Notes in connection with the Prepackaged Chapter 11 Plan may support our position as we engage in these discussions with our Warehouse Credit Facilities lenders. However, there can be no assurance that adequate additional financing will be available to us on acceptable terms, or at all. See Part II, Item 1A Risk Factors—We may not generate sufficient liquidity to operate our business, and, UACC may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow its business.

In addition, due to UACC's increased credit losses, 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. As a result of market conditions at the time, UACC retained the residual interests for the 2023-1 and 2024-1 securitization transactions.

Ability to optimize our dealer network to increase vehicle finance offerings

We intend to moderately grow our automotive financing business while focusing on achieving profitability. UACC will seek to optimize its dealer network over time. UACC provides funding that allows independent motor vehicle dealers and manufacturer-franchised dealers to finance vehicles for their customers. Currently, UACC serves a nationwide network of thousands of dealers in 49 states. UACC's credit programs are primarily designed to serve consumers in the non-prime market, 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 and has launched a pilot program for near-prime consumers. We also intend to drive dealer and customer engagement through technology innovations.

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. 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 and our borrowing 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; in September 2024 they enacted the first interest rate cut by reducing benchmark rates by half a percentage point. It is too soon to know when and to what degree rates may be cut further 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 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 for the remainder of 2024.

Results of Operations

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

Segments

• UACC: The UACC reportable segment represents UACC’s operations with its network of third-party dealership customers, including the purchases and servicing of vehicle retail installment sales contracts. The segment also includes the runoff portfolio of retail installment sale contracts originated for Vroom or purchased from Vroom prior to the Ecommerce Wind-Down.
• CarStory: 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.

The Company retrospectively restated segment results for the comparative period to conform to the new presentation.

Three Months Ended September 30, 2024 and 2023

UACC

(in thousands)

Interest income

UACC acquires and services finance receivables from its network of third-party dealership customers and generates interest income, which consists of discount income and interest income. Discount income represents the amortization of unearned discounts over the contractual life of the underlying finance receivables held for investment at fair value. Discounts on the finance receivables held-for-sale are deferred until they are sold.

For securitization transactions that are accounted for as secured borrowings, we recognize interest income in accordance with the terms of the related retail installment sale contracts. Interest income also includes the runoff portfolio of retail installment sale contracts originated for Vroom or purchased from Vroom prior to the Ecommerce Wind-Down.

For securitization transactions that are accounted as a sale of finance receivables in accordance with ASC Topic 860, Transfers and Servicing of Financial Assets ("ASC 860"), we recognize a gain on sale of finance receivables. There were no securitizations which were accounted for as sales in the periods presented.

Interest income increased $2.7 million, or 5.7%, to $50.8 million for the three months ended September 30, 2024 from $48.1 million for the three months ended September 30, 2023. This increase was primarily a result of new originations, which increased the loan portfolio to $850.6 million as of September 30, 2024 from $800.5 million as of September 30, 2023. The increase in interest income was partially offset by lower amortization of discount income during the three months ended September 30, 2024 as a result of a lower balance of finances receivables held for investment measured at fair value, with discount being amortized, as compared to finance receivables held for sale with discount deferred until receivables are sold. The outstanding balance of finance receivables held for investment at fair value was $210.0 million as of September 30, 2024, as compared to $400.7 million as of September 30, 2023. The outstanding balance of finance receivables held for sale was $640.6 million as of September 30, 2024, as compared to $399.8 million as of September 30, 2023.

Interest expense

Interest expense primarily includes interest expense on UACC's Warehouse Credit Facilities, interest expense incurred on securitization debt, and interest expense on financing of beneficial interests in securitizations.

Interest expense increased $3.7 million or 31.9% to $15.3 million for the three months ended September 30, 2024 from $11.6 million for the three months ended September 30, 2023, primarily as a result of higher interest expense incurred on the Warehouse Credit Facilities, which increased $0.7 million to $6.3 million for the three months ended September 30, 2024 from $5.5 million for the three months ended September 30, 2023 as well as higher interest expense incurred on securitization debt, which increased $3.0 million to $9.1 million for the three months ended September 30, 2024 from $6.1 million for the three months ended September 30, 2023. The increase of interest expense incurred on the Warehouse Credit Facilities is attributable to a higher outstanding balance of $321.8 million as of September 30, 2024 as compared to $294.7 million as of September 30, 2023, due to financing the larger finance receivable portfolio, partially offset by a decrease in the weighted average interest rates, which decreased from 7.23% to 6.97%. The increase of interest expense incurred on securitization debt is attributable to a higher outstanding balance of $410.1 million as of September 30, 2024 as compared to $361.9 million as of September 30, 2023 as well as overall higher interest rates as securitization debt interest rates are fixed.

Realized and unrealized losses, net of recoveries

Realized and unrealized losses, net of recoveries, primarily represents charge-offs of finance receivables held-for-sale, changes in the fair value of finance receivables for which the fair value option was selected under ASC 825, changes in the valuation allowance on the held-for-sale portfolio, changes in the fair value of securitization debt accounted in accordance with the measurement alternative under ASC 810-30, changes in the fair value of beneficial interest, as well as collection expenses related to servicing finance receivables.

Realized and unrealized losses, net of recoveries, decreased slightly by $0.2 million or 0.7% to $30.1 million for the three months ended September 30, 2024 from $30.3 million for the three months ended September 30, 2023.

Servicing income

Servicing income primarily represents the annual fees earned as a percentage of the outstanding principal balance of the finance receivables sold that were accounted for as off-balance sheet securitizations. When our securitizations are accounted for as secured borrowings, the servicing income we receive is eliminated in consolidation. In addition, we also earn other income generated from servicing our finance receivables portfolio, including late and other fees.

Servicing income decreased by $0.9 million or 38.5% to $1.5 million for the three months ended September 30, 2024 from $2.4 million for the three months ended September 30, 2023, primarily driven by a lower balance of the 2022-1 securitization, which is accounted for as an off-balance sheet securitization.

Warranties and GAP income

UACC earns fees by selling third-party value-added products, such as vehicle service contracts. UACC is also contractually entitled to receive profit-sharing based on the performance of the vehicle service contract policies once a required claims period has passed. UACC recognizes a profit-share 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 consumers, as well as other qualitative assumptions.

United Auto Credit GAP is a debt waiver product that 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 finance receivable, 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 financial receivables on straight-line basis.

Warranties and GAP income increased by $0.6 million or 39.5% to $2.1 million for the three months ended September 30, 2024 as compared to $1.5 million for the three months ended September 30, 2023 primarily as a result of a revised estimate of proceeds we expect to recover.

Other income

Other income increased $1.1 million or 197.9% to $1.7 million for the three months ended September 30, 2024 from $0.6 million for the three months ended September 30, 2023, primarily driven by higher income related to acquisition fees for originations of finance receivables at fair value, which is recognized in the period the finance receivable is originated.

Compensation and benefits

Compensation and benefits increased $4.8 million or 32.3% to $19.8 million for the three months ended September 30, 2024 from $15.0 million for the three months ended September 30, 2023. The increase was primarily a result of retention bonuses granted to retain key employees and a decrease in deferred acquisition costs as a result of accounting for the origination of all new finance receivables at fair value, with acquisition costs being expensed in the period incurred rather than deferred.

Professional fees

Professional fees decreased slightly by $0.1 million or 11.3% to $0.9 million for the three months ended September 30, 2024 from $1.0 million for the three months ended September 30, 2023.

Software and IT costs

Software and IT costs decreased $0.5 million or 16.2% to $2.3 million for the three months ended September 30, 2024 from $2.8 million for the three months ended September 30, 2023, primarily as a result of more efficient targeted software use as well as renegotiating and right-sizing our Software and IT contracts.

Impairment charges

Impairment charges increased $2.4 million related to lease impairment charges incurred during the three months ended September 30, 2024.

Other expenses

Other expenses increased $0.3 million or 19.5% to $2.0 million for the three months ended September 30, 2024 from $1.7 million for the three months ended September 30, 2023, primarily as a result of a decrease in deferred acquisition costs as a result of accounting for the origination of all new finance receivables at fair value, with acquisition costs being expensed in the period incurred rather than deferred, and an increase in dealer equity program expense.

Adjusted EBITDA

Adjusted EBITDA loss increased $4.3 million to $14.1 million for the three months ended September 30, 2024 from $9.8 million for the three months ended September 30, 2023, primarily as a result of the $2.0 million increase in expenses after EBITDA adjustments, including compensation and benefits, professional fees, and other expenses, as discussed above.

CarStory

(in thousands)

CarStory revenue

CarStory generates advertiser, publisher and other user service revenue by offering its AI-powered analytics and 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 revenue decreased $0.1 million or 3.6% to $2.9 million for the three months ended September 30, 2024 from $3.0 million for the three months ended September 30, 2023, primarily as a result of a change in the scope of service and data provided to our customers.

Adjusted EBITDA

Adjusted EBITDA decreased $0.7 million or 139.2% to $0.2 million for the three months ended September 30, 2024 as compared to $0.5 million for the three months ended September 30, 2023.

Corporate

(in thousands)

Corporate activities do not constitute a reportable segment. These activities include costs not directly attributable to the segments and are primarily related to costs associated with corporate and governance functions, including executive functions, corporate finance, legal, human resources, information technology, cyber security and other shared costs. Certain shared costs, including corporate administration, are allocated to segments based upon a specific allocation of expenses. Corporate activities also include the runoff of legacy Vroom warranty and GAP policies sold prior to the Ecommerce Wind-Down as well as certain Vroom contracts, primarily Software and IT related, that have been renegotiated and right-sized to account for reduced headcount following the Ecommerce Wind-down. Adjusted EBITDA loss of $11.2 million for the three months ended September 30, 2024 is comprised of a loss of $8.5 million related to runoff of the legacy Vroom related items and ongoing contracts, and a loss of $2.7 million related to public company expenses.

Warranties and GAP income (loss), net

Prior to the Ecommerce Wind-Down, we offered value-added products to our customers pursuant to arrangements with the third parties that sell and administer these products as well as estimated profit-sharing amounts to which we are entitled based on the performance of third-party protection products once a required claims period has passed. A portion of the fees we received are subject to chargeback in the event of early termination, default, or prepayment of the contracts by our customers. Warranties and GAP income, net, recorded within Corporate, relates to the runoff of policies sold prior to the Ecommerce Wind-Down.

See “Note 3—Revenue Recognition” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Warranties and GAP income increased $3.2 million or 237.4% to income of $1.8 million for the three months ended September 30, 2024 from a loss of $1.3 million for the three months ended September 30, 2023, primarily as a result of a revised estimate of proceeds we expect to recover.

Other income

Other income primarily represents interest earned on cash and cash equivalents. Other income decreased $0.8 million or 61.2% to $0.5 million for the three months ended September 30, 2024 from $1.3 million for the three months ended September 30, 2023, primarily driven by lower cash and cash equivalent balances and lower interest rates earned on cash and cash equivalents.

Compensation and benefits

Compensation and benefits expense decreased $0.1 million or 5.0% to $2.4 million for the three months ended September 30, 2024 from $2.5 million for the three months ended September 30, 2023, primarily as a result of severance expense related to the departure of certain executives and retention bonuses granted to retain key employees subsequent to the Ecommerce Wind-Down.

Professional fees

Professional fees decreased $1.8 million or 68.2% to $0.8 million for the three months ended September 30, 2024 from $2.6 million for the three months ended September 30, 2023, primarily as a result of reduced audit, legal, and consulting fees as a result of the reduced size of the business.

Software and IT costs

Software and IT costs decreased $0.7 million or 41.9% to $1.0 million for the three months ended September 30, 2024 from $1.7 million for the three months ended September 30, 2023, primarily as a result of more efficient targeted software use as well as renegotiating and right-sizing our Software and IT contracts.

Other expenses

Other expenses decreased $0.7 million or 35.2% to $1.3 million for the three months ended September 30, 2024 from $2.0 million for the three months ended September 30, 2023, primarily related to a decrease in public company related insurance costs as we renegotiated our insurance policies during the third quarter of 2023 and 2024 as a result of the reduced scale of the business.

Nine Months Ended September 30, 2024 and 2023

UACC

(in thousands)

Interest income

Interest income increased $23.8 million, or 18.2%, to $154.7 million for the nine months ended September 30, 2024 from $130.9 million for the nine months ended September 30, 2023. This increase was primarily a result of new originations and the consolidation of our 2022-2 securitization, which increased the loan portfolio to $850.6 million as of September 30, 2024 from $800.5 million as of September 30, 2023. The increase in interest income was partially offset by lower discount income during the nine months ended September 30, 2024 as a result of a smaller balance of finances receivables held for investment measured at fair value, with discount being amortized, as compared to finance receivables held for sale with discount deferred until receivables are sold. The outstanding balance of finance receivables held for investment at fair value was $210.0 million as of September 30, 2024, as compared to $400.7 million as of September 30,

2023. The outstanding balance of finance receivables held for sale was $640.6 million as of September 30, 2024, as compared to $399.8 million as of September 30, 2023.

Interest expense

Interest expense increased $15.9 million or 55.5% to $44.7 million for the nine months ended September 30, 2024 from $28.7 million for the nine months ended September 30, 2023, primarily as a result of higher interest expense incurred on the Warehouse Credit Facilities, which increased $10.4 million to $22.7 million for the nine months ended September 30, 2024 from $12.3 million for the nine months ended September 30, 2023. The increase is attributable to a higher outstanding balance of $321.8 million as of September 30, 2024 as compared to $294.7 million as of September 30, 2023, due to financing the larger finance receivable portfolio. The increase in interest expense is also partially attributable to higher interest expense incurred on securitization debt, which increased $5.5 million to $22.0 million for the nine months ended September 30, 2024 from $16.4 million for the nine months ended September 30, 2023, as a result of a higher outstanding balance for securitization debt of $410.1 million as of September 30, 2024 as compared to $361.9 million as of September 30, 2023, as well as overall higher interest rates.

Realized and unrealized losses, net of recoveries

Realized and unrealized losses, net of recoveries, increased $14.5 million or 23.0% to $77.5 million for the nine months ended September 30, 2024 from $63.0 million for the nine months ended September 30, 2023. This increase was primarily driven by an increase in realized and unrealized losses on finance receivables as a result of a larger finance receivable portfolio, due to new originations as well as the consolidation of the 2022-2 securitization, which was previously off- balance sheet, as well as higher credit losses as of September 30, 2024 as compared to September 30, 2023.

Servicing income

Servicing income decreased by $2.7 million or 34.9% to $5.1 million for the nine months ended September 30, 2024 from $7.8 million for the nine months ended September 30, 2023, primarily driven by a lower balance of the 2022-1 securitization, which is off-balance sheet.

Warranties and GAP income

Warranties and GAP income increased by $0.2 million or 3.0% to $5.3 million for the nine months ended September 30, 2024 from $5.2 million for the nine months ended September 30, 2023.

Other Income

Other income increased $3.7 million or 140.9% to $6.3 million for the nine months ended September 30, 2024 from $2.6 million for the nine months ended September 30, 2023, primarily driven by higher income related to acquisition fees for originations of finance receivables at fair value, which is recognized in the period the finance receivable is originated.

Compensation and benefits

Compensation and benefits increased $9.2 million or 18.5% to $59.1 million for the nine months ended September 30, 2024 from $49.9 million for the nine months ended September 30, 2023. The increase was primarily a result of the following: retention bonuses granted to retain key employees; allocation of incremental data and technology departments' time to UACC as a result of a shift in focus of the business; severance expense related to the termination of certain UACC employees; and a decrease in deferred acquisition costs as a result of accounting for the origination of all new finance receivables at fair value, with acquisition costs being expensed in the period incurred rather than deferred.

Professional fees

Professional fees decreased $2.2 million or 48.9% to $2.3 million for the nine months ended September 30, 2024 from $4.6 million for the nine months ended September 30, 2023, primarily as a result of additional professional fees incurred during the first quarter of 2023 as a result of the completion of the 2023-1 securitization transaction, as the 2023-1 securitization debt is carried at fair value the associated debt issuance costs were expensed as incurred. As the 2024-1 securitization debt is carried at amortized costs, the associated debt issuance costs are capitalized and amortized over the life of the debt.

Impairment charges

Impairment charges increased $5.2 million related to impairment of capitalized internal-use software that no longer has a planned future use of $2.7 million as well as lease impairment charges of $2.4 million.

Other expenses

Other expenses increased $1.6 million or 27.7% to $7.6 million for the nine months ended September 30, 2024 from $5.9 million for the nine months ended September 30, 2023, primarily as a result of a loss on the repurchase of the non-investment grade securities related to the 2022-2 securitization transaction, a decrease in deferred acquisition costs as a result of accounting for the origination of all new finance receivables at fair value, with acquisition costs being expensed in the period incurred rather than deferred, and an increase in dealer equity program expense.

Adjusted EBITDA

Adjusted EBITDA loss increased $13.1 million to $27.1 million for the nine months ended September 30, 2024 from $14.0 million for the nine months ended September 30, 2023, primarily as a result of the $6.6 million decrease in net interest income after losses and recoveries and the $8.0 million increase in expenses after EBITDA adjustments, including compensation and benefits, professional fees, impairment charges, and other expenses, as discussed above.

CarStory

(in thousands)

CarStory revenue

CarStory revenue decreased $0.6 million or 6.5% to $8.8 million for the nine months ended September 30, 2024 from $9.4 million for the nine months ended September 30, 2023, primarily as a result of a change in the scope of service and data provided to our customers.

Adjusted EBITDA

Adjusted EBITDA decreased $1.0 million or 58.6% to $0.7 million for the nine months ended September 30, 2024 as compared to $1.7 million for the nine months ended September 30, 2023.

Corporate

(in thousands)

Adjusted EBITDA loss of $38.9 million for the nine months ended September 30, 2024 is comprised of a loss of $31.9 million related to runoff of the legacy Vroom related items and ongoing contracts, and a loss of $7.0 million related to public company expenses.

Warranties and GAP loss, net

Warranties and GAP loss, net, increased $8.2 million to $9.7 million for the nine months ended September 30, 2024 from $1.4 million for the nine months ended September 30, 2023, primarily as a result of a revised estimate of proceeds we expect to recover.

Gain on debt extinguishment

Gain on debt extinguishment represents a gain of $19.6 million for the nine months ended September 30, 2023, related to the repurchase of $32.8 million in aggregate principal balance of the Notes, net of deferred issuance costs, for $13.2 million.

Other income

Other income decreased $3.8 million or 71.3% to $1.5 million for the nine months ended September 30, 2024 from $5.3 million for the nine months ended September 30, 2023, primarily driven by lower cash and cash equivalent balances and lower interest rates earned on cash and cash equivalents.

Compensation and benefits

Compensation and benefits expense increased $2.3 million or 31.8% to $9.7 million for the nine months ended September 30, 2024 from $7.4 million for the nine months ended September 30, 2023, primarily as a result of severance expense related to the departure of certain executives and retention bonuses granted to retain key employees subsequent to the Ecommerce Wind-Down.

Professional fees

Professional fees decreased $2.1 million or 34.9% to $4.0 million for the nine months ended September 30, 2024 from $6.1 million for the nine months ended September 30, 2023, primarily as a result of reduced audit, legal, and consulting fees as a result of the reduced size of the business.

Software and IT costs

Software and IT costs decreased $2.0 million or 34.4% to $3.8 million for the nine months ended September 30, 2024 from $5.7 million for the nine months ended September 30, 2023, primarily as a result of more efficient targeted software use as well as renegotiating and right-sizing our Software and IT contracts.

Other expenses

Other expenses decreased $2.3 million or 31.2% to $5.0 million for the nine months ended September 30, 2024 from $7.2 million for the nine months ended September 30, 2023, primarily related to a decrease in public company related insurance costs as we renegotiated our insurance policies during the third quarter of 2023 and 2024 as a result of the reduced scale of the business.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $51.1 million and restricted cash of $47.1 million. Restricted cash primarily includes restricted cash required under UACC's securitization transactions and Warehouse Credit Facilities of $46.2 million. Prior to the Ecommerce Wind-Down, our primary source of liquidity was cash generated through financing activities. Additionally, we had excess borrowing capacity of $32.9 million under UACC's Warehouse Credit Facilities as of September 30, 2024.

As a result of the liquidation of our vehicle inventory as part of the Ecommerce Wind-Down, 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 increased 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.

UACC relies on borrowings under senior secured warehouse credit facilities to finance the origination of finance receivables as well as to provide funding for general operating activities. The terms of those facilities generally mature within two years and we typically renew those facilities in the ordinary course. UACC currently has four Warehouse Credit Facilities, all of which have terms expiring between June and September 2025. See Note 9, Warehouse Credit Facilities and Consolidated VIEs, to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. We have commenced discussions with our lenders under the Warehouse Credit Facilities regarding amended facilities that would extend the terms beyond the current expiration dates and, consistent with prior periods, expect those facilities to be amended and renewed. However, there can be no assurance that adequate additional financing will be available to us on acceptable terms, or at all. Failure to secure warehouse borrowing capacity beyond the expiration of the current facilities in 2025 would have a material adverse effect on our ability to finance UACC’s lending operations and our results of operations and liquidity.

If we undergo a fundamental change under the terms of our Indenture, holders of the Notes could, subject to certain conditions, require us to immediately repurchase for cash all or any portion of the Notes at a repurchase price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest. The delisting of the Company’s common stock from the Nasdaq Global Select Market would constitute a fundamental change under the terms of an indenture between us and U.S. Bank National Association, as trustee (the "Indenture").

Nasdaq maintains several standards for continued listing of our common stock on the Nasdaq Global Select Market. There can be no assurance that we will continue to meet such standards and maintain our listing. For example, under the “equity standard”, the Company is required to have stockholders’ equity of at least $10 million, among other requirements. Under the “total asset standard”, the market value of the Company's publicly held shares must be at least $15 million, among other requirements. Only one standard has to be met to comply with Nasdaq requirements. We currently meet the "total asset standard", however, there can be no assurance that we will continue to do so, or that we will be able to satisfy any other standard. If we are not able to satisfy a continued listing requirement from Nasdaq and our common stock is delisted, we will be required to repurchase the Notes prior to maturity, as discussed above. Moreover, we may be delisted by Nasdaq due the anticipated Prepackaged Chapter 11 Case, and we may be unable to relist on Nasdaq or another national securities exchange.

As of September 30, 2024, and as of the date of issuance of this Quarterly Report on Form 10-Q, we do 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 us on favorable terms, or at all.

On November 12, 2024, we announced our entry into the RSA and our intention to commence the Prepackaged Chapter 11 Case. The RSA contemplates and the Plan proposes that, upon effectiveness, each holder of an Allowed Unsecured Notes Claim (as defined therein) will receive, in full and final satisfaction, settlement, discharge and release of, and in exchange for, its Allowed Unsecured Notes Claim, its pro rata share of 92.94% of the New Common Stock (subject to dilution by the New Warrants, the MIP, and the Post-Effective Date Equity Awards, all terms as defined therein). One of the intended goals of the Prepackaged Chapter 11 Case is for stockholders to retain value in our business, and to restore confidence in the long-term sustainability of our operating segments. On the effective date of the Plan, all notes, instruments, certificates, and other documents evidencing Unsecured Notes Claims will be canceled and/or updated to record such cancellation and the obligations of the Debtor thereunder or in any way related thereto will be deemed satisfied in full and discharged.

The filing of the Prepackaged Chapter 11 Case will trigger an event of default, resulting in the immediate acceleration of the Company's obligations to pay principal and interest under the Indenture. The Indenture provides that, as a result of the filing such as the anticipated Prepackaged Chapter 11 Case, the principal, premium, if any, accrued and unpaid interest and any other monetary obligations due thereunder will be immediately due and payable. However, any enforcement of such payment obligations will be stayed as a result of the filing of the Prepackaged Chapter 11 Case and subject to the applicable provisions of the Bankruptcy Code. The Plan contemplates the termination of the Indenture.

As discussed herein, the consummation of the Plan is subject to numerous conditions and the Plan may not be consummated, including if the Prepackaged Chapter 11 Case is not commenced for any reason. Accordingly, no assurance can be given that the transactions described herein will be consummated on the expected terms, if at all. Refer to Note 1 — Description of Business and Basis of Presentation of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for further discussion.

While we continue to meet our obligations to customers, vendors, counterparties and employees in the ordinary course of business, there is substantial doubt about our ability to continue as a going concern due to the anticipated Prepackaged Chapter 11 Case. While the financial statements have been prepared on a going concern basis, these uncertainties raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent upon our plans, which include, among other things, our ability to, subject to the approval by the Bankruptcy Court, implement a comprehensive restructuring and successfully emerge from the anticipated Prepackaged Chapter 11 Case. The unaudited condensed consolidated financial statements located elsewhere in this Quarterly Report on Form 10-Q have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for twelve months following the issuance date.

Despite the anticipated Chapter 11 filing, the Company retains sufficient liquidity, with approximately $51.1 million of unrestricted cash on its Condensed Consolidated Balance Sheet as of September 30, 2024, and it continues to meet its obligations to customers, vendors, counterparties and employees in the ordinary course of business.

Convertible Senior Notes

On June 18, 2021, we issued $625.0 million aggregate principal amount of the Convertible Senior Notes due 2026 (the “Notes”) pursuant to 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 nine months ended September 30, 2024, the conditions allowing holders of the Notes to convert were not met.

As of September 30, 2024, $287.9 million aggregate principal amount of the Notes remain outstanding, net of deferred issuance costs of $2.6 million. Refer to Note 10 — Long Term Debt of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for further discussion.

Securitization Transactions

Subject to market conditions, we plan to sell finance receivables originated by UACC through asset-backed securitization transactions. During the second quarter of 2024, UACC completed the 2024-1 securitization transaction, in which it sold approximately $300.0 million of rated asset-backed securities in an auto finance receivable securitization transaction from a securitization trust, established and sponsored by UACC for proceeds of $297.2 million. The trust is collateralized by finance receivables with an aggregate principal balance of $380.1 million as of April 30, 2024. These finance receivables are serviced by UACC. As a result of market conditions, UACC retained the residual interests, which required us to account for the 2024-1 securitization as secured borrowings and remain on balance sheet pending the sale of such retained interests. We also repurchased $4.2 million of the non-investment grade securities related to the 2022-2 securitization transaction for $4.8 million.

In 2023, UACC sold investment and non-investment grade rated asset-backed securities in the 2023-1 securitization transaction for proceeds of $260.9 million. The securitization trust is collateralized by finance receivables with an aggregate principal balance of $326.4 million as of January 31, 2023. 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.

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.

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 condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for further discussion.

UACC Risk Retention Financing Facility

On May 3, 2023, UACC entered into a Risk Retention Financing Facility enabling it to finance a portion of the 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.

During the second quarter of 2024, UACC pledged an additional $15.8 million of its retained beneficial interest in the 2024-1 securitization transaction as collateral under the Risk Retention Financing Facility, and received proceeds of $15.6 million, with expected repurchase dates ranging from August 2026 to November 2030 at the initial closing date.

Warehouse Credit Facilities

UACC has four senior secured warehouse credit 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 September 30, 2024, outstanding borrowings related to the Warehouse Credit Facilities were $321.8 million and we were in compliance with all covenants under the terms of 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 9 — Warehouse Credit Facilities of Consolidated VIEs to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, for further discussion.

Cash Flows from Operating, Investing, and Financing Activities

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023:

(in thousands)

Operating Activities

Net cash flows used in operating activities from continuing operations decreased by $202.6 million, from $356.8 million for the nine months ended September 30, 2023 to $154.2 million for the nine months ended September 30, 2024. The decrease was primarily due to a $97.8 million decrease in originations of finance receivables held for sale, as a result of no longer originating loans for legacy Vroom customers, an increase in principal payments received on finance receivables held for sale of $62.0 million, a $31.1 million improvement in net loss from continuing operations after reconciling adjustments, and changes in working capital of $9.8 million.

Investing Activities

Net cash flows provided by investing activities from continuing operations decreased by $55.0 million, from $147.1 million for the nine months ended September 30, 2023 to $92.1 million for the nine months ended September 30, 2024. The decrease is primarily due to a $44.4 million decrease in principal payments received on finance receivables at fair value as well as the consolidation of the 2022-2 securitization transaction which resulted in a cash inflow of $11.4 million during the nine months ended September 30, 2023.

Financing Activities

Net cash flows provided by financing activities from continuing operations decreased $162.3 million, from $169.8 million for the nine months ended September 30, 2023 to $7.5 million for the nine months ended September 30, 2024. The decrease was primarily related to a $162.5 million decrease in net cashflows related to our Warehouse Credit Facilities, as a result of less borrowings and higher repayments following the 2024-1 securitization transaction and a $12.9 million decrease in net cashflows from financing of beneficial interests in securitizations. These decreases were partially offset by $13.2 million in repurchases of the Notes during the nine months ended September 30, 2023.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of condensed 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 finance receivables, income taxes, stock-based compensation, contingencies, warranties and GAP income-related reserves, fair value measurements and useful lives of property and equipment and intangible 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 condensed consolidated financial statements include those described in Note 2—Summary of Significant Accounting Policies and Note 3—Revenue Recognition to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Except as described below, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Fair Value of Finance Receivables

The valuation of finance receivables at fair value is derived from an internally developed model that estimates the present value of future cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates that rely on unobservable assumptions third-party market participants would use in determining fair value, including prepayment speed, default rate, recovery rate, and discount rates. All these assumptions are primarily based on historical performance. These valuation models are calculated by combining similarly priced loans and vintages to determine a stream of expected cash flows which are then discounted. The individual discounted pools of cash flows are then aggregated to determine the total expected discounted cash flows on the outstanding receivable at a given measurement period.

The estimates for the aforementioned assumptions significantly affect the reported amount (and changes thereon) of our finance receivables at fair value on our consolidated balance sheets and condensed consolidated statements of operations.

Recently Issued and Adopted Accounting Pronouncements

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

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 3.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024.

Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarterly period ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our operations and financial results are subject to various risks and uncertainties including those disclosed under “Item 1A. Risk Factors” in our Annual Report. We provide below the material changes to our risk factors described in our Annual Report. If any of these risks or others not specified materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock:

We are subject to risks and uncertainties associated with the anticipated Prepackaged Chapter 11 Case.

We have entered into a Restructuring Support Agreement (together with all exhibits and schedules thereto, the “RSA”) and expect to commence a voluntary proceeding as the Debtor under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) (the “Prepackaged Chapter 11 Case”). The RSA contemplates a comprehensive restructuring of the Company’s debt obligations and capital structure to be implemented through a prepackaged plan of reorganization (the “Plan”) to be implemented through the anticipated filing of the Prepackaged Chapter 11 Case. We plan to continue to operate our business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. We anticipate seeking approval of certain “first day” motions containing customary relief intended to assure our ability to continue our ordinary course operations. None of Vroom, Inc.’s subsidiaries are expected to commence Chapter 11 proceedings.

The anticipated Prepackaged Chapter 11 Case could have a material adverse effect on our business, financial condition, results of operations and liquidity. Our senior management has spent, and so long as the Prepackaged Chapter 11 Case continues, they will continue to be required to spend, a significant amount of time and effort dealing with the reorganization instead of focusing on our business operations. Bankruptcy Court protection also may make it more difficult to retain management and the key personnel necessary to the success and growth of our business. Furthermore, we may not realize any or all of the intended benefits of the Prepackaged Chapter 11 Case. In addition, during the period of time we may remain subject to the provisions of the Bankruptcy Code in the Prepackaged Chapter 11 Case, our customers and vendors may lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships.

Other significant risks include or relate to the following:

• our ability to obtain the Bankruptcy Court’s approval with respect to motions or other requests made to the Bankruptcy Court in the anticipated Prepackaged Chapter 11 Case, including maintaining strategic control as a debtor-in-possession;
• the effects of the filing of the anticipated Prepackaged Chapter 11 Case on our business and the interest of various constituents, including our stockholders;
• the high costs of the anticipated Prepackaged Chapter 11 Case and related fees;
• our ability to maintain relationships with vendors, customers, employees and other third parties as a result of the anticipated Prepackaged Chapter 11 Case;
• Bankruptcy Court rulings in the anticipated Prepackaged Chapter 11 Case as well as the outcome of all other pending litigation and the outcome of the anticipated Prepackaged Chapter 11 Case in general;
• the length of time that we anticipate we will operate with Chapter 11 protection, if at all, and the continued availability of operating capital during the pendency of the proceeding;
• third-party motions in the anticipated Prepackaged Chapter 11 Case;
• potential delisting by Nasdaq due to the anticipated Prepackaged Chapter 11 Case;
• our ability to continue as a going concern as a result of the anticipated Prepackaged Chapter 11 Case; and
• the potential adverse effects of the anticipated Prepackaged Chapter 11 Case on our liquidity and results of operations.

Because of the risks and uncertainties associated with the anticipated Prepackaged Chapter 11 Case, we may not be able to accurately predict or quantify the ultimate impact the anticipated Prepackaged Chapter 11 Case may have on our business, cash flows, liquidity, financial condition and results of operations, nor can we accurately predict the ultimate impact the anticipated Prepackaged Chapter 11 Case may have on our corporate or capital structure. If the Prepackaged Chapter 11 Case is not successful, any other strategic options that we pursue to address the impact of the

Company's outstanding Notes, including any recapitalization, restructuring, reorganization, bankruptcy, or liquidation, may not be successful and holders of our common stock could be diluted or suffer a total loss of their investment.

We may not be able to obtain confirmation of the Plan as outlined in the RSA.

There can be no assurance that the Plan as outlined in the RSA (or any other plan of reorganization) will be approved by the Bankruptcy Court, so we urge caution with respect to existing and future investments in our securities.

The success of any reorganization will depend on approval by the Bankruptcy Court and the willingness of existing debt and security holders to agree to the treatment as outlined in the Plan, and there can be no guarantee of success with respect to the Plan or any other plan of reorganization. We might receive objections to confirmation of the Plan from the various stakeholders in the anticipated Prepackaged Chapter 11 Case. We cannot predict the impact that any objection might have on the Plan or on a Bankruptcy Court's decision to confirm the Plan. Any objection may cause us to devote significant resources in response that could materially and adversely affect our business, financial condition and results of operations. Additionally, it is possible that an official committee of equityholders is appointed, which could materially impact the length and cost of the Prepackaged Chapter 11 Case, or, the ability to consummate the Plan as contemplated in the RSA.

If the Plan is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if any, distributions holders of claims against us, including holders of our unsecured debt and equity, as well as holders of the Notes, would ultimately receive with respect to their claims. There can be no assurance as to whether we will successfully reorganize and emerge from Chapter 11 or, if we do successfully reorganize, as to when we would emerge from Chapter 11. If no plan of reorganization can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests, the Prepackaged Chapter 11 Case may be converted to a case under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.

If the RSA is terminated, our ability to confirm and consummate the Plan could be materially and adversely affected.

The RSA contains a number of termination events, upon the occurrence of which certain parties to the RSA may terminate the agreement. If the RSA is terminated as to all parties thereto, each of the parties will be released from its obligations in accordance with the terms of the RSA. Such termination may result in the loss of support for the Plan by the parties to the RSA, which could adversely affect our ability to confirm and consummate the Plan. If the Plan is not consummated, there can be no assurance that any new plan would be as favorable to holders of claims against the Company as contemplated by the RSA.

The RSA is subject to significant conditions and milestones that may be difficult for us to satisfy.

There are certain material conditions we must satisfy under the proposed RSA, including the timely satisfaction of milestones for the progress of the anticipated Prepackaged Chapter 11 Case, including, among other things, to obtain certain bankruptcy court orders and complete the Plan. Our ability to timely complete such milestones is subject to risks and uncertainties that may be beyond our control.

Trading in our securities is highly speculative and poses substantial risks. If the Plan becomes effective, the holders of our existing common stock will be diluted.

The RSA contemplates the Plan to be implemented through the anticipated Prepackaged Chapter 11 Case. The Plan is attached as an exhibit to the RSA. In connection with the restructuring, trade creditors and all other general unsecured creditors will be unimpaired. The Plan, as contemplated in the proposed RSA, provides that upon the Company's emergence from Chapter 11, noteholders will receive, among other things, their pro rata share of 92.94% of the common stock in the reorganized company and that the holders of the existing common stock of the Company will receive their pro rata share of 7.06% of the common stock in the reorganized Company and their pro rata share of the new warrants exercisable upon the Company reaching certain benchmarks pursuant to the terms of the proposed new warrants. In addition, if the Plan as contemplated in the proposed RSA is consummated, 15% of the Fully-Diluted New Common Stock outstanding as of immediately following the Plan Effective Date will be reserved for issuance as awards under a post-restructuring management incentive plan consisting of 10% restricted stock units and 5% options. Issuances of common stock (or securities convertible into or exercisable for common stock) under the Plan, the Post-Effective Date Equity Awards or management incentive plan and any exercises of the warrants or conversion rights for shares of common stock will dilute the voting power of the outstanding common stock and may adversely affect the trading price of such common stock.

Following the effectiveness of the Plan, certain holders of Unsecured Notes Claims, if they choose to act together, will have the ability to significantly influence all matters submitted to stockholders of the reorganized company for approval.

Certain Holders of Unsecured Notes Claims are expected to acquire a significant ownership interest in the New Common Stock pursuant to the Plan. Such Holders may be in a position to control the outcome of all actions requiring stockholder approval, including the election of directors, without the approval of other stockholders. This concentration of ownership could also facilitate or hinder a negotiated change of control of the Reorganized Debtor and, consequently, have an impact upon the value of the New Common Stock. The significant ownership stake may allow these Holders to appoint a majority of the board of directors, potentially influencing the company's management and strategic direction. This could lead to changes in corporate governance practices, business strategies, and capital allocation policies that align with the interests of the major shareholders. The concentrated ownership might also affect the liquidity of the New Common Stock in the market, potentially impacting its trading price and volatility. The interests of these significant Holders may not always align with those of other shareholders or the Reorganized Debtor, potentially leading to conflicts in decision-making. Lastly, this ownership structure could either attract potential acquirers due to the ease of negotiating with a small group of major shareholders or deter them if the Holders are not interested in selling their stakes. Notably, a single party alone would likely hold sufficient voting power to control stockholder approval on most matters, potentially marginalizing minority shareholders.

Our business could suffer from a long and protracted restructuring.

While only Vroom, Inc. is anticipated to be a debtor in the Prepackaged Chapter 11 Case and its subsidiaries will not be subject to the Bankruptcy Code, our future results are dependent upon the timely implementation of a Chapter 11 plan of reorganization. A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations, liquidity and suppliers, customers and other counterparties may not want to do business with us while we are in bankruptcy. Failure to obtain confirmation of a Chapter 11 plan in a timely manner may harm our ability to finance adequately our operations, and there is a significant risk that the value of the Company would be substantially eroded to the detriment of all stakeholders. If a Chapter 11 plan that complies with the applicable provisions of the Bankruptcy Code cannot be confirmed, we would have to pursue other strategic options to address the impact of the outstanding Notes. Any other strategic option that we pursue, including any recapitalization, restructuring, reorganization, bankruptcy, or liquidation, may not be successful and holders of our common stock could be diluted or suffer a total loss of their investment.

For as long as the anticipated Prepackaged Chapter 11 Case continues, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the anticipated Prepackaged Chapter 11 Case. If we are unable to continue to fund our operations, our chances of successfully reorganizing our business may be seriously jeopardized, the likelihood that we instead will be required to liquidate our assets may be enhanced, and, as a result, our common stock could become further devalued or become worthless.

There can be no assurance of whether, or when, we will be able to successfully implement a Chapter 11 plan, or whether we will be able to do so in a timely fashion.

Even if a Chapter 11 plan is confirmed and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders, suppliers and other counterparties to do business with a company that recently emerged from bankruptcy proceedings.

As a result of the anticipated Prepackaged Chapter 11 Case, our historical financial information will not be indicative of our future performance.

During the anticipated Prepackaged Chapter 11 Case, we expect our financial results to continue to be volatile. Further, we anticipate that our capital structure will be significantly altered if and when we are able to emerge from bankruptcy proceedings. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the filing of the anticipated Prepackaged Chapter 11 Case. In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to our historical consolidated financial statements. We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting may be different from historical trends.

We are subject to claims that will not be discharged in the anticipated Prepackaged Chapter 11 Case, which could have a material adverse effect on our financial condition and results of operations.

While certain prepetition litigation claims will be treated as unimpaired 510(b) Claims (as defined in the Plan) during the anticipated Prepackaged Chapter 11 Case, the Company is involved in certain other litigation, which, so long as it remains unresolved, represents legal issues of uncertain outcome and potential claims for monetary damages. If the outcomes of such litigation are unfavorable, they could have a material impact on the Company’s operations and financial health.

Additionally, there is a risk of future litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly affect the reorganized company’s financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims and interests under the Plan. It is not possible to predict with certainty what, if any, future litigation the reorganized company may become involved in, nor the final resolution of such litigation. The impact of any such litigation on the reorganized company’s businesses and financial stability, however, could be material.

The anticipated Prepackaged Chapter 11 Case will consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may experience increased levels of employee attrition.

Management has spent a significant amount of time and effort focusing on the entry into the RSA and the anticipated Prepackaged Chapter 11 Case, and while the anticipated Prepackaged Chapter 11 Case continues, our management will be required to continue to spend a significant amount of time and effort focusing on the anticipated Prepackaged Chapter 11 Case instead of focusing exclusively on our business operations. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the anticipated Prepackaged Chapter 11 Case is protracted.

Furthermore, during the pendency of the anticipated Prepackaged Chapter 11 Case, we may experience increased levels of employee attrition, and our employees may face considerable distraction and uncertainty. A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us through the pendency of the anticipated Prepackaged Chapter 11 Case is limited by restrictions on implementation of incentive programs under the Bankruptcy Code. The loss of services of members of our senior management team could impair our ability to execute our strategy and implement operational initiatives, which would be likely to have a material adverse effect on our financial condition, liquidity and results of operations. In addition, the longer the anticipated Prepackaged Chapter 11 Case continues, the more likely it is that vendors and employees will lose confidence in our ability to reorganize our business successfully.

Upon our emergence from bankruptcy, the composition of our Board of Directors may change.

Under the Plan, the composition of our Board may change. Any new directors are likely to have different backgrounds, experiences and perspectives from those individuals who previously served on the Board and, thus, may have different views on the issues that will determine our future. As a result, our future strategy and plans may differ materially from those of the past.

The anticipated Prepackaged Chapter 11 Case raises substantial doubt regarding our ability to continue as a going concern.

As a result of the anticipated Prepackaged Chapter 11 Case, our operations and ability to develop and execute our business plan are subject to significant risks and uncertainties. Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the approval by the Bankruptcy Court, implement a comprehensive restructuring, successfully emerge from the anticipated Prepackaged Chapter 11 Case and maintain sufficient liquidity following the restructuring to meet our obligations and operating needs. The Plan contemplated by the RSA could fail to be confirmed or become effective, or the Bankruptcy Court may grant or deny motions in a manner that is adverse to us and our subsidiaries. Accordingly, the transactions described herein may not be consummated on the expected terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern.

Our common stock price may be volatile, and the value of our common stock has declined since our initial public offering and may continue to decline regardless of our operating performance, and you may not be able to resell your shares at or above the price which you paid for them.

It is possible that an active trading market for shares of our common stock will not be sustained, which could make it difficult for you to sell your shares of common stock at an attractive price or at all.

Many factors, some of which are outside our control, may cause the market price of our common stock to fluctuate significantly, including those described in this “Risk Factors” section and the "Risk Factors" section in our Annual Report, as well as the following:

• the anticipated filing and outcome of the Prepackaged Chapter 11 Case, including as a result of the Plan that the RSA contemplates;
• our operating and financial performance and prospects, including as a result of operational changes and initiatives we are taking as part of our Value Maximization Plan;
• the discontinuation of our ecommerce operations and wind-down of our used vehicle dealership business and our ability to reduce the related costs;
• potential delisting of our common stock;
• our ability to grow and develop the UACC and CarStory businesses;
• our liquidity and ability to raise or restructure our existing capital;
• our quarterly or annual earnings or those of other companies in our industry compared to market expectations;
• our guidance regarding future quarterly or annual earnings, and our financial results in relation to previously issued guidance;
• our ability to achieve the benefits of any cost saving measures;
• future announcements concerning our businesses or our competitors’ businesses;
• the public’s reaction to our press releases, other public announcements and filings with the SEC;
• coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; market and industry perception of our success, or lack thereof, in pursuing our business strategy;
• changes in market sentiment regarding growth companies that are not yet profitable;
• strategic actions by us or our competitors, such as acquisitions or restructurings;
• changes in laws or regulations which adversely affect our industry or us;
• changes in accounting standards, policies, guidance, interpretations or principles;
• changes in senior management or key personnel and the impact of reductions in our workforce;
• issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock;
• changes in our dividend policy;
• new, or adverse resolution of pending, litigation or other claims against us;
• global political unrest and wars, including geopolitical conflicts and war in Europe and the Middle East, which could delay and disrupt our business, and if such political unrest further escalates or leads to disruptions in the financial markets or puts further pressure on global supply chains, it could heighten many of the other risk factors included in this Item 1A and the other risk factors included in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023;
• the current inflationary environment in the United States and in other global economies, the impact of high interest rates and the impact of any recession or general economic downturn;
• potential volatility in the banking industry; and
• other changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from the federal government’s ongoing negotiations regarding the federal debt limit, natural disasters, terrorist attacks, global pandemics, and responses to such events.

As a result, volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the price which they paid for them. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low. As a result, you may suffer a loss on your investment. Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, may negatively impact the market price of our common stock.

We have experienced significant declines in the market price of our common stock, and it could continue to decline in the future, including as a result of the execution and implementation of our Value Maximization Plan or the filing and implementation of the anticipated Prepackaged Chapter 11 Case. Accordingly, any trading in our common stock during the pendency of the Prepackaged Chapter 11 Case will be highly speculative and pose substantial risks to purchasers of our common stock.

Further declines in our stock price could, among other things, make it more difficult to raise or restructure capital on terms acceptable to us, or at all, and make it difficult for our investors to sell their shares of common stock. In addition, companies that experience volatility in the market price of their securities often are the subject of securities class action litigation. For example, a consolidated class action is pending in the U.S. District Court for the Southern District of New York against us, certain of our officers, and certain of our directors, among others, alleging violations of the federal securities laws. See Part II, Item 1 “Legal Proceedings.”

Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could materially adversely affect our business, financial condition and results of operations and impair our ability to satisfy our debt obligations.

As of September 30, 2024, we, including our subsidiaries, had approximately $1,051.2 million principal amount of consolidated indebtedness. Of that amount, $410.0 million of securitization debt is funded by cashflows on receivables within the securitization trusts. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

• increasing our vulnerability to adverse economic and industry conditions;
• limiting our ability to obtain additional financing;
• requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes, including the successful execution of our Value Maximization Plan;
• limiting our flexibility to plan for, or react to, changes in our business; and
• placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, or to pay amounts due under our indebtedness, and our cash needs may increase in the future. In addition, our existing indebtedness contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that may limit our ability to operate our business, raise capital or make payments under our other indebtedness.

For example, on December 21, 2023, we received written notice from Nasdaq notifying us that, for the prior 30 consecutive business days, the bid price for our common stock had closed below the $1.00 minimum bid price requirement for continued inclusion on the Nasdaq Global Select Market. 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 Nasdaq Listing Qualifications 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. However, if our common stock again closes below the $1.00 per share minimum bid price required by Nasdaq for 30 consecutive business days, we again would receive another notice of non-compliance with Nasdaq’s listing standards and would face the risk of delisting. There can be no assurance that our common stock will continue to close at or above the $1.00 per share minimum bid price as required by Nasdaq, or that we will meet the other requirements of Nasdaq for continued listing on Nasdaq Global Select Market.

For example, under the "equity standard", applicable Nasdaq listing standards currently require us to have stockholders’ equity of at least $10 million, among other requirements. Under the "total asset standard", the market value of our publicly held shares must be at least $15 million, among other requirements. Only one standard has to be met to comply with Nasdaq requirements. While we currently meet the "total asset standard", there can be no assurance that we will continue to do so, or that we will be able to satisfy any other standard. A delisting of our common stock from the Nasdaq Global Select Market would constitute a fundamental change under the terms of our Indenture and holders of the Notes could, subject to certain conditions, require us to immediately repurchase for cash all or any portion of the Notes at a repurchase price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest. As of September 30, 2024, and as of the date of issuance of the condensed consolidated financial statements, we do 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 us on favorable terms, or at all. Additionally, if we fail to comply with the terms of our Indenture or to service the interest under the Notes and repay the Notes as and when they become due, that could in turn also result in our other indebtedness becoming immediately payable in full. Our ability to maintain our indebtedness, including to service the interest under the Notes and repay the Notes, as and when they become due, will depend on our ability to generate and maintain sufficient cash, and if necessary, raise additional capital. On November 12, 2024, we announced our entry into the RSA and intention to commence the Prepackaged Chapter 11 Case. The RSA contemplates and the Plan proposes that, upon effectiveness, each holder of an Allowed Unsecured Notes Claim (as defined therein) will receive, in full and final satisfaction, settlement, discharge and release of, and in exchange for, its Allowed Unsecured Notes Claim, its pro rata share of 92.94% of the New Common Stock (subject to dilution by the New Warrants, the MIP, and the Post-Effective Date Equity Awards, all terms as defined therein). On the effective date of the Plan, all notes, instruments, certificates, and other documents evidencing Unsecured Notes Claims will be canceled and/or updated to record such cancellation and the obligations of the Debtor thereunder or in any way related thereto will be deemed satisfied in full and discharged. While the filing of the anticipated Prepackaged Chapter 11 Case will constitute an event of default that will accelerate the Company’s respective obligations under the Indenture, the Plan contemplates the termination of the Indenture. As discussed herein, the consummation of the Plan is subject to numerous conditions and the Plan may not be consummated, including if the Prepackaged Chapter 11 Case is not commenced for any reason.

We may be unable to satisfy a continued listing rule from Nasdaq, and if we are delisted, there is no assurance we will be able to satisfy an initial listing rule from Nasdaq or another national securities exchange.

Nasdaq maintains several requirements for continued listing of our common stock, one of which is the maintenance of a minimum closing bid price of $1.00. On December 21, 2023, we received written notice from Nasdaq notifying us that, for the prior 30 consecutive business days, the bid price for our common stock had closed below the $1.00 minimum bid price requirement for continued inclusion on the Nasdaq Global Select Market. 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 Nasdaq Listing Qualifications 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 regained compliance with Nasdaq Listing Rule 5450(a)(1) and this matter is now closed. However, 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 receive another notice of non-compliance with Nasdaq's listing standards and may be provided a period of 180 calendar days from the date of such notice to regain compliance with the minimum bid closing price requirement of at least $1.00 per share for a minimum of 10 consecutive business days. However, there can be no assurance that our common stock will continue to close at or above the $1.00 per share minimum bid price as required by Nasdaq. We intend to continue to actively monitor the closing bid price of our common stock and, if we lose compliance with Nasdaq’s minimum bid price closing requirements, will consider all available options to regain compliance.

There can also be no assurance that we will meet the other requirements of Nasdaq for continued listing on the Nasdaq Global Select Market. For example, under the "equity standard", applicable Nasdaq listing standards currently require us to have stockholders’ equity of at least $10 million, among other requirements. Under the "total asset standard", the market value of our publicly held shares must be at least $15 million, among other requirements. Only one standard has to be met to comply with Nasdaq requirements. While we currently meet the "total asset standard", there can be no assurance that we will continue to do so, or that we will be able to satisfy any other standard. A delisting of our common stock from the Nasdaq Global Select Market would constitute a fundamental change under the terms of our Indenture and holders of the Notes could, subject to certain conditions, require us to immediately repurchase for cash all or any portion of the Notes at a repurchase price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest. As of September 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.

The Company may be delisted by Nasdaq due the anticipated Prepackaged Chapter 11 Case. If our common stock is delisted based on the anticipated Prepackaged Chapter 11 Case, the bid price closing requirement, the stockholders’ equity requirement, or any other continued listing requirement, it is unlikely that we will be able to list our common stock on another national securities exchange and, as a result, we expect our securities would be quoted on an over-the-counter market. If this were to occur, we and our stockholders could face significant material adverse consequences, including limited availability of market quotations and analyst coverage for our common stock, and reduced liquidity for the trading of our securities.

Delisting also could result in, among other things, a loss of investor confidence or interest in strategic transactions or opportunities, us being subject to regulation in each state in which we offer our securities, and difficulty in recruiting and retaining personnel through equity incentive awards.

Our tax attributes and future tax deductions may be reduced or significantly limited as a result of the consummation of the Plan and any restructuring or reorganization in connection therewith.

Generally, any discharge of our debt obligations as a result of the Prepackaged Chapter 11 Case for an amount less than the adjusted issue price may give rise to cancellation of indebtedness income, which will reduce our tax attributes.

Certain tax attributes otherwise available and of value to us may be reduced, in most cases by the principal amount of the indebtedness forgiven. U.S. federal income tax attributes subject to reduction generally include (i) net operating losses (“NOL(s)”) and NOL carryforwards; (ii) general business credit carryovers; (iii) minimum tax credit carryovers; (iv) capital loss carryovers; (v) tax basis in assets (but not below the amount of liabilities to which the taxpayer remains subject immediately after the indebtedness forgiven); (vi) passive activity loss and credit carryovers; and (vii) foreign tax credit carryovers. Loss of these tax attributes may have an adverse effect on our prospective cash flow.

To the extent that U.S. federal NOL carryforwards, other losses and credits generated by us prior to emergence from bankruptcy are available as deductions after emergence, our ability to utilize such deductions may be limited by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Section 382 of the Code provides rules limiting the utilization of a corporation’s NOLs and other losses, deductions and credits following a more than 50% change in ownership of a corporation’s equity over a three-year period (an “ownership change”). An exception to the limitations under Section 382 of the Code generally applies when, among other requirements, so-called “qualified creditors” and shareholders of a corporation in Chapter 11 receive, in respect of their claims and interests, as applicable, at least 50% of the vote and value of the stock of the corporation pursuant to a confirmed Chapter 11 plan (the “382(l)(5) Exception”). We expect to seek an order of the Bankruptcy Court on or around the filing of the anticipated Prepackaged Chapter 11 Case that will establish certain procedures to protect the potential value of our NOL carryforwards for use in connection with the reorganization. In addition, we believe that the transactions contemplated by the Plan will result in an ownership change, and we expect that the application of the 382(l)(5) Exception could result in significant future cash tax savings over other alternative approaches and transaction forms. However, it is uncertain whether the consummation of the Plan will satisfy all of the requirements of the 382(l)(5) Exception, as such determination will depend on several factors, including the extent to which holders of certain of our indebtedness may be treated as “qualified creditors”. The rules relating to the use of pre-bankruptcy tax attributes by a corporation emerging from a bankruptcy are inherently uncertain. Accordingly, there cannot be any assurance that we will be entitled to use such attributes following emergence from the Prepackaged Chapter 11 Case.

We may not generate sufficient liquidity to operate our business.

As of September 30, 2024, we had cash and cash equivalents of $51.1 million and restricted cash of $47.1 million and continue to meet our obligations to customers, vendors, counterparties and employees in the ordinary course of business. However, there is substantial doubt about our ability to continue as a going concern due to the anticipated Prepackaged Chapter 11 Case.

We expect to use our cash and cash equivalents to finance our future capital requirements and UACC’s four senior secured warehouse facility agreements (the “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 higher interest rates. Any future decreases on available advance rates may have an adverse impact on our liquidity. If we are unable to maintain the Warehouse Credit Facilities, all of which expire on varying dates in 2025 absent renewal, on favorable terms or at all, or if they are terminated or expire and are not renewed or we are unable to find a satisfactory replacement, we may be unable to fund our finance receivables, and our business, operational results, financial position and cash flows would be materially adversely affected.

In addition, in April 2024, UACC sold approximately $262.5 million of rated asset-backed securities in an auto loan securitization transaction from a securitization trust, established and sponsored by UACC for proceeds of $261.3 million. The trust is collateralized by finance receivables with an aggregate principal balance of $380.1 million. These finance receivables are serviced by UACC. As a result of market conditions, UACC retained the Class E non-investment grade securities and residual interests, which will require us to account for the 2024-1 securitization as secured borrowings and remain on balance sheet pending the sale of such retained interests. In May 2024, UACC sold approximately $37.5 million of Class E non-investment grade securities that were initially retained for proceeds of $35.9 million.

Our revenue growth may be adversely affected by factors including our inability to grow and develop the UACC and CarStory businesses; weakness in the automotive retail industry generally; general economic conditions, including high interest rates and inflation; global pandemics and other public health emergencies; and increasing competition. Our historical revenue growth is not indicative of our future performance, particularly given the wind-down of our ecommerce business. If we are unable to grow and develop the UACC and CarStory businesses and generate sufficient revenue and achieve profitability, our business, financial condition and results of operations will be materially and adversely affected. Additionally, our cash needs may increase in the future as we focus on growing and developing the UACC and CarStory businesses.

In addition to our ongoing cash requirements, in the near term, our liquidity will also be used to fund costs related to the wind-down of our ecommerce operations, primarily 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 the outcome of the anticipated Prepackaged Chapter 11 Case, 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 to 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 us, future credit losses, the ability to obtain the necessary financing to meet obligations and repay liabilities arising from business operations when they come due, the ability to generate and maintain sufficient cash, and the ability to generate profitable operations in the future. There can be no assurance that our liquidity will be sufficient to achieve the objectives of our Value Maximization Plan, grow and develop UACC and CarStory, operate our business, or comply with the terms of our indebtedness. See "—UACC may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow its business" and “—Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could materially adversely affect our business, financial condition and results of operations and impair our ability to satisfy our debt obligations.”

UACC may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow its business.

UACC uses debt financing to maintain and grow its business. UACC relies on borrowings under senior secured warehouse credit facilities to finance the origination of finance receivables as well as to provide funding for general operating activities. The terms of those facilities generally mature within two years and we typically renew those facilities in the ordinary course. UACC currently has four Warehouse Credit Facilities, all of which have terms expiring between June and September 2025. See Note 9, Warehouse Credit Facilities and Consolidated VIEs, to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and "UACC may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow its business." We have commenced discussions with our lenders under the Warehouse Credit Facilities regarding amended facilities that would extend the terms beyond the current expiration dates. Failure to secure warehouse borrowing capacity beyond the expiration of the current facilities in 2025 would have a material adverse effect on our ability to finance UACC’s lending operations and our results of operations and liquidity. We cannot guarantee that the Warehouse Credit Facilities will continue to be available beyond their current maturity dates, on acceptable terms, or at all, or that UACC will be able to obtain additional financing on acceptable terms or at all. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the losses incurred in UACC's loan portfolio, UACC’s financial position, its results of operations, and the capacity for additional borrowing under its existing financing arrangements. If UACC’s various financing alternatives were to become limited or unavailable, it may be unable to maintain or grow origination volume at the level that we anticipate and our financial condition and results of operations would be materially adversely affected.

There are risks associated with the discontinuance of our ecommerce operations and wind-down of our used vehicle dealership business.

On January 22, 2024, we announced the Value Maximization Plan, pursuant to which we discontinued our ecommerce operations and wound down our used vehicle dealership business in order to preserve cash and maximize stakeholder value through our remaining businesses. As a result, we have incurred, and will continue to incur, costs including severance costs, inventory liquidation costs, contract and lease termination costs and non-cash asset impairments, and such costs are expected to exceed any cash we generate on the liquidation of assets. We estimate that we will incur total cash charges during 2024 of approximately $15.9 million for severance and other personnel-related costs, with $0.2 million and $15.8 million incurred during the three and nine months ended September 30, 2024, respectively and approximately $13.9 million in contract and lease termination costs, with $0.4 million and $13.9 million settled during the three and nine months ended September 30, 2024, respectively. The actual amount of wind down, transition and impairment charges may materially exceed our estimates, due to various factors, many of which are outside of our control, including the outcomes of discussions and negotiations with the counterparties to the remaining contracts and leases we intend to terminate or modify. In addition, because of uncertainties with respect to our wind-down plan (including those described above), we may not be able to realize the anticipated benefits of or complete the wind-down in the expected timeframe, on the terms or in the manner we expect, or at all, and the costs incurred in connection with such wind-down activities may exceed our estimates. If the time to complete the wind-down takes longer than expected, or the actual costs or impairment charges exceed our estimates, the Company’s business, operational results, financial position and cash flows could be adversely affected.

The purpose of the Value Maximization Plan was to wind-down our ecommerce operations, which were not profitable and had significant cash burn, in order to preserve cash and enable us to maximize stakeholder value through our remaining businesses, UACC and CarStory. As of September 30, 2024, we had cash and cash equivalents of approximately $51.1 million. Given our wind-down expenses, including employee severance costs, our ongoing operating expenses and recent losses at UACC, there can be no assurance that we will succeed in achieving profitability and creating meaningful stakeholder value.

Additionally, the announced wind-down involves further risks, including:

• the ongoing cost of retaining (as was realized in connection with the payment of retention bonuses during the nine months ended September 30, 2024) and, in some cases, the inability to retain qualified personnel necessary to achieve our goals for UACC and CarStory;
• potential disruption of the operations of the rest of our businesses and diversion of management’s attention from such businesses and operations;
• exposure to unknown, contingent or other liabilities, including litigation arising in connection with the wind-down;
• negative impact on our business relationships, including but not limited to potential relationships with our customers, suppliers, vendors, licensees and employees; and
• unintended negative consequences from changes to our business.

If any of these or other factors impair our ability to successfully implement the wind-down, we may not be able to realize other business opportunities as we may be required to spend additional time and incur additional expense relating to the wind-down that otherwise would be used on the development, expansion and profitability of our other businesses, which could adversely impact our business, operational results, financial position and cash flows.

We are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, financial condition and results of operations.

We are subject to various litigation matters from time to time, the outcome of which could have a material adverse effect on our business, financial condition and results of operations. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, by governmental entities in civil or criminal investigations and proceedings or by other entities. These claims could be asserted under a variety of laws, including but not limited to consumer finance laws, consumer protection laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee benefit laws. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business. For example, a consolidated class action is pending in the U.S. District Court for the Southern District of New York asserting claims on behalf of a putative class of Company stockholders against us, certain of our officers, and certain of our directors, among others, alleging violations of the federal securities laws. We also are a party to certain stockholder derivative suits in which the Company is named as a nominal defendant in suits that various individual stockholders seek to bring on behalf of the Company against certain of our current and former directors and officers. These suits are pending in the U.S. District Court for the Southern District of New York and the U.S. District Court for the District of Delaware and are based on the same general course of conduct alleged in the consolidated securities class action. We believe these lawsuits are without merit and intend to vigorously contest these claims.

In January 2022, the Company received a non-public civil investigative demand from the Federal Trade Commission (“FTC”), seeking the production of information related to certain of the Company's business practices and the Company responded to those information requests. On February 23, 2024, the FTC notified the Company that it has reason to believe that the Company violated Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a); the FTC's Mail, Internet, or Telephone Order Merchandise Rule, 16 C.F.R. Part 435; the FTC’s Used Motor Vehicle Trade Regulation Rule,16 C.F.R. Part 455; and the FTC’s Pre-Sale Availability Rule, 16 C.F.R. Part 702. On May 6, 2024, Vroom, Inc., Vroom Automotive, LLC and the FTC reached an agreement to resolve the FTC’s allegations without any admission of wrongdoing by either Vroom entity, subject to final approval by the FTC and the court. Under the agreement, the Company agreed to pay a total of $1 million in customer redress and abide permanently by an injunction. The FTC issued its final approval of the agreement on July 2, 2024, and a mutually-agreed upon order reflecting the agreement was entered by the Court on July 10, 2024. The case is captioned Federal Trade Commission v. Vroom, Inc. et al., Case No. 4:24-cv-02496.

In addition, in April 2022, the Attorney General of Texas filed a lawsuit on behalf of the State of Texas in the District Court of Travis County, Texas against the Company, alleging violation of the Texas Deceptive Trade Practices − Consumer Protection Act and Texas Business and Commerce Code § 17.41 et seq. In December 2023, Vroom, Inc., Vroom Automotive, LLC and the Attorney General of the State of Texas reached a final agreement to resolve all claims in the petition, without any admission of wrongdoing by either Vroom entity. Under the agreement, the Company agreed to pay a total of $2 million in civil penalties and $1 million in attorneys' fees, with the first half due in September 2024 and the remaining half due in September 2025, and abide permanently by an injunction of certain operational practices that were previously implemented. The agreement was approved by the District Court of Travis County on December 13, 2023.

Upon the filing of the Prepackaged Chapter 11 Case, it is anticipated that all litigation against the Debtor will be stayed pursuant to the automatic stay of the Bankruptcy Code. The RSA contemplates that all existing litigation will be unimpaired by the bankruptcy and the associated liabilities are not currently proposed to be discharged pursuant to the proposed plan of reorganization. Following the Plan Effective Date, it is anticipated that any litigation stayed during the Prepackaged Chapter 11 Case will continue. See Part I, Item 3. “Legal Proceedings” for more information about these matters and the other legal proceedings to which we are subject.

We depend on key personnel to operate our business, and if we are unable to retain, integrate, adequately compensate, and attract qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees. Our future success depends on our continuing ability to retain, develop, motivate and attract highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to retain and attract them. In particular, we are highly dependent on the services of our leadership team to the development of our business, future vision, and strategic direction, including as we realign our business in accordance with the Value Maximization Plan. On February 29, 2024, James G. Vagim, III, UACC's Co-President and Chief Executive Officer, and Ravi Gandhi, UACC's Co-President and Chief Financial Officer stepped down. The Company's Chief Executive Officer, Tom Shortt, succeeded Mr. Vagim as President and Chief Executive Officer of UACC, and the Company's Vice President of Investor Relations and Financial Planning & Analysis, Jon Sandison, succeeded Mr. Gandhi as UACC's Chief Financial Officer. On May 17, 2024 (the "CFO Transition Date"), Robert R. Krakowiak ceased his service as Chief Financial Officer, Treasurer and principal financial officer of the Company. On May 6, 2024, the Board appointed Mr. Krakowiak as a member of the board of directors (the “Board”) of the Company, and as Vice Chair of the Board, in each case effective as of the CFO Transition Date, for a term ending at the Company's 2024 Annual Meeting of Stockholders (the "Annual Meeting"), where he was re-elected by our stockholders for a term ending at the Company's 2025 Annual Meeting of Stockholders. On the CFO Transition Date, the Company's Senior Vice President and principal accounting officer, Agnieszka Zakowicz, succeeded Mr. Krakowiak as the Company's Chief Financial Officer, Treasurer and principal financial officer and retained her role as principal accounting officer. Also effective on the CFO Transition Date, C. Denise Stott stepped down as the Company's Chief People & Culture Officer. On August 16, 2024, Amy Castell, UACC’s General Counsel and Chief Compliance Officer, stepped down, followed by Patricia Moran, the Company’s Chief Legal Officer, stepping down on August 23, 2024. Anna-Lisa Corrales was appointed as the Company’s Chief Legal Officer, Chief Compliance Officer and Secretary. Our future performance will depend, in part, on the successful transition of these positions and any other key management positions that may experience turnover in the future. We heavily rely on the continued service and performance of our senior management team, which provides leadership, contributes to the core areas of our business and helps us to efficiently execute our business, including with respect to strategic initiatives such as our Value Maximization Plan. If members of our senior management team, including our executive leadership, become ill, or if we are otherwise unable to retain them, we may not be able to manage our business effectively and, as a result, our business and operating results could be harmed. See — “The anticipated Prepackaged Chapter 11 Case will consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may experience increased levels of employee attrition.” If the senior management team, including any new hires that we make, fails to work together effectively and to execute our plans and strategies on a timely basis, or if we are unable to retain key employees in a cost-effective manner or at all, then our business and future growth prospects could be harmed.

In addition, we issue equity awards to certain of our employees as part of our hiring and retention efforts, and job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. Our employees’ inability to sell their shares in the public market at times and/or at prices desired may lead to a larger than normal turnover rate. The market value of our common stock has declined significantly. If the actual or perceived value of our common stock does not recover, or if our common stock is delisted from the Nasdaq Global Select Market, it may adversely affect our ability to hire or retain employees. See “Risk Factors —We may be unable to satisfy a continued listing rule from the Nasdaq”. In addition, we may periodically change our equity compensation practices, which may include reducing the number of employees eligible for equity awards or reducing the size or value of equity awards granted per employee or undertaking other efforts that may prove to be an unsuccessful retention mechanism. For instance, on April 27, 2024, our Board of Directors adopted, and on June 13, 2024 our stockholders approved, an amendment to the Company’s 2020 Incentive Award Plan (the “2020 Plan”) to (i) increase the number of shares of our common stock authorized for issuance under the 2020 Plan by 350,000 shares and (ii) correspondingly increase by 350,000 shares the limit on the number of shares that can be issued under the 2020 Plan pursuant to the exercise of “incentive stock options.” The purpose of the amendment was to ensure the Company has a sufficient reserve of shares available to attract, retain and motivate selected employees, consultants and directors who are essential to the Company’s long-term growth while preserving cash, particularly in light of the goals of the Value Maximization Plan. If we are unable to make meaningful equity awards to our employees or directors, or otherwise fail to attract, integrate, adequately compensate, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business and future growth prospects could be harmed.

Furthermore, in light of the reduction in headcount as part of our Value Maximization Plan and the impact of the anticipated Prepackaged Chapter 11 Case, we may find it difficult to maintain valuable aspects of our culture, to prevent a negative effect on employee morale or attrition beyond our planned reduction in headcount, and to attract competent personnel who are willing to embrace our culture in the future. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We may not be able to retain the services of any members of our senior management or other key employees, particularly in light of the discontinuance of our ecommerce business and wind-down of our used vehicle dealership business. If we do not succeed in retaining and motivating existing employees or attracting well-qualified employees in the future, our business, financial condition and results of operations could be materially and adversely affected.