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Acquisition | 3 Months Ended
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Mar. 31, 2022
Business Combinations [Abstract] |
Acquisition | 5. Acquisitions UACC Acquisition On February 1, 2022, the Company completed the acquisition (the "UACC Acquisition") of 100% of Unitas Holdings Corp., a Delaware corporation, including its wholly owned subsidiaries United PanAm Financial Corp. and United Auto Credit Corporation ("UACC"). Unitas Holdings Corp. (now known as Vroom Finance Corporation), United PanAm Financial Corp. (now known as Vroom Automotive Financial Corporation) and United Auto Credit Corporation, as well as their other subsidiaries, are now wholly owned subsidiaries of the Company. This acquisition accelerates the Company's strategy of establishing a captive financing arm and underwriting vehicle financing for its customers, the results of which will be included within the Ecommerce reporting segment. UACC will also continue its current operations with its network of third-party dealership customers, including the purchases and servicing of vehicle installment contracts, which will constitute the separate Retail Financing reporting segment. The cash consideration transferred was approximately $316.1 million at the Acquisition Date, subject to customary purchase price adjustments. The following table summarizes the fair value of the identified assets acquired and liabilities assumed as of the Acquisition Date (in thousands):
|  | Fair Value |
Cash and cash equivalents |  | $ | 5,294 |
Restricted cash |  |  | 42,631 |
Finance receivables at fair value |  |  | 296,927 |
Finance receivables, held for sale |  |  | 263,393 |
Intangible assets |  |  | 156,000 |
Goodwill |  |  | 42,886 |
Other assets |  |  | 26,640 |
Total assets acquired |  | $ | 833,771 |
Warehouse credit facilities |  |  | (178,067 | )
Long term debt |  |  | (285,704 | )
Deferred tax liability |  |  | (23,855 | )
Other liabilities |  |  | (30,026 | )
Total liabilities assumed |  | $ | (517,652 | )
Net assets acquired |  | $ | 316,119 |
The estimated fair value of the finance receivables that were designated as held for sale were determined using the discounted cash flow method under the income approach. The Company determined the fair value of these finance receivables utilizing sales prices based on an estimated securitization transaction, adjusted for transaction costs, risk and a normal profit margin associated with securitization transactions. The significant assumptions used in the valuation were discount rate, prepayment rate, cumulative net losses, weighted average interest rate and recovery rate. Such fair value measurement of finance receivables held for sale is considered Level 3 of the fair value hierarchy. The Company acquired two types of finance receivables that are accounted for under the fair value option: (i) those that were sold in one of the securitization transactions that UACC completed in 2019, 2020 or 2021, and (ii) those that were not eligible to be sold in future securitization transactions. The estimated fair value of the finance receivables that were previously sold were valued using the measurement alternative by reference to the fair value of the securitization debt. See Note 16 - Financial Instruments and Fair Value Measurements for more information regarding the measurement alternative and the fair value of these finance receivables. The fair value of the ineligible finance receivables was determined using a discounted cash flow method under the income approach. The significant assumptions used in the valuation were discount rate and recovery rate. Such fair value measurement of finance receivables accounted for under the fair value option is considered Level 3 of the fair value hierarchy. The estimated fair value of the securitization debt of consolidated VIEs was determined using the discounted cash flow method under the income approach. The significant assumption used in the valuation was the yield. Such fair value measurement of securitization debt is considered Level 3 of the fair value hierarchy. The estimated fair value of the warehouse credit facilities of consolidated VIEs approximated its carrying value due to the proximity of the Acquisition Date to the payoff date. These notes were acquired on February 1, 2022, as part of the UACC Acquisition and were paid off with the proceeds from the 2022-1 securitization that UACC completed on February 16, 2022. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. Goodwill is primarily attributable to the workforce of the acquired business as well as benefits related to integrating UACC’s financing operations to establish a captive financing arm and underwrite vehicle financing for the Company's customers. All of the goodwill was assigned to the Ecommerce reporting unit. The following table summarizes the identifiable intangible assets acquired and their estimated weighted average useful life at the date of acquisition (in thousands):
|  | Fair Value |  |  | Weighted Average Useful Life
Purchased technology |  | $ | 83,000 |  |  | 7
Customer relationships |  |  | 66,000 |  |  | 8
Trade name |  |  | 7,000 |  |  | 10
|  | $ | 156,000 |  |  |
Purchased technology represents the fair value of UACC’s proprietary technology used to support all aspects of their business including underwriting, servicing, and risk management. The estimated fair value of the purchased technology was determined using a relief-from-royalty method under the income approach. The significant assumptions used in the relief-from-royalty method include estimates about future expected cash flows from the developed technology, the royalty rate, the obsolescence factor and the discount rate. Customer relationships represents UACC's relationship with its network of dealer customers. UACC has expertise in the non-prime credit dealer market serving as the key link between independent dealerships and consumers. UACC has developed expertise and robust relationships in the independent dealer market as demonstrated by its active dealership network. The estimated fair value of the customer relationships was determined using a multi-period excess earnings method under the income approach. Under this approach, the Company estimates future cash flows attributable to the existing dealer relationships and discounts these cash flows at a rate of return that reflects the inherent risk in the dealer relationships. Trade name represents the value of the UACC trade name. The UACC brand is an important factor in the marketing of UACC’s services to prospective dealership customers. The fair value of the trade name acquired was determined using a relief-from-royalty method under the income approach. The significant assumptions used in the relief-from-royalty method include future expected cash flows from the trade name, the royalty rate, and the discount rate. The fair values assigned to assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, as well as the liabilities assumed is preliminary, pending the finalization of the third-party valuation. The transaction costs associated with the UACC Acquisition were $5.7 million for the three months ended March 31, 2022 and are included within "Selling, general and administrative expenses" in the condensed consolidated statement of operations. The aggregate revenue and net income of UACC consolidated into the Company’s financial statements from the date of the acquisition was $49.0 million and $19.2 million, respectively, for the three months ended March 31, 2022. Unaudited Pro Forma Information The unaudited pro forma financial information in the table below summarizes the combined results of the Company and UACC, as though the companies had been combined on January 1, 2021. The pro forma adjustments include incremental amortization of intangible assets, adjustments to reflect non-recurring acquisition-related costs of $5.7 million as of the beginning comparable prior annual reporting period, a non-recurring tax adjustment of $24.1 million for the three months ended March 31, 2022 and a non-recurring tax benefit of $26.2 million for the three months ended March 31, 2021. The pro forma information is presented for informational purposes only and may not be indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021 or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings. The pro forma information for three months ended March 31, 2022 and 2021 is as follows:
|  | Three months ended March 31, |
|  | 2022 |  |  | 2021 |
Total revenue |  | $ | 939,246 |  |  | $ | 631,494 |
Net loss |  | $ | (322,650 | ) |  | $ | (44,383 | )
CarStory Acquisition On January 7, 2021, the Company completed the acquisition of 100% of Vast Holdings, Inc. (d/b/a CarStory), a leader in AI-powered analytics and digital services for automotive retail. Leveraging its machine learning, CarStory brings predictive market data to the Company’s national ecommerce and vehicle operations platform. CarStory continues to offer its digital retailing services to dealers, automotive financial services companies and others in the automotive industry. The financial results of CarStory were included in the consolidated financial statements from the date of acquisition. The transaction costs associated with its acquisition were not material for the year ended March 31, 2022. Pro forma results of operations have not been presented as the effect of this acquisition was not material to the consolidated financial statements. The fair value of the consideration transferred was approximately $116.6 million, inclusive of immaterial measurement period adjustments, and consisted of the following (in thousands):
|  | Fair Value |
Cash |  | $ | 76,740 |
Common stock issued (1) |  |  | 38,811 |
Fair value of unvested stock options assumed (2) |  |  | 1,017 |
Total |  | $ | 116,568 |
(1) The Company issued 1,066,444 shares of common stock, net of 5,673 shares cancelled to satisfy working capital adjustment,. The fair value of common stock was determined based on the closing market price on the date of acquisition discounted for a lack of marketability of 10.0% to account for the 180 day lock up period. (2) The fair value of the unvested stock options assumed by the Company was determined using the Black-Scholes option pricing model. The share conversion ratio of 0.0392 was applied to convert CarStory’s outstanding equity awards for CarStory's common stock into equity awards for shares of the Company's common stock. The following table summarizes the fair value of the identified assets acquired and liabilities assumed as of the acquisition date, inclusive of immaterial measurement period adjustments which were finalized in the year ended December 31, 2021 (in thousands):
|  | Fair Value |
Cash and cash equivalents |  | $ | 865 |
Accounts receivable, prepaid expenses and other current assets |  |  | 1,330 |
Property and equipment and other assets |  |  | 371 |
Intangible Assets |  |  | 34,300 |
Goodwill |  |  | 80,645 |
Current liabilities |  |  | (943 | )
Net assets acquired |  | $ | 116,568 |
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. Goodwill is primarily attributable to the workforce of the acquired business and benefits related to expanded market opportunities from integrating CarStory's technology with the Company's ecommerce offerings. All of the goodwill was assigned to the ecommerce reporting unit. The following table summarizes the final identifiable intangible assets acquired and their estimated weighted average useful life at the date of acquisition (in thousands):
|  | Fair Value |  | Weighted Average Useful Life
Developed technology |  | $ | 25,700 |  | 5
Trademarks |  |  | 5,200 |  | 8
Customer relationships |  |  | 3,400 |  | 8
Total intangible assets subject to amortization |  | $ | 34,300 |  |
Developed technology, most of which is protected by a patent portfolio, represents the fair value of CarStory’s industry-specific AI powered analytics software. Trademarks represent the CarStory trademarks, trade names and domain names. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair value of the intangible assets acquired was determined using a discounted cash flow method under the income approach. Under this approach, the Company estimates future cash flows and discounts these cash flows at a rate of return that reflects the Company’s relative risk.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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