Carvana Co 10-Q for FY2024 Q1
Carvana Co. (CVNA)
10-Q
2024-05-01
For: 2024-03-31
View Original
Added on
April 11, 2026
About this 10-Q
Carvana Co filed this 10-Q on May 1, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.06B
- up 17.5% from $2.61B a year earlier
- Net income
- $28M
- compared with a net loss of $160M a year earlier
- Diluted EPS
- $0.24
- compared with -$1.51 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarterly Period Ended March 31, 2024
OR
For the transition period from _____ to ______
Commission File Number: 001-38073
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(602 ) 922-9866
(Registrant's telephone number, including area code)
| N/A | |||||||||||
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| — | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ | ||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of April 29, 2024, the registrant had 116,947,248 shares of Class A common stock outstanding and 85,619,471 shares of Class B common stock outstanding.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||||||
PART I. | FINANCIAL INFORMATION | |||||||
Item 1. | Financial Statements | |||||||
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 | ||||||||
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 | ||||||||
Unaudited Condensed Consolidated Statements of Stockholders' Deficit for the Three Months Ended March 31, 2024 and 2023 | ||||||||
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 | ||||||||
Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||||
Item 4. | Controls and Procedures | |||||||
PART II. | OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | |||||||
Item 1A. | Risk Factors | |||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
Item 3. | Defaults Upon Senior Securities | |||||||
Item 4. | Mine Safety Disclosures | |||||||
Item 5. | Other Information | |||||||
Item 6. | Exhibits | |||||||
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and par values)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable, net | |||||||||||
| Finance receivables held for sale, net | |||||||||||
| Vehicle inventory | |||||||||||
| Beneficial interests in securitizations | |||||||||||
Other current assets, including $ | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
Operating lease right-of-use assets, including $ | |||||||||||
| Intangible assets, net | |||||||||||
Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | |||||||||||
| Current liabilities: | |||||||||||
Accounts payable and accrued liabilities, including $ | $ | $ | |||||||||
| Short-term revolving facilities | |||||||||||
| Current portion of long-term debt | |||||||||||
Other current liabilities, including $ | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, excluding current portion | |||||||||||
Operating lease liabilities, excluding current portion, including $ | |||||||||||
Other liabilities, including $ | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 16) | |||||||||||
| Stockholders' deficit: | |||||||||||
Preferred stock, $ | |||||||||||
Class A common stock, $ | |||||||||||
Class B common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders' equity attributable to Carvana Co. | |||||||||||
| Non-controlling interests | ( | ( | |||||||||
| Total stockholders' deficit | ( | ( | |||||||||
| Total liabilities & stockholders' deficit | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and per share amounts)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Sales and operating revenues: | |||||||||||||||||||||||
| Retail vehicle sales, net | $ | $ | |||||||||||||||||||||
Wholesale sales and revenues, including $ | |||||||||||||||||||||||
Other sales and revenues, including $ | |||||||||||||||||||||||
| Net sales and operating revenues | |||||||||||||||||||||||
Cost of sales, including $ | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
Selling, general and administrative expenses, including $ | |||||||||||||||||||||||
| Other operating expense, net | |||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other income, net | ( | ( | |||||||||||||||||||||
| Net income (loss) before income taxes | ( | ||||||||||||||||||||||
| Income tax benefit | ( | ( | |||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interests | ( | ||||||||||||||||||||||
| Net income (loss) attributable to Carvana Co. | $ | $ | ( | ||||||||||||||||||||
| Net earnings (loss) per share of Class A common stock - basic | $ | $ | ( | ||||||||||||||||||||
| Net earnings (loss) per share of Class A common stock - diluted | $ | $ | ( | ||||||||||||||||||||
Weighted-average shares of Class A common stock outstanding - basic | |||||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding - diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
(In millions, except number of shares, which are reflected in thousands)
| Class A Common Stock | Class B Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non-controlling Interests | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Exchanges of LLC Units | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Contribution of Class A common stock from related party | ( | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock to settle vested restricted stock units | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Options exercised | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
3
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - (Continued)
(Unaudited)
(In millions, except number of shares, which are reflected in thousands)
| Class A Common Stock | Class B Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non-controlling Interests | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Exchanges of LLC Units | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||
| Establishment of deferred tax assets related to increases in tax basis in Carvana Group | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Contribution of Class A common stock from related party | ( | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock to settle vested restricted stock units | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Options exercised | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In millions)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Equity-based compensation expense | |||||||||||
| Loss on disposal of property and equipment | |||||||||||
| Payment-in-kind interest expense | |||||||||||
| Provision for bad debt and valuation allowance | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Unrealized gain on warrants to acquire Root Class A common stock | ( | ||||||||||
| Unrealized gain on beneficial interests in securitizations | ( | ( | |||||||||
| Changes in finance receivable related assets: | |||||||||||
| Originations of finance receivables | ( | ( | |||||||||
| Proceeds from sale of finance receivables, net | |||||||||||
| Gain on loan sales | ( | ( | |||||||||
| Principal payments received on finance receivables held for sale | |||||||||||
| Other changes in assets and liabilities: | |||||||||||
| Vehicle inventory | ( | ||||||||||
| Accounts receivable | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other liabilities | ( | ( | |||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from disposal of property and equipment | |||||||||||
| Payments for acquisitions, net of cash acquired | ( | ||||||||||
| Principal payments received on and proceeds from sale of beneficial interests | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from short-term revolving facilities | |||||||||||
| Payments on short-term revolving facilities | ( | ( | |||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Payments on long-term debt | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BUSINESS ORGANIZATION
Description of Business
Carvana Co. and its wholly-owned subsidiary Carvana Co. Sub LLC (collectively, "Carvana Co.," and, together with its consolidated subsidiaries, the "Company"), is the leading e-commerce platform for buying and selling used cars. The Company is transforming the used car sales experience by giving consumers what they want - a wide selection, great value and quality, transparent pricing, and a simple, no pressure transaction. Using the website, customers can complete all phases of a used vehicle transaction, including financing their purchase, trading in their current vehicle, and purchasing complementary products such as vehicle service contracts ("VSC"), auto insurance, and GAP waiver coverage. Each element of the Company's business, from inventory procurement to fulfillment and overall ease of the online transaction, has been built for this singular purpose.
Organization
Carvana Co. is a holding company that was formed as a Delaware corporation on November 29, 2016, for the purpose of completing its initial public offering ("IPO") and related transactions in order to operate the business of Carvana Group, LLC and its subsidiaries (collectively, "Carvana Group"). Substantially all of the Company's assets and liabilities represent the assets and liabilities of Carvana Group, except the Company's Senior Secured Notes and Senior Unsecured Notes (each as defined in Note 9 — Debt Instruments) which were issued by Carvana Co. and are guaranteed by its and Carvana Group's existing domestic restricted subsidiaries, excluding, in the case of the Senior Unsecured Notes, ADESA US Auction, LLC ("ADESA"), and its subsidiaries.
In accordance with Carvana Group, LLC's amended and restated limited liability company agreement (the "LLC Agreement"), Carvana Co. is the sole manager of Carvana Group and conducts, directs and exercises full control over the activities of Carvana Group. There are two classes of common ownership interests in Carvana Group, Class A common units (the "Class A Units") and Class B common units (the "Class B Units"). As further discussed in Note 10 — Stockholders' Deficit, the Class A Units and Class B Units (collectively, the "LLC Units") do not hold voting rights, which results in Carvana Group being considered a variable interest entity ("VIE"). Due to Carvana Co.'s power to control and its significant economic interest in Carvana Group, it is considered the primary beneficiary of the VIE and the Company consolidates the financial results of Carvana Group. As of March 31, 2024, Carvana Co. owned approximately 57.1 % of Carvana Group and the LLC Unitholders (as defined in Note 10 — Stockholders' Deficit) owned the remaining 42.9 %.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company's most recent Annual Report on Form 10-K filed on February 22, 2024.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly the Company’s financial position as of March 31, 2024, results of operations and changes in stockholders' deficit for the three months ended March 31, 2024 and 2023, and cash flows for the three months ended March 31, 2024 and 2023. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.
Certain prior period amounts have been reclassified to conform to current period presentation to account for the additions of other operating expense, net and operating income (loss) in our accompanying unaudited condensed consolidated statements of operations.
6
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
As discussed in Note 1 — Business Organization, Carvana Group is considered a VIE and Carvana Co. consolidates its financial results due to the determination that it is the primary beneficiary. All intercompany balances and transactions have been eliminated.
Liquidity
The Company has incurred losses in prior periods and may incur additional losses in the future as it continues to focus on driving profitability through operating efficiency. Historically, the Company's capital and liquidity needs were primarily satisfied through its debt and equity financings, operating cash flows, and short-term revolving facilities. During the three months ended March 31, 2024, the Company (i) amended its Master Purchase and Sale Agreement for the purchaser to purchase up to a maximum of $4.0 billion of the Company's finance receivables from the amendment date through January 2025 and (ii) extended one of its short-term revolving credit facilities through January 2025. In April 2024, the Company extended another of its short-term revolving credit facilities through October 2025. Management believes that current working capital, cash flows from operations, and expected continued or new financing arrangements will be sufficient to fund operations for at least one year from the financial statement issuance date.
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period, which management considers to be critical accounting estimates. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company's assets and liabilities and the results of operations.
Accounting Standards Issued But Not Yet Adopted
The Company assessed all Accounting Standards Updates issued but not yet adopted and determined they are not relevant to the Company or are not expected to have a material impact upon adoption.
Securities and Exchange Commission ("SEC") Final Rules Issued But Not Yet Adopted
7
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 3 — PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Land and site improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Transportation fleet | |||||||||||
| Software | |||||||||||
| Furniture, fixtures, and equipment | |||||||||||
| Total property and equipment excluding construction in progress | |||||||||||
| Less: accumulated depreciation and amortization on property and equipment | ( | ( | |||||||||
| Property and equipment excluding construction in progress, net | |||||||||||
| Construction in progress | |||||||||||
| Property and equipment, net | $ | $ | |||||||||
Depreciation and amortization expense on property and equipment in cost of sales was $39 million and $44 million during the three months ended March 31, 2024 and 2023, respectively. Depreciation and amortization expense on property and equipment in selling, general and administrative expense was $39 million and $44 million during the three months ended March 31, 2024 and 2023, respectively.
NOTE 4 — INTANGIBLE ASSETS
The following table summarizes intangible assets, net as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||||||||
| (in millions) | ||||||||||||||
| Customer relationships | $ | $ | ||||||||||||
| Developed technology | ||||||||||||||
| Intangible assets, acquired cost | ||||||||||||||
| Less: accumulated amortization | ( | ( | ||||||||||||
| Intangible assets, net | $ | $ | ||||||||||||
8
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Amortization expense was $4 million and $5 million during the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the remaining weighted-average amortization period for definite-lived intangible assets was 4.8 years. The anticipated annual amortization expense to be recognized in future years as of March 31, 2024 is as follows:
| Expected Future Amortization | |||||
| (in millions) | |||||
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
NOTE 5 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table summarizes accounts payable and accrued liabilities as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
Accounts payable, including $ | $ | $ | |||||||||
| Sales taxes and vehicle licenses and fees | |||||||||||
| Reserve for returns and cancellations | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Customer deposits | |||||||||||
Accrued interest expense | |||||||||||
| Accrued advertising costs | |||||||||||
| Income tax liability | |||||||||||
| Accrued property and equipment | |||||||||||
| Other accrued liabilities | |||||||||||
Total accounts payable and accrued liabilities | $ | $ | |||||||||
NOTE 6 — RELATED PARTY TRANSACTIONS
Lease Agreements
In November 2014, the Company and DriveTime Automotive Group, Inc. (together with its consolidated affiliates, collectively, “DriveTime”), a related party of the Company due to Ernest Garcia II, Ernest Garcia III, and entities controlled by one or both of them (collectively the "Garcia Parties") controlling and owning substantially all of the interests in DriveTime, entered into a lease agreement governing two inspection and reconditioning centers in Blue Mound, Texas and Delanco, New Jersey. The lease for the Blue Mound, Texas location expires in 2029, with two five-year renewal options, and the lease for the Delanco location expires in 2026, with no current renewal options. The Company makes monthly lease payments based on DriveTime's actual rent expense. In addition, the Company is responsible for the actual insurance costs, tenant improvements required to conduct operations, and real estate taxes at these inspection and reconditioning center locations.
In February 2017, the Company entered into a lease agreement with DriveTime for sole occupancy of a fully operational inspection and reconditioning center in Winder, Georgia. The lease has an initial term of eight years , subject to the Company's ability to exercise three renewal options of five years each.
9
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Expenses related to these operating lease agreements are allocated based on usage to inventory and selling, general and administrative expenses in the accompanying unaudited condensed consolidated balance sheets and statements of operations. Costs allocated to inventory are recognized as cost of sales when the inventory is sold. Total costs related to these operating lease agreements, including those noted above, were $1
Office Leases
In September 2016, the Company entered into a lease for office space in Tempe, Arizona. In connection with that lease, the Company entered into a sublease with DriveTime for the use of another floor in the same building. The lease and sublease each had a term of 83 months, subject to the right to exercise three five-year extension options. Pursuant to the sublease, the Company paid the rent equal to the amounts due under DriveTime's master lease directly to DriveTime's landlord. The rent expense incurred related to this first floor sublease was less than $1
In December 2019, Verde Investments, Inc., an affiliate of DriveTime ("Verde"), purchased an office building in Tempe, Arizona that the Company leased from an unrelated landlord prior to Verde's purchase. In connection with the purchase, Verde assumed that lease. The lease has an initial term of ten years , subject to the right to exercise two five-year extension options. The rent expense incurred under the lease with Verde was less than $1
Wholesale Sales and Revenues
DriveTime purchases wholesale vehicles from, and sells wholesale vehicles to, both the Company and unrelated third parties through both competitive online auctions that are managed by unrelated third parties and the Company's wholesale marketplace platform. Additionally, beginning in September 2023, the Company has provided DriveTime with reconditioning services through its wholesale marketplace platform. The Company recognized $7 million and $5 million of wholesale sales and revenues from DriveTime, including for reconditioning services, during the three months ended March 31, 2024 and 2023, respectively.
Retail Vehicle Acquisitions and Reconditioning
During the second quarter of 2021, the Company began acquiring reconditioned retail vehicles from DriveTime. The purchase price of each vehicle was equal to the wholesale price of the vehicle plus a fee for transportation and reconditioning services. As of March 31, 2024 and December 31, 2023, zero and less than $1 million, respectively, related to vehicles and reconditioning services were included in vehicle inventory in the accompanying unaudited condensed consolidated balance sheets.
Master Dealer Agreement
In December 2016, the Company entered into a master dealer agreement with DriveTime (the "Master Dealer Agreement"), most recently amended in April 2021, pursuant to which the Company may sell VSCs to customers purchasing a vehicle from the Company. The Company earns a commission on each VSC sold to its customers and DriveTime is obligated by and subsequently administers the VSCs. The Company collects the retail purchase price of the VSCs from its customers and remits the purchase price net of commission to DriveTime. The Master Dealer Agreement further allows the Company to receive payments for excess reserves based on the performance of the VSCs versus the reserves held by the VSC administrator, once a required claims period for such VSCs has passed. During the three months ended March 31, 2024 and 2023, the Company recognized $41 million and $35 million, respectively, of commissions earned on VSCs sold to its customers and administered by DriveTime, net of a reserve for estimated contract cancellations, and payments for excess reserves to which it expects to be entitled. The commission earned on the sale of VSCs and expected payments for excess reserves is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.
Beginning in 2017, DriveTime also administers the Company's limited warranty provided to all customers. The Company pays a per-vehicle fee to DriveTime to administer the limited warranty included with every purchase. The Company incurred $4
10
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Profit Sharing Agreement
In June 2018, the Company entered into an agreement with an unaffiliated third party, pursuant to which the Company would sell certain Road Hazard ("RH") and Pre-Paid Maintenance ("PPM") contracts. Under this agreement, third parties would administer the RH and PPM contracts, including providing customer and administrative services, and pay a profit sharing component to the Company. In 2022, the Company began selling equivalent offerings from DriveTime, pursuant to the Master Dealer Agreement discussed above, and all rights and obligations in connection with existing RH and PPM contracts were transferred to DriveTime (the "Transferred Contracts"). Finally, in December 2022, the Company entered into a profit sharing agreement with DriveTime with regard to the Transferred Contracts (the "Profit Sharing Agreement"). The Company recognized $1
Servicing and Administrative Fees
DriveTime provides servicing and administrative functions associated with the Company's finance receivables. The Company incurred expenses of $2 million and $4 million during the three months ended March 31, 2024 and 2023, respectively, related to these services.
Aircraft Time Sharing Agreement
The Company entered into an agreement to share usage of two 12 months, with perpetual 12 -month automatic renewals. Either the Company or DriveTime can terminate the agreement with 30 days’ prior written notice. The Company reimbursed DriveTime less than $1
Shared Services Agreement with DriveTime
In November 2014, the Company and DriveTime entered into a shared services agreement whereby DriveTime provided certain accounting and tax, legal and compliance, information technology, telecommunications, benefits, insurance, real estate, equipment, corporate communications, software and production, and other services primarily to facilitate the transition of these services to the Company on a standalone basis (the "Shared Services Agreement"). The Shared Services Agreement was most recently amended and restated in February 2021 and operates on a year-to-year basis, with the Company having the right to terminate any or all services with 30 days' prior written notice and DriveTime having the right to terminate any or all services with 90 days' prior written notice. Charges allocated to the Company are based on the Company’s actual use of the specific services detailed in the Shared Services Agreement. The Company incurred less than $1
Accounts Payable Due to Related Party
As of March 31, 2024 and December 31, 2023, $12 million and $7 million, respectively, was due to related parties primarily related to the agreements mentioned above, and is included in accounts payable and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.
As further discussed in Note 14 — Income Taxes, as of March 31, 2024 and December 31, 2023, the Company recorded a $14 11
Contributions of Class A Common Stock From Ernest Garcia III
On January 5, 2022, in recognition of the Company selling its 1 millionth vehicle in the fourth quarter of 2021, the Company's CEO, Ernest Garcia III ("Mr. Garcia"), committed to giving then-current employees 23 shares of Class A common stock each from his personal shareholdings once employees reach their two-year employment anniversary ("CEO Milestone
11
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Gift" or "Gift"). As a result and during the three months ended March 31, 2022, the Company granted 23 restricted stock units ("RSUs") to each current employee, which vest after they complete their second year of employment, for a total of 435,035 RSUs granted during the period. For every gift that vests, and pursuant to a contribution agreement (the "Contribution Agreement") entered into by and between the Company and Mr. Garcia on February 22, 2022, Mr. Garcia contributes to the Company, at the end of each fiscal quarter, the number of shares of Class A common stock, granted pursuant to the CEO Milestone Gift, that have vested during such quarter. The shares contributed shall be shares of Class A common stock that Mr. Garcia individually owns, at no charge. The contribution is intended to fund RSU awards to certain employees of the Company upon their satisfying the applicable employment tenure requirements. During the three months ended March 31, 2024 and 2023, 1,104 and 15,847 RSUs, respectively, vested and an equal number of shares of Class A common stock were contributed by Mr. Garcia. As of January 2024, all RSUs granted pursuant to the CEO Milestone Gift have vested or been forfeited. Although the Company does not expect Mr. Garcia to incur any tax obligations related to the contribution, the Company has agreed to indemnify Mr. Garcia from any such obligations that may arise.
NOTE 7 — FINANCE RECEIVABLE SALE AGREEMENTS
The Company originates loans for its customers and sells them to partners and investors pursuant to finance receivable sale agreements. Historically, the Company has sold loans through two types of arrangements: forward flow agreements and fixed pool loan sales, including securitization transactions.
Master Purchase and Sale Agreement
In December 2016, the Company entered into a master purchase and sale agreement (the "Master Purchase and Sale Agreement" or "MPSA") with Ally Bank and Ally Financial Inc. (collectively the "Ally Parties"). Pursuant to the MPSA, the Company sells finance receivables meeting certain underwriting criteria under a committed forward flow arrangement without recourse to the Company for their post-sale performance. On January 11, 2024, the Company and the Ally Parties amended the MPSA to reestablish the commitment by the Ally Parties to purchase up to $4.0 billion of principal balances of finance receivables between January 11, 2024 and January 10, 2025.
During the three months ended March 31, 2024 and 2023, the Company sold $0.9 billion and $0.7 billion, respectively, in principal balances of finance receivables under the MPSA and had $3.1 billion of unused capacity as of March 31, 2024.
Securitization Transactions
The Company sponsors and establishes securitization trusts to purchase finance receivables from the Company. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that the Company sells to the securitization trusts. Upon sale of the finance receivables to the securitization trusts, the Company recognizes a gain or loss on sales of finance receivables. The net proceeds from the sales are the fair value of the assets obtained as part of the transactions and typically include cash and at least 5% of the beneficial interests issued by the securitization trusts to comply with the Risk Retention Rules as defined and further discussed in Note 8 — Securitizations and Variable Interest Entities.
During the three months ended March 31, 2024 and 2023, the Company sold $0.8 billion and $0.4 billion, respectively, in principal balances of finance receivables through securitization transactions.
Gain on Loan Sales
The total gain related to finance receivables sold to financing partners and pursuant to securitization transactions was $144 million and $64 million during the three months ended March 31, 2024 and 2023, respectively, which is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.
NOTE 8 — SECURITIZATIONS AND VARIABLE INTEREST ENTITIES
As noted in Note 7 — Finance Receivable Sale Agreements, the Company sponsors and establishes securitization trusts to purchase finance receivables from the Company. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that the Company sells to the securitization trusts. Upon sale of the finance receivables to the securitization trusts, the Company recognizes a gain or loss on sales of finance receivables. The net proceeds from the sales are the fair value of the assets obtained as part of the transactions and typically include cash and at least 5% of the
12
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
beneficial interests issued by the securitization trusts to comply with Regulation RR of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Risk Retention Rules"). The beneficial interests retained by the Company include, but are not limited to, rated notes and certificates of the securitization trusts. The holders of the certificates issued by the securitization trusts have rights to cash flows only after the holders of the notes issued by the securitization trusts have received their contractual cash flows. The securitization trusts have no direct recourse to the Company’s assets, and holders of the securities issued by the securitization trusts can look only to the assets of the securitization trusts that issued their securities for payment. The beneficial interests held by the Company are subject principally to the credit and prepayment risk stemming from the underlying finance receivables.
The securitization trusts established in connection with asset-backed securitization transactions are VIEs. For each VIE that the Company establishes in its role as sponsor of securitization transactions, it performs an analysis to determine whether or not it is the primary beneficiary of the VIE. The Company’s continuing involvement with the VIEs consists of retaining a portion of the securities issued by the VIEs, providing industry standard representations and warranties regarding the underlying finance receivables, and performing ministerial duties as the trust administrator. As of March 31, 2024, the Company was not the primary beneficiary of these securitization trusts because its retained interests in the VIEs do not have exposures to losses or benefits that could potentially be significant to the VIEs. As such, the Company does not consolidate the securitization trusts.
The assets the Company retains in the unconsolidated VIEs are presented as beneficial interests in securitizations on the accompanying unaudited condensed consolidated balance sheets, which as of March 31, 2024 and December 31, 2023 were $388 million and $366 million, respectively. The Company held no other assets or liabilities related to its involvement with unconsolidated VIEs as of March 31, 2024 and December 31, 2023.
The following table summarizes the carrying value and total exposure to losses of its assets related to unconsolidated VIEs with which the Company has continuing involvement, but is not the primary beneficiary at March 31, 2024 and December 31, 2023. Total exposure represents the estimated loss the Company would incur under severe, hypothetical circumstances, such as if the value of the interests in the securitization trusts and any associated collateral declined to zero. The Company believes the possibility of this is remote. As such, the total exposure presented below is not an indication of the Company's expected losses.
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Value | Total Exposure | Carrying Value | Total Exposure | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Rated notes | $ | $ | $ | $ | |||||||||||||||||||
| Certificates and other assets | |||||||||||||||||||||||
| Total unconsolidated VIEs | $ | $ | $ | $ | |||||||||||||||||||
The beneficial interests in securitizations are considered securities available for sale subject to restrictions on transfer pursuant to the Company’s obligations as a sponsor under the Risk Retention Rules. As described in Note 9 — Debt Instruments, the Company has entered into secured borrowing facilities through which it finances certain of these retained beneficial interests in securitizations. These securities are interests in securitization trusts, thus there are no contractual maturities. The amortized cost and fair value of securities available for sale as of March 31, 2024 and December 31, 2023 were as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Rated notes | $ | $ | $ | $ | |||||||||||||||||||
| Certificates and other assets | |||||||||||||||||||||||
| Total securities available for sale | $ | $ | $ | $ | |||||||||||||||||||
13
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 9 — DEBT INSTRUMENTS
Debt instruments, excluding finance leases, which are discussed in Note 15 — Leases, as of March 31, 2024 and December 31, 2023 consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Asset-based financing: | |||||||||||
| Floor plan facility | $ | $ | |||||||||
| Finance receivable facilities | |||||||||||
| Financing of beneficial interest in securitizations | |||||||||||
| Real estate financing | |||||||||||
| Total asset-based financing | |||||||||||
Senior Secured Notes (1) | |||||||||||
Senior Unsecured Notes | |||||||||||
| Total debt | |||||||||||
| Less: current portion | ( | ( | |||||||||
Less: unamortized debt issuance costs (2) | ( | ( | |||||||||
Plus: unamortized premium (3) | |||||||||||
| Total included in long-term debt, net | $ | $ | |||||||||
(1) Includes $75 million and $185 million of accrued PIK interest as of March 31, 2024 and December 31, 2023, respectively. Accrued PIK interest increases the principal amount of Senior Secured Notes on each semi-annual interest payment date.
(2) The unamortized debt issuance costs related to long-term debt are presented as a reduction of the carrying amount of the corresponding liabilities on the accompanying unaudited condensed consolidated balance sheets. Unamortized debt issuance costs related to revolving debt arrangements are presented within other assets on the accompanying unaudited condensed consolidated balance sheets and not included here.
(3) The unamortized premium relates to a portion of the notes exchange offers completed in September 2023 which were accounted for as a debt modification.
Short-Term Revolving Facilities
Floor Plan Facility
The Company previously entered into a floor plan facility with a lender to finance its vehicle inventory, which was secured by Carvana LLC's vehicle inventory, general intangibles, accounts receivable, and finance receivables (as amended, the "Floor Plan Facility"). On September 1, 2023, the Company amended the Floor Plan Facility in connection with the issuance of the Senior Secured Notes discussed below to provide for an additional exclusive grant of collateral over certain deposit accounts and the cash on deposit in those accounts in favor of the lender and to amend certain other affirmative and negative covenants. The Company amended and restated the Floor Plan Facility on November 1, 2023 to resize the line of credit to $1.5 billion through April 30, 2025 and to lower the interest rate to (i) a prime rate plus 0.10 % when amounts drawn under the facility are under 50 % of the then current inventory balance and (ii) a prime rate plus 0.50 % when amounts drawn are over 50 %.
Under the Floor Plan Facility, repayment of amounts drawn for the purchase of a vehicle should generally be made within several days after selling or otherwise disposing of the vehicle. Outstanding balances related to vehicles held in inventory for more than 120 days require monthly principal payments equal to 10 % of the original principal amount of that vehicle until the remaining outstanding balance is equal to the lesser of (i) 50 % of the original principal amount or (ii) 50 % of the wholesale value. Prepayments may be made without incurring a premium or penalty. Additionally, the Company is permitted to make prepayments to the lender to be held as principal payments under the Floor Plan Facility and subsequently reborrow such amounts. The Floor Plan Facility also requires monthly interest payments and required that at least 12.5 % of the total principal amount owed to the lender be held as restricted cash. On November 1, 2023, the restricted cash requirements were amended to
14
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
introduce a sliding scale whereby at least 12.5 % of the total principal amount owed to the lender is required to be held as restricted cash if amounts drawn are under 50 % of the then current inventory balance, which requirement increases to (i) 17.5 % required to be held as restricted cash if amounts drawn are between 50 % and 59.99 %, (ii) 22.5 % required to be held as restricted cash if amounts drawn are between 60 % and 69.99 %, and (iii) 25 % required to be held as restricted cash if amounts drawn are equal to or over 70 %. The Company is also required to pay the lender an availability fee based on the average unused capacity during the prior calendar quarter under the Floor Plan Facility.
As of March 31, 2024, the Company had $103 million outstanding under the facility, unused capacity of $1.4 billion, and held $13 million in restricted cash related to this facility. During the three months ended March 31, 2024, the Company's effective interest rate on the facility was 6.83 %.
As of December 31, 2023, the Company had $113 million outstanding under the facility, unused capacity of $1.4 billion, and held $14 million in restricted cash related to this facility. During the year ended December 31, 2023, the Company's effective interest rate on the facility was 7.86 %.
Finance Receivable Facilities
The Company has various short-term revolving credit facilities to fund certain finance receivables originated by the Company prior to selling them, which are typically secured by the finance receivables pledged to them (the "Finance Receivable Facilities").
In January 2020, the Company entered into an agreement pursuant to which a lender agreed to provide a revolving credit facility to fund certain finance receivables originated by the Company. In 2023, the Company amended its agreement to, among other things, adjust the line of credit to $500 million and extend the maturity date to January 24, 2024, and in January 2024, the maturity date was further extended to January 19, 2025.
In February 2020, the Company entered into an agreement pursuant to which a second lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. In December 2021, the Company amended its agreement to, among other things, increase the line of credit to $600 million and extend the maturity date to December 8, 2023, and in December 2023, the maturity date was further extended to December 8, 2025.
In April 2021, the Company entered into an agreement pursuant to which a third lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. In December 2021 and September 2022, the Company amended its agreement to, among other things, increase this line of credit to $600
In March 2022, the Company entered into an agreement pursuant to which a fourth lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. In September 2023, the Company amended its agreement to extend the maturity date to September 18, 2024.
In May 2023, the Company entered into an agreement pursuant to which a fifth lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. The Company can draw upon this facility until May 31, 2024.
The Finance Receivable Facilities require that any undistributed amounts collected on the pledged finance receivables be held as restricted cash. The Finance Receivable Facilities require monthly payments of interest and fees based on usage and unused facility amounts. The Finance Receivable Facilities self-amortize from the end of the draw period until maturity, offer full prepayment rights, and have no credit sublimits or aging restrictions, subject to negotiated concentration limits. The subsidiaries that entered into these Finance Receivable Facilities are each wholly-owned, special purpose entities whose assets are not available to the general creditors of the Company. As of March 31, 2024 and December 31, 2023, the Company had $172 million and $555 million, respectively, outstanding under these Finance Receivable Facilities, unused capacity of $2.5 billion and $2.1 billion, respectively, and held $20 million and $8 million, respectively, in restricted cash related to these Finance Receivable Facilities. During the three months ended March 31, 2024, the Company's effective interest rate on these
15
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Finance Receivable Facilities was 7.46 %. During the year ended December 31, 2023, the Company's effective interest rate on these Finance Receivable Facilities was 6.60 %.
Long-Term Debt
Senior Secured Notes
The Company has issued various tranches of Senior Secured Notes (collectively, the "Senior Secured Notes") as further described below:
Senior Secured Notes | March 31, 2024 | December 31, 2023 | Year 1 PIK Interest Rate | Year 2 Cash/PIK Toggle Interest Rate | Thereafter Cash Interest Rate | ||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
Notes due December 1, 2028 (the "2028 Senior Secured Notes") | $ | $ | |||||||||||||||||||||||||||
Notes due June 1, 2030 (the "2030 Senior Secured Notes") | |||||||||||||||||||||||||||||
Notes due June 1, 2031 (the "2031 Senior Secured Notes") | - | ||||||||||||||||||||||||||||
Accrued PIK interest | |||||||||||||||||||||||||||||
| Total principal amount | $ | $ | |||||||||||||||||||||||||||
Less: unamortized debt issuance costs | ( | ( | |||||||||||||||||||||||||||
Plus: unamortized premium | |||||||||||||||||||||||||||||
Total Senior Secured debt | $ | $ | |||||||||||||||||||||||||||
Interest on each of the Senior Secured Notes is payable semi-annually on February 15 and August 15, beginning on February 15, 2024. On February 15, 2024 and as required by the indentures governing the Senior Secured Notes, the Company paid interest in kind of $53 million, $88 million, and $111 million on the 2028, 2030, and 2031 Senior Secured Notes, respectively.
The Company may redeem some or all of each series of Senior Secured Notes at any time prior to certain specified redemption dates (the "Secured Early Redemption Dates") and at 100 % of the principal amount outstanding plus applicable make-whole premiums set forth in each respective indenture, plus any accrued and unpaid interest to the redemption date. Prior to the Secured Early Redemption Dates, the Company may also redeem up to 35 % of the original aggregate principal amount of the 2028 and 2030 Senior Secured Notes at a redemption price equal to 109 % of the principal amount outstanding, together with accrued and unpaid interest to, but not including, the date of redemption, using the net cash proceeds of certain equity offerings. Finally, on or after the Secured Early Redemption Dates, the Company may redeem its Senior Secured Notes in whole or in part at redemption prices set forth in each respective indenture, plus accrued and unpaid interest up to but excluding the redemption date. If the Company experiences certain change of control events, it must make an offer to purchase all of the Senior Secured Notes at 101 % of the principal amount thereof, plus any accrued and unpaid interest, to the repurchase date.
The Senior Secured Notes mature as specified in the table above unless earlier repurchased or redeemed and are fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by all of the domestic restricted subsidiaries of the Company (other than the subsidiaries formed for inventory, finance receivables, securitization facilities, immaterial subsidiaries, or unrestricted subsidiaries). The Senior Secured Notes and the guarantees are secured by (i) second-priority liens on certain assets and property of the Company, pledged in favor of the Ally Parties under the Floor Plan Facility and (ii) first-priority liens on certain assets and property of the Company and the guarantors, as identified in the indentures to the Senior Secured Notes.
The indentures to the Senior Secured Notes contain restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things and subject to certain exceptions, incur additional debt or issue preferred stock,
16
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
create new liens, create restrictions on intercompany payments, pay dividends and make other distributions in respect of the Company's capital stock, redeem or repurchase the Company’s capital stock or prepay subordinated indebtedness, make certain investments or certain other restricted payments, guarantee indebtedness, designate unrestricted subsidiaries, sell certain kinds of assets, enter into certain types of transactions with affiliates, and effect mergers or consolidations.
Senior Unsecured Notes
The Company has issued various tranches of senior unsecured notes (the "Senior Unsecured Notes") each under a separate indenture, as further described below:
Senior Unsecured Notes | March 31, 2024 | December 31, 2023 | Interest Rate | ||||||||||||||
| (in millions, except percentages) | |||||||||||||||||
Notes due October 1, 2025 ("2025 Senior Unsecured Notes") | $ | % | |||||||||||||||
Notes due April 15, 2027 ("2027 Senior Unsecured Notes") | % | ||||||||||||||||
Notes due October 1, 2028 ("2028 Senior Unsecured Notes") | % | ||||||||||||||||
Notes due September 1, 2029 ("2029 Senior Unsecured Notes") | % | ||||||||||||||||
Notes due May 1, 2030 ("2030 Senior Unsecured Notes") | % | ||||||||||||||||
| Total principal amount | |||||||||||||||||
Less: unamortized debt issuance costs | ( | ( | |||||||||||||||
Total Senior Unsecured debt | $ | $ | |||||||||||||||
Each of the 2025, 2027, 2028 and 2029 Senior Unsecured Notes were issued pursuant to an indenture entered into by and among the Company, each of the guarantors party thereto and U.S. Bank National Association, as trustee. The 2030 Senior Unsecured Notes were issued pursuant to an indenture entered into by and among the Company, each of the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee. Interest on each of the Senior Unsecured Notes is payable semi-annually. The Senior Unsecured Notes mature as specified in the table above unless earlier repurchased or redeemed and are guaranteed by the Company's existing domestic restricted subsidiaries (other than the subsidiaries formed for inventory, finance receivables, securitization facilities, immaterial subsidiaries, or unrestricted subsidiaries). In March 2023, the Company designated ADESA and its subsidiaries as unrestricted subsidiaries under the indentures governing the Senior Unsecured Notes.
The Company may redeem some or all of each series of Senior Unsecured Notes at any time prior to certain specified redemption dates (the "Unsecured Early Redemption Dates") at the redemption prices and applicable make-whole premiums set forth in each respective indenture, plus any accrued and unpaid interest to the redemption date. Prior to the Unsecured Early Redemption Dates, the Company may also redeem up to 35 % of the aggregate principal amount at a redemption price equal to 100 % plus the respective interest rate specified in the table above, together with accrued and unpaid interest to, but not including, the date of redemption, with the net cash proceeds of certain equity offerings. With respect to the 2030 Senior Unsecured Notes, the Company may, at its option, redeem in the aggregate up to 10 % of the original aggregate principal amount of the 2030 Senior Unsecured Notes during the period from, and including, May 1, 2025 to, but excluding May 1, 2027, at a redemption price equal to 105.125 % of the 2030 Senior Unsecured Notes to be redeemed, plus accrued and unpaid interest thereon to the relevant redemption rate. Finally, on or after the Unsecured Early Redemption Dates, the Company may redeem some or all of the Senior Unsecured Notes in whole or in part at redemption prices set forth in each respective indenture, plus accrued and unpaid interest up to but excluding the redemption date.
Real Estate Financing
The Company finances certain purchases and construction of its property and equipment through various sale and leaseback transactions. As of March 31, 2024, none of these transactions have qualified for sale accounting due to meeting the criteria for finance leases, or forms of continuing involvement, such as repurchase options or renewal periods that extend the lease for substantially all of the asset's remaining useful life, and are therefore accounted for as financing transactions. These arrangements require monthly payments and have initial terms of 20 to 25 years. Some of the agreements are subject to renewal options of up to 25 years and some are subject to base rent increases throughout the term. As of both March 31, 2024 and December 31, 2023, the outstanding liability associated with these sale and leaseback arrangements, net of unamortized debt
17
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
issuance costs, was $482
Financing of Beneficial Interests in Securitizations
As discussed in Note 8 — Securitizations and Variable Interest Entities, the Company has retained certain beneficial interests in securitizations pursuant to the Company’s obligations as a sponsor under the Risk Retention Rules. Beginning in June 2019, the Company entered into secured borrowing facilities through which it finances certain retained beneficial interests in securitizations whereby the Company sells such interests and agrees to repurchase them for their fair value at a stated time of repurchase.
As of March 31, 2024 and December 31, 2023, the Company had pledged $306 million and $293 million, respectively, of its beneficial interests in securitizations as collateral under the repurchase agreements with expected repurchases ranging from January 2025 to March 2031. The securitization trusts distribute payments related to the Company's pledged beneficial interests in securitizations directly to the lenders, which reduces the beneficial interests in securitizations and the related debt balance. Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral, the repurchase price of the pledged collateral will be increased by the amount of the decline.
The outstanding balance of these facilities, net of unamortized debt issuance costs, was $303 million and $290 million as of March 31, 2024 and December 31, 2023, respectively, of which $114 million and $108 million, respectively, was included in current portion of long-term debt in the accompanying unaudited condensed consolidated balance sheets.
As of March 31, 2024, the Company was in compliance with all debt covenants.
NOTE 10 — STOCKHOLDERS' DEFICIT
Organizational Transactions
Carvana Co.'s amended and restated certificate of incorporation, among other things, authorizes (i) 50 million shares of Preferred Stock, par value $0.01 per share, (ii) 500 million shares of Class A common stock, par value $0.001 per share, and (iii) 125 million shares of Class B common stock, par value $0.001 per share. Each share of Class A common stock generally entitles its holder to one vote on all matters to be voted on by stockholders. Each share of Class B common stock held by the Garcia Parties generally entitles its holder to ten votes on all matters to be voted on by stockholders, for so long as the Garcia Parties maintain direct or indirect beneficial ownership of at least 25 % of the outstanding shares of Carvana Co.'s Class A common stock determined on an as-exchanged basis assuming that all of the Class A Units and Class B Units were exchanged for Class A common stock. All other shares of Class B common stock generally entitle their holders to one vote per share on all matters to be voted on by stockholders. Holders of Class B common stock are not entitled to receive dividends and would not be entitled to receive any distributions upon the liquidation, dissolution or winding down of the Company. Holders of Class A and Class B common stock vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by applicable law.
Carvana Group's amended and restated LLC Agreement provides for two classes of common ownership interests in Carvana Group: (i) Class A Units and (ii) Class B Units (together, the "LLC Units"). Carvana Co. is required to, at all times, maintain (i) a four-to-five ratio between the number of shares of Class A common stock issued and outstanding by Carvana Co. and the number of Class A Units owned by Carvana Co. (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities and subject to adjustment as set forth in the exchange agreement (the "Exchange Agreement") further discussed below, and taking into account Carvana Co. Sub LLC's 0.1 % ownership interest in Carvana, LLC) and (ii) a four-to-five ratio between the number of shares of Class B common stock owned by the original holders of LLC units prior to the IPO (the "Original LLC Unitholders") and the number of Class A Units owned by the Original LLC Unitholders. The Company may issue shares of Class B common stock only to the extent necessary to maintain these ratios. Shares of Class B common stock are transferable only if an Original LLC Unitholder elects to exchange them, together with 1.25 times as many LLC Units, for consideration from the Company. Such consideration from the Company can be, at the Company’s election, either shares of Class A common stock or cash.
18
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
As of March 31, 2024 and December 31, 2023, there were 253 250 2
At-the-Market Offering
On July 19, 2023, the Company entered into a distribution agreement with Citigroup Global Markets Inc. and Moelis & Company LLC, whereby the Company may sell up to the greater of (i) shares of Class A common stock representing an aggregate offering price of $1.0 billion, or (ii) an aggregate of 35 million shares of Class A common stock, from time to time, through an "at-the-market offering" program (the "ATM Program").
There was no activity pursuant to the ATM Program during the three months ended March 31, 2024.
Exchange Agreement
Carvana Co. and the Original LLC Unitholders together with any holders of LLC Units issued subsequent to the IPO (together, the "LLC Unitholders") entered into an Exchange Agreement under which each LLC Unitholder (and certain permitted transferees thereof) may receive shares of the Company's Class A common stock in exchange for their LLC Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to (i) conversion ratio adjustments for stock splits, stock dividends, reclassifications and similar transactions, (ii) vesting for certain LLC Units, and (iii) the respective participation threshold for Class B Units. To the extent such owners also hold Class B common stock, they are required to deliver to Carvana Co. a number of shares of Class B common stock equal to the number of shares of Class A common stock being exchanged for. Any shares of Class B common stock so delivered are canceled. The number of exchangeable Class B Units is determined based on the value of Carvana Co.'s Class A common stock and the applicable participation threshold.
During each of the three months ended March 31, 2024 and 2023, certain LLC Unitholders exchanged less than 0.1 no 0.1 0.1
Class A Non-Convertible Preferred Units
In accordance with the Carvana Group, LLC amended and restated LLC Agreement, and in connection with the issuance of Senior Secured Notes or Senior Unsecured Notes by Carvana Co., Carvana Group, LLC is authorized to issue Class A Non-Convertible Preferred Units to Carvana Co. In each case, the consideration for the capital contribution made or deemed to have been made by Carvana Co. is equal to the net proceeds of notes issuances. As of March 31, 2024, Carvana Co. holds 4.65 million Class A Non-Convertible Preferred Units.
When Carvana Co. makes payments on the Senior Unsecured Notes and Senior Secured Notes (collectively the "Senior Notes"), Carvana Group makes an equal cash distribution, as necessary, to the Class A Non-Convertible Preferred Units. For each $1,000 principal amount of Senior Notes that Carvana Co. repays or otherwise retires, one Class A Non-Convertible Preferred Unit is canceled and retired.
Tax Asset Preservation Plan
On January 16, 2023, the Company entered into a Section 382 Rights Agreement (the “Tax Asset Preservation Plan”) designed to preserve shareholder value and the value of certain tax assets primarily associated with federal net operating loss carryforwards and built-in losses under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The Tax Asset Preservation Plan is intended to act as a deterrent to any person or group acquiring 4.9% or more of the Company's outstanding Class A common stock (any such person an “Acquiring Person”), without the approval of the Company’s board of directors (the "Board").
In connection therewith, the Board declared a dividend of one preferred share purchase right (a “Right”) for each share of Class A common stock, par value $0.001 per share, of the Company. Each Right entitles the registered holder to purchase from
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
the Company one one-thousandth of a share of Series B Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Shares”) at a price of $50.00 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The Rights will separate and begin trading separately from the Class A common stock, and right certificates will be caused to evidence the Rights, on the earlier to occur of (i) the Close of Business (as such term is defined in the Tax Asset Preservation Plan) on the tenth day following a public announcement, or the public disclosure of facts indicating, that a Person (as such term is defined in the Tax Asset Preservation Plan) or group of affiliated or associated Persons has acquired Beneficial Ownership (as such term is defined in the Tax Asset Preservation Plan) of 4.9% or more of the outstanding Class A common stock (or, in the event that the Board determines to effect an exchange in accordance with Section 24 of the Tax Asset Preservation Plan and the Board determines that a later date is advisable, then such later date) and (ii) the close of business on the tenth business day (or such later date as may be determined by action of the Board prior to such time as any Person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in the Beneficial Ownership by a Person or group of 4.9% or more of the outstanding Class A common stock. If issued, each Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void) will become exercisable for Class A common stock having a value equal to two times the exercise price of the Right. However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including without limitation any dividend, voting or liquidation rights.
NOTE 11 — NON-CONTROLLING INTERESTS
As discussed in Note 1 — Business Organization, Carvana Co. consolidates the financial results of Carvana Group and reports a non-controlling interest related to the portion of Carvana Group owned by the LLC Unitholders. Changes in the ownership interest in Carvana Group while Carvana Co. retains its controlling interest will be accounted for as equity transactions. Exchanges of LLC Units result in a change in ownership and reduce the amount recorded as non-controlling interests and increase additional paid-in capital.
Upon the issuance of shares of Class A common stock by Carvana Co. related to the Company’s equity compensation plans such as the exercise of options, issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock, Carvana Group is required to issue to Carvana Co. a number of Class A Units equal to 1.25 times the number of shares of Class A common stock being issued in connection with the exercise of such options or issuance of other types of equity compensation, subject to adjustment for stock splits, stock dividends, reclassifications, and similar transactions. Activity related to the Company's equity compensation plans may result in a change in ownership which will impact the amount recorded as non-controlling interest and additional paid-in capital.
The non-controlling interest related to the Class B Units is determined based on the respective participation thresholds and the share price of Class A common stock on an as-converted basis. To the extent that the number of as-converted Class B Units change or Class B Units are forfeited, the resulting difference in ownership will be accounted for as equity transactions adjusting the non-controlling interest and additional paid-in capital.
During the three months ended March 31, 2024 and 2023, the total adjustments related to exchanges of LLC Units were an increase and decrease in non-controlling interests and a corresponding decrease and increase in additional paid-in capital of $6 million and $1 million, respectively, which have been included in exchanges of LLC Units in the accompanying unaudited condensed consolidated statements of stockholders' deficit.
As of March 31, 2024, Carvana Co. owned approximately 57.1 % of Carvana Group with the LLC Unitholders owning the remaining 42.9 %. The net income (loss) attributable to the non-controlling interests on the accompanying unaudited condensed consolidated statements of operations represents the portion of the net income (loss) attributable to the economic interest in Carvana Group held by the non-controlling LLC Unitholders calculated based on the weighted average non-controlling interests' ownership during the periods presented.
20
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in millions) | |||||||||||
Transfers (to) from non-controlling interests: | |||||||||||
(Decrease) increase as a result of exchanges of LLC Units | $ | ( | $ | ||||||||
Total transfers (to) from non-controlling interests | $ | ( | $ | ||||||||
NOTE 12 — EQUITY-BASED COMPENSATION
Equity-based compensation is recognized based on amortizing the grant-date fair value on a straight-line basis over the requisite service period, which is generally the vesting period of the award, less actual forfeitures. A summary of equity-based compensation recognized during the three months ended March 31, 2024 and 2023 is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Restricted Stock Units and Awards | $ | $ | |||||||||||||||||||||
| Options | |||||||||||||||||||||||
| Total equity-based compensation | |||||||||||||||||||||||
| Equity-based compensation capitalized to property and equipment | ( | ( | |||||||||||||||||||||
| Equity-based compensation, net of capitalized amounts | $ | $ | |||||||||||||||||||||
During each of the three months ended March 31, 2024 and 2023, the Company capitalized $2 1
As of March 31, 2024, the total unrecognized equity-based compensation related to outstanding awards was $264 million, which the Company expects to recognize over a weighted-average period of approximately 3.1 years. Total unrecognized equity-based compensation will be adjusted for actual forfeitures.
2017 Omnibus Incentive Plan
In connection with the IPO, the Company adopted the 2017 Omnibus Incentive Plan (the "2017 Incentive Plan"). The number of shares authorized for issuance under the 2017 Incentive Plan is subject to an automatic annual increase (the "Automatic Increase") of the lesser of two percent of the Company's outstanding Class A common stock or an amount determined by the Compensation and Nominating Committee of the Board. On each of January 1, 2024 and 2023, the number of shares authorized for issuance under the 2017 Incentive Plan increased by two percent of the then outstanding Class A common stock under the Automatic Increase. As of March 31, 2024, 17 million shares remained available for future equity-based award grants under this plan.
The Company also maintains a clawback policy (the "Clawback Policy"), which requires the Company's officers, as defined by Rule 16a-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to repay the Company certain Incentive Compensation (as defined in the Clawback Policy) if (i) the Company is required to prepare an accounting restatement of its financial statements due to its material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (each a "Restatement"), and (ii) no more than three years have elapsed since the original filing date of the financial statements. In the event of a Restatement, the Company must recover the amount of Incentive Compensation received that exceeds the amount of Incentive Compensation that otherwise would have
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
been received, had it been determined based on the restated amounts, computed without regard to any taxes paid. To date, there has been no repayment of compensation from executive officers pursuant to the Clawback Policy.
Employee Stock Purchase Plan
In May 2021, the Company adopted an employee stock purchase plan (the "ESPP"). On July 1, 2021, the ESPP went into effect. The ESPP allows substantially all employees, excluding members of senior management, to acquire shares of the Company’s Class A common stock through payroll deductions over six-month offering periods, commencing on January 1 and July 1 of each year. The per share purchase price is equal to 90 % of the fair market value of a share of the Company’s Class A common stock on the last day of the offering period. Participant purchases are limited to maximums that may vary between $10,000 and $25,000 of stock per calendar year. The Company is authorized to grant up to 0.5 million shares of Class A common stock under the ESPP.
During the three months ended March 31, 2024 and 2023, the Company did not issue any shares of Class A common stock and as of March 31, 2024, 378,364 shares remained available for future issuance. During the three months ended March 31, 2024 and 2023, the Company recognized less than $1
Class A Units
During 2018, the Company granted certain employees Class A Units with service-based vesting over - to four-year periods and a grant-date fair value of $18.58 per Class A Unit. The grantees entered into the Exchange Agreement under which each LLC Unitholder (and certain permitted transferees thereof) may receive shares of the Company's Class A common stock in exchange for their LLC Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to conversion ratio adjustments for stock splits, stock dividends, reclassifications, and similar transactions and subject to vesting.
Class B Units
In March 2015, Carvana Group adopted the LLC Equity Incentive Plan. Under the LLC Equity Incentive Plan, Carvana Group could grant Class B Units to eligible employees, non-employee officers, consultants and directors with service-based vesting, typically to five years . In connection with the completion of the IPO, Carvana Group discontinued the grant of new awards under the LLC Equity Incentive Plan, however the LLC Equity Incentive Plan will continue in connection with administration of existing awards that remain outstanding. Grantees may receive shares of the Company's Class A common stock in exchange for Class B Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to conversion ratio adjustments for stock splits, stock dividends, reclassifications, and similar transactions and subject to vesting and the respective participation threshold for Class B Units. Class B Units do not expire. There were no 0.00 to $12.00 .
NOTE 13 — NET EARNINGS (LOSS) PER SHARE
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table presents the calculation of basic and diluted net earnings (loss) per share during the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions, except number of shares, which are reflected in thousands, and per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) attributable to Carvana Co. Class A common stockholders - basic | $ | $ | ( | ||||||||||||||||||||
| Impact on net income of assumed conversions from LLC Units | |||||||||||||||||||||||
| Net income (loss) attributable to Carvana Co. Class A common stockholders - diluted | $ | $ | ( | ||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding | |||||||||||||||||||||||
| Nonvested weighted-average restricted stock awards | ( | ( | |||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding - basic | |||||||||||||||||||||||
| Dilutive effect of Class A common shares: | |||||||||||||||||||||||
Options (1) | |||||||||||||||||||||||
Restricted Stock Units and Awards (1) | |||||||||||||||||||||||
Class A Units (2) | |||||||||||||||||||||||
Class B Units (2) | |||||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding - diluted | |||||||||||||||||||||||
| Net earnings (loss) per share of Class A common stock - basic | $ | $ | ( | ||||||||||||||||||||
| Net earnings (loss) per share of Class A common stock - diluted | $ | $ | ( | ||||||||||||||||||||
(1) Calculated using the treasury stock method, if dilutive
(2) Calculated using the if-converted method, if dilutive
Shares of Class B common stock do not share in the losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted net earnings (loss) per share of Class B common stock under the two-class method has not been presented.
The following table presents potentially dilutive securities, as of the end of the period, excluded from the computations of diluted net earnings (loss) per share of Class A common stock for the three months ended March 31, 2024 and 2023, respectively:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Options (1) | |||||||||||||||||||||||
Restricted Stock Units and Awards (1) | |||||||||||||||||||||||
Class A Units (2) | |||||||||||||||||||||||
Class B Units (2) | |||||||||||||||||||||||
(1) Represents number of instruments outstanding at the end of the period that were evaluated under the treasury stock method for potentially dilutive effects and were determined to be anti-dilutive.
(2) Represents the weighted-average as-converted LLC units that were evaluated under the if-converted method for potentially dilutive effects and were determined to be anti-dilutive.
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 14 — INCOME TAXES
As described in Note 1 — Business Organization and Note 10 — Stockholders' Deficit, as a result of the IPO, Carvana Co. began consolidating the financial results of Carvana Group. Carvana Group is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Carvana Group is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Carvana Group is passed through to and included in the taxable income or loss of its members, including Carvana Co., based on its economic interest held in Carvana Group. Carvana Co. was formed on November 29, 2016 and did not engage in any operations prior to the IPO. Carvana Co. is taxed as a corporation and is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of Carvana Group, as well as any stand-alone income or loss generated by Carvana Co.
As described in Note 10 — Stockholders' Deficit, during each of the three months ended March 31, 2024 and 2023, the Company acquired less than 0.1 1 million and less than $1 million, respectively, associated with the basis difference in its investment in Carvana Group, which is reflected as an increase to additional paid-in capital in the accompanying unaudited condensed consolidated statements of stockholders' deficit.
During the three months ended March 31, 2024, management performed an assessment of the recoverability of deferred tax assets. Management determined, based on the accounting standards applicable to such assessment, that there was sufficient evidence as a result of the Company’s cumulative losses to conclude it was more likely than not that its deferred tax assets would not be realized and has recorded a full valuation allowance against its deferred tax assets. In the event that management was to determine that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be made which would reduce the provision for income taxes.
The Company recognizes uncertain income tax positions when it is more-likely-than-not the position will be sustained upon examination. As of March 31, 2024 and December 31, 2023, the Company has no no
The Company's effective tax rate for the three months ended March 31, 2024 and 2023 was a benefit of 1.1 % and 0.7 %, respectively, related to its wholly-owned subsidiaries.
Tax Receivable Agreement
Carvana Co. expects to obtain an increase in its share of the tax basis in the net assets of Carvana Group when LLC Units are exchanged by the LLC Unitholders and other qualifying transactions. As described in Note 10 — Stockholders' Deficit, each change in outstanding shares of Class A common stock results in a corresponding increase or decrease in Carvana Co.'s ownership of LLC Units. The Company intends to treat any exchanges of LLC Units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Carvana Co. would otherwise pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
In connection with the IPO, the Company entered into a Tax Receivable Agreement (the "TRA"). Under the TRA, the Company generally will be required to pay to the LLC Unitholders 85 % of the amount of cash savings, if any, in U.S. federal, state or local tax that the Company actually realizes directly or indirectly (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes created as a result of any sales or exchanges (as determined for U.S. federal income tax purposes) to or with the Company of their interests in Carvana Group for shares of Carvana Co.'s Class A common stock or cash, including any basis adjustment relating to the assets of Carvana Group and (ii) tax benefits attributable to payments made under the TRA (including imputed interest). The Company expects to benefit from the remaining 15 % of any tax benefits that it may actually realize. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.
If the Internal Revenue Service or a state or local taxing authority challenges the tax basis adjustments that give rise to payments under the TRA and the tax basis adjustments are subsequently disallowed, the recipients of payments under the agreement will not reimburse the Company for any payments the Company previously made to them. Any such disallowance
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
would be taken into account in determining future payments under the TRA and would, therefore, reduce the amount of any such future payments. Nevertheless, if the claimed tax benefits from the tax basis adjustments are disallowed, the Company’s payments under the TRA could exceed its actual tax savings, and the Company may not be able to recoup payments under the TRA that were calculated on the assumption that the disallowed tax savings were available.
The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, (ii) there is a material breach of any material obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any LLC Units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination.
As of March 31, 2024 and December 31, 2023, the Company recorded a $14 11 1.6 billion TRA liability, as of March 31, 2024, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized; therefore, the Company has not recorded an additional liability related to the tax savings it may realize from utilization of such deferred tax assets. If utilization of the deferred tax assets subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations.
NOTE 15 — LEASES
The Company is party to various lease agreements for real estate and transportation equipment. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company also assesses whether each lease is an operating or finance lease at the lease commencement date. Rent expense of operating leases is recognized on a straight-line basis over the lease term and includes scheduled rent increases as well as amortization of tenant improvement allowances.
Operating Leases
As of March 31, 2024, the Company is a tenant under various operating leases related to certain of its hubs, vending machines, inspection and reconditioning centers, auction locations, storage, parking and corporate offices. The initial terms expire at various dates between 2024 and 2038. Many of the leases include one or more renewal options ranging from to twenty years and some contain purchase options. The Company leases and subleases certain of its real estate to third parties. Lease and sublease income for the three months ended March 31, 2024 and 2023 was $2 million and $1 million, respectively, and is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.
The Company's operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities on the accompanying unaudited condensed consolidated balance sheets.
Refer to Note 6 — Related Party Transactions for further discussion of operating leases with related parties.
Finance Leases
The Company has finance leases for certain equipment in its transportation fleet. The leases have initial terms of to five years , some of which include extension options for up to additional years, and require monthly payments. The Company's finance leases are included in long-term debt on the accompanying unaudited condensed consolidated balance sheets.
25
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Lease Costs and Activity
The Company's lease costs and activity during the three months ended March 31, 2024 and 2023 were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Lease costs: | |||||||||||||||||||||||
| Finance leases: | |||||||||||||||||||||||
| Amortization of finance lease assets | $ | $ | |||||||||||||||||||||
| Interest obligations under finance leases | |||||||||||||||||||||||
| Total finance lease costs | $ | $ | |||||||||||||||||||||
| Operating leases: | |||||||||||||||||||||||
| Fixed lease costs to non-related parties | $ | $ | |||||||||||||||||||||
| Fixed lease costs to related parties | |||||||||||||||||||||||
| Total operating lease costs | $ | $ | |||||||||||||||||||||
| Cash payments related to lease liabilities included in operating cash flows: | |||||||||||||||||||||||
| Operating lease liabilities to non-related parties | $ | $ | |||||||||||||||||||||
| Operating lease liabilities to related parties | $ | $ | |||||||||||||||||||||
| Interest payments on finance lease liabilities | $ | $ | |||||||||||||||||||||
| Cash payments related to lease liabilities included in financing cash flows: | |||||||||||||||||||||||
| Principal payments on finance lease liabilities | $ | $ | |||||||||||||||||||||
26
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Maturity Analysis of Lease Liabilities
The following table summarizes maturities of lease liabilities as of March 31, 2024:
Operating Leases (1) | |||||||||||||||||||||||||||||
| Finance Leases | Related Party (2) | Non-Related Party | Total Operating | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Remainder of 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||||||||
| 2027 | |||||||||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||||||||
| Total minimum lease payments | |||||||||||||||||||||||||||||
| Less: amount representing interest | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||
(1) Leases that are on a month-to-month basis, short-term leases, and lease extensions that the Company does not expect to exercise are not included.
(2) Related party lease payments exclude rent payments due under the DriveTime lease agreements for locations where the Company shares space with DriveTime, as those are variable lease payments contingent upon the Company's utilization of the leased assets.
As of March 31, 2024 and December 31, 2023, none of the Company's lease agreements contain material residual value guarantees or material restrictive covenants.
Lease Terms and Discount Rates
The weighted-average remaining lease terms and discount rates as of March 31, 2024 and 2023 were as follows, excluding short-term operating leases:
As of March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Weighted-average remaining lease terms (years) | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted-average discount rate | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
NOTE 16 — COMMITMENTS AND CONTINGENCIES
Accrued Limited Warranty
As part of its retail strategy, the Company provides a 100 -day or 4,189 -mile limited warranty to customers to repair certain broken or defective components of each used vehicle sold. As such, the Company accrues for such repairs based on actual claims incurred to-date and repair reserves based on historical trends. The liability was $18 million and $16 million, as of March 31, 2024 and December 31, 2023, respectively, and is included in accounts payable and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The expense was $25 million and $23 million for the three
27
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
months ended March 31, 2024 and 2023, respectively, and is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.
Purchase Obligations
The Company has purchase obligations for certain customary services related to operating a wholesale auction business of $128 million in aggregate over the next five years , as of March 31, 2024. These purchase obligations are recorded as liabilities when the services are rendered.
Legal Matters
From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business for a publicly traded auto retail and e-commerce company. For example, the Company is currently a party to legal and regulatory disputes, including putative class action and shareholder derivative lawsuits, alleging, among other things, the violation of federal securities and antitrust laws and state laws regarding consumer protection, stockholders' rights and the titling and registration of vehicles sold to its customers. These disputes include, but are not limited to, In re Carvana Co. Securities Litigation, United States District Court for the District of Arizona (Case No. CV-22-2126-PHX-MTL); Tajae Bradley v. Carvana, LLC, United States District Court for the Eastern District of Pennsylvania (Case No. 2:22-cv-02525-MMB); Dana Jennings, et al. v. Carvana, LLC, United States District Court for the Eastern District of Pennsylvania (Case No. 5:21-cv-05400-EGS); Syretta Harvin et al. v. Carvana, LLC et al., United States District Court for the Eastern District of Pennsylvania (Case No. 2:23-cv-02068-MRP); and In re Carvana Co. Stockholders Litigation, Delaware Chancery Court (Case No. 2023-0600-KSJM); and Michael Cribier v. Carvana, LLC, United States District Court for the Southern District of California (Case No. 3:24-cv-00094-DMS-JLB).
In re Carvana Co. Stockholders Litigation, Delaware Chancery Court (Case No. 2020-0415-KSJM) was dismissed with prejudice in March 2024.
Additionally, the Attorney General offices of various states, from time to time, conduct inquiries regarding the Company's inspection, reconditioning, advertising, sale, delivery, titling, registration, and post-sale service of retail vehicles. The Company works closely with government agencies to respond to these requests and fully cooperates with any such inquiries, which if not amicably resolved, could result in state Attorney General offices filing claims against the Company.
The Company believes the claims in these matters are not material or are without merit and intends to defend the matters vigorously. It is not possible to determine the probability of loss or estimate damages, if any, for any of the above matters, and therefore, the Company has not established reserves for any of these proceedings. If the Company determines that a loss is both probable and reasonably estimable, the Company will record a liability, and, if the liability is material, disclose the amount of the liability reserved. If an unfavorable ruling or development were to occur, there exists the possibility of a material adverse impact on the Company's business, results of operations, financial condition or cash flows.
Future litigation may be necessary to defend the Company and its partners by determining the scope, enforceability and validity of third party proprietary rights or to establish its proprietary rights. The results of any current or future litigation or government inquiries cannot be predicted with certainty, and regardless of the outcome, litigation and government inquiries can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
NOTE 17 — FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company holds certain assets that are required to be measured at fair value on a recurring basis, and beneficial interests in securitizations for which it elected the fair value option. A description of the fair value hierarchy and the Company's methodologies are included in Note 2 — Summary of Significant Accounting Policies in its most recent Annual Report on Form 10-K.
28
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following tables are a summary of fair value measurements and hierarchy level at March 31, 2024 and December 31, 2023:
| March 31, 2024 | |||||||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Money market funds | $ | $ | $ | $ | |||||||||||||||||||
Beneficial interests in securitizations | $ | $ | $ | $ | |||||||||||||||||||
| Purchase price adjustment receivables | $ | $ | $ | $ | |||||||||||||||||||
| Root Warrants | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Money market funds | $ | $ | $ | $ | |||||||||||||||||||
Beneficial interests in securitizations | $ | $ | $ | $ | |||||||||||||||||||
| Purchase price adjustment receivables | $ | $ | $ | $ | |||||||||||||||||||
| Root Warrants | $ | $ | $ | $ | |||||||||||||||||||
Money Market Funds
Money market funds consist of highly liquid investments with original maturities of three months or less and are classified in cash and cash equivalents and restricted cash in the accompanying unaudited condensed consolidated balance sheets.
Beneficial Interests in Securitizations
Beneficial interests in securitizations include rated notes and certificates of the securitization trusts, the same securities as issued to other investors as described in Note 8 — Securitizations and Variable Interest Entities. Beneficial interests in securitizations are initially treated as Level 2 assets when the securitization transaction occurs in close proximity to the end of the period and there is a lack of observable changes in the economic inputs. When the securitization transaction does not occur in close proximity to the end of the period and there have been observable changes in the economic inputs, beneficial interests in securitizations are classified as Level 3.
The Company's beneficial interests in securitizations include rated notes and certificates and other assets, all of which are classified as Level 3 due to the lack of observable market data. The Company determines the fair value of its rated notes based on non-binding broker quotes. The non-binding broker quotes are based on models that consider the prevailing interest rates, recent market transactions, and current business conditions. The Company determines the fair value of its certificates and other assets using a combination of non-binding market quotes and internally developed discounted cash flow models. The discounted cash flow models use discount rates based on prevailing interest rates and the characteristics of the specific instruments. As of March 31, 2024 and December 31, 2023, the range of discount rates were 5.9 % to 10.0 % and 6.2 % to 12.0 %, respectively, and the weighted average of discount rates were 8.7 % and 8.9 %, respectively. Significant increases or decreases in the inputs to the models could result in a significantly higher or lower fair value measurement. The Company elected the fair value option on its beneficial interests in securitizations, which allows it to recognize changes in the fair value of these assets in the period the fair value changes. Changes in the fair value of the beneficial interests in securitizations are reflected in other income, net in the accompanying unaudited condensed consolidated statements of operations.
For beneficial interests in securitizations measured at fair value on a recurring basis, the Company's transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period on a quarterly basis. There were no transfers out of Level 3 during the three months ended March 31, 2024 or 2023.
29
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The Company sells certain of its beneficial interests in securitizations that are not required to be retained by the Risk Retention Rules. For the three months ended March 31, 2024, the Company sold beneficial interests in securitizations for a purchase price totaling $9 million. For the three months ended March 31, 2023, the Company sold no beneficial interests in securitizations.
The following table presents additional information about Level 3 beneficial interests in securitizations measured at fair value on a recurring basis for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Opening Balance | $ | $ | |||||||||||||||||||||
| Received in securitization transactions | |||||||||||||||||||||||
| Payments received | ( | ( | |||||||||||||||||||||
| Change in fair value | |||||||||||||||||||||||
| Sales of beneficial interests | ( | ||||||||||||||||||||||
| Ending Balance | $ | $ | |||||||||||||||||||||
Purchase Price Adjustment Receivables
The Company's purchase price adjustment receivables are carried at fair value and classified as other assets in the accompanying unaudited condensed consolidated balance sheets. Under the MPSA, the purchaser will make future cash payments to the Company based on the performance of the finance receivables sold. The fair value of the purchase price adjustment receivables are determined based on the extent to which the Company’s estimated performance of the underlying finance receivables exceeds a mutually agreed upon performance threshold of the underlying finance receivables as of measurement dates specified in the MPSA. The Company develops its estimate of future cumulative losses based on the historical performance of finance receivables it originated with similar characteristics as well as general macro-economic trends. The Company then utilizes a discounted cash flow model to calculate the present value of the expected future payment amounts. Due to the lack of observable market data these receivables are classified as Level 3. The adjustments to the fair value of the purchase price adjustment receivables were gains of $1 million and $2 million, respectively, during the three months ended March 31, 2024 and 2023, respectively, and are reflected in other income, net in the accompanying unaudited condensed consolidated statements of operations.
Root Warrants
In October 2021, the Company purchased Series A convertible preferred shares in Root, Inc. ("Root"), an equity security that does not have a readily determinable fair value. The Company elected to measure this investment using a measurement alternative pursuant to the accounting standards and recorded the investment at its cost of $126 million, which will subsequently be adjusted for observable price changes. The Company considered all relevant transactions since the date of its investment and has not recorded any impairments or upward or downward adjustments to the carrying amount of its investment in Root, as there have not been changes in the observable price of its equity interest through March 31, 2024.
Also in October 2021, the Company entered into a commercial agreement with Root, under which the Root auto insurance products were to be embedded into the Company's e-commerce platform. In accordance with the provisions of the commercial agreement, the Company received eight tranches of warrants to purchase shares of Root's Class A common stock (the "Root Warrants"). On September 1, 2022, the integrated auto insurance solution, which embedded into the Company's e-commerce platform, was completed. The first tranche of Root Warrants, consisting of 2.4 million shares of Root's Class A common stock, became exercisable upon completion of the integrated solution, and is considered a derivative instrument. The second tranche of Root Warrants, consisting of 3.2 million shares of Root's Class A common stock, became exercisable on November 14, 2023, upon the achievement of certain insurance sales metrics through the integrated solution, and is considered a derivative investment. The other tranches vest based on insurance product sales through the integrated solution and are considered derivative instruments. The Company used a Monte Carlo simulation to estimate the fair value of these Root Warrants, which
30
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
are classified as Level 3. Under this Monte Carlo simulation, the primary unobservable input utilized in determining the fair value of the Root Warrants was the expected volatility of Root's class A common stock, which was implied from the historical volatility of their stock. As of March 31, 2024 and 2023, the expected volatility utilized in the Monte Carlo simulation was 100% and 85%, respectively. At contract inception, the Company recognized an asset of $30 75 million of Root Warrants and deferred revenue based on the contract inception date fair value as determined by the Monte Carlo simulation. The Root Warrants and deferred revenue are classified in other assets and other liabilities, respectively, in the accompanying unaudited condensed consolidated balance sheets. The deferred revenue is recognized over the expected contract performance period within other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.
The following table presents changes in the Company's Level 3 Root Warrants measured at fair value:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
(in millions) | |||||||||||
Opening balance | $ | $ | |||||||||
Unrealized gain (loss) | ( | ||||||||||
Ending balance | $ | $ | |||||||||
In relation to the Root Warrants, the Company recognized an increase in fair value of $75 million and a decrease in fair value of $1 million during the three months ended March 31, 2024 and 2023, respectively, which are included in other income, net in the accompanying unaudited condensed consolidated statements of operations.
Interest Rate Cap
The Company utilizes non-designated cash flow hedges including interest rate cap agreements to minimize its exposure to interest rate fluctuations on variable rate debt borrowings. Interest rate caps provide that the counterparty will pay the purchaser at the end of each contractual period in which the index interest rate exceeds the contractually agreed upon cap rate.
In the first quarter of 2023, the Company entered into one interest rate cap agreement to limit exposure to interest rate risk on variable rate debt associated with finance receivables. The interest rate cap has a cap rate of 5.0 % with a notional amount of $364 million, expiring in July 2027.
The fair value of the Company's interest rate caps is impacted by the credit risk of both the Company and its counterparty. The Company has an agreement with its derivative financial instrument counterparty that contains provisions providing that if the Company defaults on the indebtedness associated with its derivative financial instrument, then the Company could also be declared in default on its derivative financial instrument obligation. In addition, the Company minimizes nonperformance risk on its derivative instrument by evaluating the creditworthiness of its counterparty, which is limited to major banks and financial institutions.
The Company does not apply hedge accounting to the interest rate caps and records all mark-to-market adjustments directly to other income, net in the accompanying unaudited condensed consolidated statements of operations. The fair value of the interest rate caps is categorized as Level 2 in the fair value hierarchy as they are based on well-recognized financial principles and available market data. For the three months ended March 31, 2023, the Company recognized mark-to-market adjustments of $1 million of expense within other income, net in the accompanying unaudited condensed consolidated statements of operations. The interest rate cap was terminated during the year ended December 31, 2023.
Fair Value of Financial Instruments
The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities, and accounts payable to related party approximate fair value due to their respective short-term maturities. The carrying value of the short-term revolving facilities were determined to approximate fair value due to their short-term duration and variable interest rates
31
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
that approximate prevailing interest rates as of each reporting period. The carrying value of notes payable and sale leasebacks were determined to approximate fair value as each of the transactions were entered into at prevailing interest rates during each respective period and they have not materially changed as of or during the periods ended March 31, 2024 and December 31, 2023. The carrying value of the financing of beneficial interests in securitizations was determined to approximate fair value because in the event of a decline in the fair value of the pledged collateral of the financing, the repurchase price of the pledged collateral will be increased by the amount of the decline.
The fair value of the Senior Notes, which are not carried at fair value on the accompanying unaudited condensed consolidated balance sheets, was determined using Level 2 inputs based on quoted market prices for the identical liability. The fair value of the Senior Notes as of March 31, 2024 and December 31, 2023 was as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
Carrying value, net of unamortized debt issuance costs, unamortized premium, and accrued PIK interest | $ | $ | |||||||||
| Fair value | $ | $ | |||||||||
The fair value of finance receivables, which are not carried at fair value on the accompanying unaudited condensed consolidated balance sheets, was determined utilizing the estimated sales price based on the historical experience of the Company. Such fair value measurement of the finance receivables, net is considered Level 2 under the fair value hierarchy. The carrying value and fair value of the finance receivables as of March 31, 2024 and December 31, 2023 were as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Carrying value | $ | $ | |||||||||
| Fair value | $ | $ | |||||||||
NOTE 18 — SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes supplemental cash flow information for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Supplemental cash flow information: | |||||||||||
| Cash payments for interest | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Capital expenditures included in accounts payable and accrued liabilities | $ | $ | |||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
| Property and equipment acquired under finance leases | $ | $ | |||||||||
| Equity-based compensation expense capitalized to property and equipment | $ | $ | |||||||||
| Fair value of beneficial interests received in securitization transactions | $ | $ | |||||||||
| Reductions of beneficial interests in securitizations and associated long-term debt | $ | $ | |||||||||
32
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the accompanying unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the accompanying unaudited condensed consolidated statements of cash flows for all periods presented:
| March 31, 2024 | December 31, 2023 | March 31, 2023 | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||||||||
Restricted cash | |||||||||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | $ | ||||||||||||||||||||
NOTE 19 — SUBSEQUENT EVENTS
Finance Receivable Facilities
On April 12, 2024, the Company amended an agreement governing one of its short-term revolving credit facilities to, among other things, extend the maturity date to October 10, 2025.
33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless the context requires otherwise, references in this report to "Carvana," the "Company," "we," "us," and "our" refer to Carvana Co. and its consolidated subsidiaries. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our most recent Annual Report filed on Form 10-K, as well as our unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q.
Overview
Carvana is the leading e-commerce platform for buying and selling used cars. We are transforming the used car buying and selling experience by giving consumers what they want - a wide selection, great value and quality, transparent pricing, and a simple, no pressure transaction. Each element of our business, from inventory procurement to fulfillment and overall ease of the online transaction, has been built for this singular purpose.
Our business combines a comprehensive online sales experience with a vertically integrated supply chain that allows us to sell high-quality vehicles to our customers transparently and efficiently at a low price. Using our website, customers can complete all phases of a retail vehicle purchase transaction. Specifically, our online sales experience allows customers to:
•Purchase a retail vehicle. As of March 31, 2024, we listed 30,694 total retail units on our website, where customers can select and purchase a vehicle, including arranging financing and signing contracts, directly from their desktop or mobile device. Selling vehicles to retail customers is the primary driver of our business. Selling retail vehicles generates revenue equal to the selling price of the vehicle, less an allowance for returns, and also enables multiple additional revenue streams, including the sale of finance receivables originated to finance the vehicle, vehicle service contracts ("VSCs"), GAP waiver coverage, other ancillary products, and trade-ins.
•Finance their purchase. Customers can pay for their Carvana vehicle using cash, financing from other parties such as banks or credit unions, or financing with us using our proprietary loan origination platform. Customers who choose to apply for our in-house financing fill out a short prequalification form, select from a range of financing terms we provide and, if approved, apply the financing to their purchase in our online checkout process. We generally seek to sell the loans we originate to financing partners or pursuant to a securitization transaction and, in each case, we generally earn a premium upon sale.
•Protect their purchase. Customers have the option to protect their vehicle with a VSC as part of our online checkout process. VSCs provide customers with protection against the costs of certain mechanical repairs after the expiration of their vehicle’s original manufacturer warranty. We earn a fee for selling VSCs on behalf of an affiliate of DriveTime Automotive Group, Inc. (together with its consolidated affiliates, collectively, “DriveTime”), which is the obligor under these VSCs. We generally have no contractual liability to customers for claims under these agreements. We also offer GAP waiver coverage to customers in most states in which we operate. We have also partnered with Root, Inc. ("Root") to offer an integrated auto insurance solution, through which customers in most states may conveniently access auto insurance directly from the Carvana e-commerce platform.
•Sell us their car. We allow our customers to trade-in a vehicle and apply the trade-in value to their purchase, or to sell us a vehicle independent of a purchase. Using our digital appraisal tool, customers can receive a conditional offer for their vehicle nearly instantaneously from our site simply by answering a few questions about the vehicle condition and features. We generate trade-in offers using a proprietary valuation algorithm supported by extensive used vehicle market and customer-behavior data. When customers accept our offer, they can drop the vehicle off at one of our locations or schedule a time to have the vehicle picked up at their home or elsewhere within one of our markets and receive payment, eliminating the need to visit a dealership or negotiate a private sale. We take their vehicles into inventory and sell them either at auction as a wholesale sale or through our website as a retail sale. Vehicles sold at auction typically do not meet the quality or condition standards required to be included in retail inventory displayed for sale on our website.
34
To enable a seamless customer experience, we have built a vertically-integrated used vehicle supply chain, supported by proprietary software systems and data.
•Vehicle acquisition. We primarily acquire our used vehicle inventory directly from customers when they trade in or sell us their vehicles and through the large and liquid national used car auction market. Acquiring directly from customers eliminates auction fees and provides more diverse vehicles. The remainder of our inventory is acquired from vehicle finance and leasing companies, rental car companies, and other suppliers, which suppliers may also provide reconditioning services. We use proprietary algorithms to determine which cars to bid on at auction and how much to bid. Our software sifts through over 100,000 vehicles per day and filters out vehicles with poor condition ratings or other unacceptable attributes, and can evaluate the tens of thousands of potential vehicle purchases that remain per day, creating a competitive advantage versus in-person sourcing methods generally used by traditional dealerships. Once our algorithms have identified a suitable vehicle for purchase, bids are verified and executed by a centralized team of inventory-sourcing professionals. For vehicles sold to us through our website, we use proprietary algorithms to determine an appropriate offer. We assess vehicles on the basis of quality, inventory fit, consumer desirability, relative value, expected reconditioning costs, and vehicle location to identify what we believe represent the most in-demand and profitable vehicles to acquire for inventory. We utilize a broad range of data sources, including proprietary site data, and a variety of external data sources to support our assessments.
•Inspection and reconditioning. Once we acquire a vehicle from a customer, we leverage our in-house logistics or a vendor to transport the vehicle to an inspection and reconditioning center or auction location with reconditioning capacity ("IRC"), at which point the vehicle is entered into our inventory management system. We then begin a 150-point inspection process covering controls, features, brakes, tires, and cosmetics. Each IRC includes trained technicians, vehicle lifts, paint-less dent repair, and paint capabilities and receives on-site support from vendors with whom we have integrated systems to ensure ready access to parts and materials. When an inspection is complete, we estimate the necessary reconditioning cost for the vehicle to meet our standards and expected timing for that vehicle to be made available for sale on our website.
•Photography and merchandising. To provide transparency to our customers, our patented, automated photo booths capture a 360-degree exterior and interior virtual tour of each vehicle in our website inventory. Our photo booths photograph the interior and exterior of the vehicle while technicians annotate material defects based on visibility-threshold category. We also feature integrations with various vehicle data providers for vehicle feature and option information. We have instituted a unified cosmetic standard across all IRCs and certain auction sites to better ensure a consistent customer experience.
•Transportation and fulfillment. Third-party vehicle transportation is often slow, expensive, and unreliable. To address these challenges, we built an in-house auto logistics network backed by a proprietary transportation management system ("TMS") to transport our vehicles to customers in our markets. The system is based on a "hub and spoke" model, which connects all IRCs to vending machines and hubs via our owned and leased fleet of multi-car and single car haulers. Our TMS allows us to efficiently manage locations, routes, route capacities, trucks, and drivers while also dynamically optimizing for speed and cost. We store inventory primarily at the IRCs and other sites, and when a vehicle is sold, it is delivered directly to customers in our markets or transported to a vending machine or certain hubs for pick-up by the customer. Due to our robust and proprietary logistics infrastructure, we are able to offer our customers and operations team highly accurate predictions of vehicle availability, minimizing unanticipated delays and ensuring a seamless and reliable customer experience.
35
Retail Vehicle Unit Sales
Since launching to customers in Atlanta, Georgia in January 2013, we have historically experienced rapid growth in sales through our website www.carvana.com. During the three months ended March 31, 2024, the number of vehicles we sold to retail customers increased by 15.9% to 91,878, compared to 79,240 in the three months ended March 31, 2023.
We continue to view the number of vehicles we sell to retail customers as the most important long-term measure of our performance, and we expect to continue to focus on building a scalable platform to efficiently increase our retail units sold. This focus on retail units sold is motivated by several factors:
•Retail units sold enable multiple revenue streams, including the sale of the vehicle itself, the sale of finance receivables originated to finance the vehicle, the sale of VSCs, GAP waiver coverage, other ancillary products, and the sale of vehicles acquired from customers.
•Retail units sold are the primary driver of customer referrals and repeat sales. Each time we sell a vehicle to a new customer, that customer may refer future customers and can become a repeat buyer in the future.
•Retail units sold are an important driver of the average number of days between when we acquire the vehicle and when we sell it. Reducing average days to sale impacts gross profit on our vehicles because used vehicles generally depreciate over time.
•Retail units sold allow us to benefit from economies of scale due to our centralized online sales model. We believe our model provides meaningful operating leverage in acquisition, reconditioning, transport, customer service, and delivery.
While our near-term objectives are geared towards significant positive unit economics through efficiency gains and other initiatives, we continue to invest in technology and infrastructure to support efficient growth in retail units sold. This includes continued investment in our vehicle acquisition, reconditioning and logistics network, as well as continued investment in product development and engineering to deliver customers a best-in-class experience.
Markets and Population Coverage
As of March 31, 2024, we have established a logistics network and local marketing presence in 316 metropolitan areas and have purchased, reconditioned, sold, and delivered over 1.8 million retail vehicles since the launch of our first market in January 2013. As of March 31, 2024, our 316 markets serviced 81.1% of the U.S. population. We calculate our population coverage as the population in our open markets at the end of the period as a percentage of the total metropolitan statistical area ("MSA") population in the U.S., based on 2015 data from the U.S. Census Bureau. Our hub and spoke market approach allows us to focus on serving our markets and providing the best possible car buying and selling experience to our customers at a low, transparent cost. Our established logistics network and ability to service customers within our markets by delivering or picking up any car on Carvana-branded haulers allow us to provide a low-cost, simple car buying and selling experience. We continually evaluate consumer demand and our operational capacity to determine our market development strategy.
Revenue and Gross Profit
We generate revenue on retail units sold from four primary sources: the sale of the retail vehicles, wholesale sales of vehicles we acquire from customers, including sales through our wholesale marketplace, gains on the sales of loans originated to finance the vehicles, and sales of ancillary products such as VSCs and GAP waiver coverage.
Our largest source of revenue, retail vehicle sales, totaled $2.2 billion and $1.8 billion during the three months ended March 31, 2024 and 2023, respectively. We generally expect retail vehicle sales to trend proportionately with retail units sold, absent any material changes in macroeconomic conditions. We generate gross profit on retail vehicle sales from the difference between the retail selling price of the vehicle and our cost of sales associated with acquiring the vehicle and preparing it for sale.
Wholesale sales and revenues includes sales of trade-ins and other vehicles acquired from customers that do not meet the requirements for our retail inventory. We also include revenue earned from the sale of wholesale marketplace units by non-Carvana sellers through our wholesale marketplace platform, including auction fees and related service revenues, in wholesale sales and revenues. Wholesale sales and revenues totaled $657 million and $618 million during the three months ended
36
March 31, 2024 and 2023, respectively. We generally expect wholesale sales to trend proportionately with retail units sold through trade-ins and from customers who wish to sell us a car independent of a retail sale and with the movement of wholesale marketplace units. We generate gross profit on wholesale vehicle sales from the difference between the wholesale selling price of the vehicle and our cost of sales associated with acquiring the vehicle and preparing it for sale. We generate a gross profit on wholesale marketplace units from the difference between the revenue earned from the sale of wholesale marketplace units through our wholesale marketplace platform less our cost of sales associated with operating the wholesale marketplace platform.
Other sales and revenues, which primarily includes gains on the sales of finance receivables we originate and sales commissions on ancillary products such as VSCs, GAP waiver coverage, and auto insurance totaled $229 million and $161 million during the three months ended March 31, 2024 and 2023, respectively. We generally expect other sales and revenues to trend proportionately with retail units sold. We also expect other sales and revenues to increase as we improve our ability to monetize loans we originate, including through securitization transactions, and sell and offer attractive financing solutions and ancillary products to our customers, including products customarily sold by automotive retailers or insurance products customarily sold by traditional insurance companies, absent any material changes in macroeconomic conditions. Other sales and revenues are 100% gross margin products for which gross profit equals revenue.
During the current macroeconomic uncertainty, our highest priority will continue to be providing exceptional customer experiences while improving efficiency and utilizing our infrastructure to support efficient growth in retail units sold to help us move along the path to achieve sustained profitability. Secondarily, we plan to pursue several strategies designed to increase our brand awareness and total gross profit per unit. These strategies may include the following:
•Increase the purchase of vehicles from customers. Over time, we plan to grow the number of vehicles that we purchase from our customers as trade-ins or independent of a retail sale. This will provide additional vehicles for our retail business, which on average are more profitable compared to the same vehicle acquired at auction, and expand our inventory selection. In addition, this in turn will grow our wholesale business.
•Reduce average days to sale. Our goal is generally to increase our sales at a faster rate than we increase our inventory size, which we believe would decrease average days to sale due to a relative increase in demand versus supply. Reductions in average days to sale lead to fewer vehicle price reductions, and therefore higher average selling prices, all other factors being equal. Higher average selling prices in turn lead to higher gross profit per unit sold, all other factors being equal.
•Leverage existing inspection and reconditioning infrastructure. As we scale, we intend to more fully utilize the capacity at our existing IRCs and auction locations, which collectively have capacity to inspect and recondition approximately 1.3 million vehicles per year at full utilization.
•Expand our logistics network. As we scale, we intend to further expand our in-house logistics network to transport cars to our IRCs or other sites after acquisition from customers or wholesale auctions.
•Increase conversion on existing products. We plan to continue to improve our website to highlight the benefits of our complementary product offerings, including financing, VSCs, GAP waiver coverage, other ancillary products, and trade-ins.
•Add new products and services. We plan to utilize our online sales platform to offer additional complementary products and services to our customers.
•Increase monetization of our finance receivables. We plan to continue selling finance receivables in securitization transactions and otherwise expand our base of financial partners who purchase the finance receivables originated on our platform to reduce our effective cost of funds.
•Optimize purchasing and pricing. We are constantly improving the ways in which we predict customer demand, value vehicles sight unseen and optimize what we pay to acquire those vehicles. We also regularly test different pricing of our products, including vehicle sticker prices, trade-in and independent vehicle offers, and ancillary product prices, and we believe we can improve by further optimizing prices over time.
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Seasonality
Retail and wholesale used vehicle sales generally exhibit seasonality with sales peaking late in the first calendar quarter and diminishing through the rest of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter. Due to our historical rapid growth, our overall sales patterns in the past have not always reflected the general seasonality of the used vehicle industry. However, as our business and markets have continued to mature, our results have become more reflective of typical market seasonality. Used vehicle prices also exhibit seasonality, with used vehicles depreciating at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year, all other factors being equal. We expect to experience seasonal and other fluctuations in our quarterly operating results, including as a result of macroeconomic conditions, which may not fully reflect the underlying performance of our business.
Investment in Growth
We have historically aggressively invested in the growth of our business. Due to the current macroeconomic environment, we are focused on driving fundamental gains in gross profit per unit and operational efficiency, flexibility, and scalability through process and technology improvements to increase profitability and provide a strong foundation for profitable growth. While we intend to become increasingly efficient over time, we also anticipate that our operating expenses will increase as we return to growth and continue to expand our logistics network, increase our advertising spending, and serve more of the U.S. population. There is no guarantee that we will be able to realize the desired return on our investments.
Relationships with Related Parties
For discussion about our relationships with related parties, refer to Note 6 — Related Party Transactions of our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.
Key Operating Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our progress and make strategic decisions. Our key operating metrics reflect the key drivers of our growth, including increasing brand awareness, enhancing the selection of vehicles we make available to our customers, and driving strong unit economics.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Retail units sold | 91,878 | 79,240 | |||||||||||||||||||||
| Average monthly unique visitors (in thousands) | 15,935 | 14,695 | |||||||||||||||||||||
| Total website units | 30,694 | 41,314 | |||||||||||||||||||||
| Total gross profit per unit | $ | 6,432 | $ | 4,303 | |||||||||||||||||||
| Total gross profit per unit, non-GAAP | $ | 6,802 | $ | 4,796 | |||||||||||||||||||
Retail Units Sold
We define retail units sold as the number of vehicles sold to customers in a given period, net of returns under our seven-day return policy. We view retail units sold as a key measure of our growth for several reasons. First, retail units sold is the primary driver of our revenues and, indirectly, gross profit, since retail unit sales enable multiple complementary revenue streams, including financing, VSCs, GAP waiver coverage, other ancillary products, and trade-ins. Second, growth in retail units sold increases the base of available customers for referrals and repeat sales. Third, growth in retail units sold is an indicator of our ability to successfully scale our logistics, fulfillment, and customer service operations.
Average Monthly Unique Visitors
We define a monthly unique visitor as an individual who has visited our website within a calendar month, based on data provided by Google Analytics. We calculate average monthly unique visitors as the sum of monthly unique visitors in a given period, divided by the number of months in that period. We view average monthly unique visitors as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising campaigns, and consumer awareness of our brand.
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Total Website Units
We define total website units as the number of vehicles listed on our website on the last day of a given reporting period, including vehicles available for sale, vehicles currently engaged in a purchase or reserved by a customer, and vehicles that can be reserved that generally have not yet completed the inspection and reconditioning process. We view total website units as a key measure of our growth. Growth in total website units increases the selection of vehicles available to our consumers, which we believe will allow us to increase the number of vehicles we sell over time. Moreover, growth in total website units indicates our ability to scale our vehicle purchasing, inspection and reconditioning operations. As part of our inventory strategy, over time we may choose not to expand total website units while continuing to grow sales, thereby improving other key operating metrics of the business.
Total Gross Profit per Unit
We define total gross profit per unit as the aggregate gross profit in a given period, divided by retail units sold in that period including gross profit generated from the sale of retail vehicles, gains on the sales of loans originated to finance the vehicles, commissions on sales of VSCs, GAP waiver coverage and other ancillary products, and gross profit generated from wholesale sales of vehicles. We operate an integrated business with the objective of increasing the number of retail units sold and total gross profit per unit. Gross profits generated from the sale of retail and wholesale units are interrelated. For example, our nationwide reconditioning and inspection centers are designed to produce vehicles for both retail and wholesale sales, our vehicle storage locations have shared parking for both retail and wholesale vehicles, and our integrated multi-vehicle logistics and last mile delivery network is operated in service of both retail and wholesale sales. Such interrelationships require us to share finite operational capacity and optimize joint decisions between retail and wholesale sales, in order to position us to achieve our objective of increasing total gross profit per unit. As a result, the inclusion of gross profit generated from wholesale sales of vehicles in total gross profit per unit reflects our integrated business model and the interrelationship between wholesale and retail vehicle sales. We believe the total gross profit per unit metrics provide investors with the greatest opportunity to view our performance through the same lens that our management does, and therefore assists investors to best evaluate our business and measure our progress.
Total Gross Profit per Unit, Non-GAAP
We define total gross profit per unit, non-GAAP as the aggregate gross profit, non-GAAP in a given period, divided by retail units sold in that period. Gross profit, non-GAAP is defined as gross profit plus depreciation and amortization in cost of sales, share-based compensation in cost of sales, and restructuring costs, minus revenue related to warrants to purchase shares of Root's Class A common stock (the "Root Warrants") as discussed in Note 17 — Fair Value of Financial Instruments. Refer to "Non-GAAP Financial Measures" for more information, including the reconciliation of non-GAAP financial measures to the most directly comparable financial measures under generally accepted accounting principles in the United States ("GAAP").
Components of Results of Operations
Retail Vehicle Sales
Retail vehicle sales represent the aggregate sales of used vehicles to customers through our website. Revenue from retail vehicle sales is recognized upon delivery to the customer or pick up of the vehicle by the customer, and is reported net of a reserve for expected returns. Factors affecting retail vehicle sales revenue include the number of retail units sold and the average selling price of these vehicles. Changes in retail units sold are a much larger driver of changes in revenue than are changes in average selling price.
The number of retail vehicles we sell depends on the volume of traffic to our website, our population coverage, our inventory selection, the effectiveness of our branding and marketing efforts, the quality of our customers' purchase experience, our volume of referrals and repeat customers, the competitiveness of our pricing, competition from other used car dealerships and general macroeconomic and used car industry conditions. On a quarterly basis, the number of retail vehicles we sell is also affected by seasonality, with demand for retail vehicles generally reaching a seasonal high point late in the first quarter of each year, commensurate with the timing of tax refunds, and diminishing through the rest of the year, with the lowest relative level of retail vehicle sales generally expected to occur in the fourth calendar quarter. In 2022 and 2023, heightened inflation and rising interest rates resulted in lower demand for used vehicles. Heightened inflation and interest rates persisted during the first three months of 2024 but were outweighed by seasonal demand associated with the timing of tax refunds.
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Our retail average selling price depends on macroeconomic and used car industry conditions, the mix of vehicles we acquire, retail prices in our markets, our pricing strategy, and our average days to sale. We may choose to shift our inventory mix to higher or lower cost vehicles, or to raise or lower our prices relative to market to take advantage of supply or demand imbalances, which could temporarily lead to average selling prices increasing or decreasing. We also generally expect lower average days to sale to be associated with higher retail average selling prices due to decreased vehicle depreciation prior to sale, all other factors being equal.
Wholesale Sales and Revenues
Wholesale sales and revenues includes the aggregate proceeds we receive on vehicles we acquire and sell to wholesalers, and wholesale marketplace revenues. The vehicles we sell to wholesalers are primarily acquired from customers who sell a vehicle to us without purchasing a retail vehicle and from our customers who trade-in their existing vehicles when making a purchase from us. Factors affecting wholesale sales and revenues include the number of wholesale units sold and the average wholesale selling price of these vehicles. The average selling price of our wholesale units is primarily driven by the mix of vehicles we sell to wholesalers, as well as general supply and demand conditions in the applicable wholesale vehicle market. Wholesale sales and revenues includes aggregate proceeds we receive on vehicles sold to DriveTime through competitive online auctions that are managed by an unrelated third party and through the Company's wholesale marketplace platform. Wholesale marketplace revenues include revenue earned from the sale of wholesale marketplace units by third-party sellers to buyers through our wholesale marketplace platform, including auction fees and related services revenue.
Other Sales and Revenues
We generate other sales and revenues primarily through the sales of loans we originate and sell in securitization transactions or to financing partners, reported net of a reserve for expected repurchases, commissions we receive on VSCs, sales of GAP waiver coverage, and commissions and Root Warrants we receive on sales of auto insurance.
We generally seek to sell the loans we originate to securitization trusts we sponsor and establish or to financing partners. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that we sell to the securitization trusts. We also sell the loans we originate under committed forward-flow arrangements, including a master purchase and sale agreement, and through fixed pool loan sales, with financing partners who generally acquire them at premium prices without recourse to us for their post-sale performance. Factors affecting revenue from these sales include the number of loans we originate, the average principal balance of the loans, the credit quality of the portfolio, the price at which we are able to sell them in securitization transactions or to financing partners, and economic conditions in the capital markets.
The number of loans we originate is driven by the number of retail vehicles sold and the percentage of our sales for which we provide financing, which is influenced by the financing terms we offer our customers relative to alternatives available to the customer. The average principal balance is driven primarily by the mix of vehicles we sell, since higher average selling prices typically mean higher average balances. The price at which we sell the loan is driven by the terms of our securitization transactions and forward-flow arrangement, applicable interest rates, and whether or not the loan includes GAP waiver coverage.
In 2016, we entered into a master dealer agreement with DriveTime, pursuant to which we receive a commission for selling VSCs that DriveTime administers. The commission revenue we recognize on VSCs depends on the number of retail units we sell, the conversion rate of VSCs on these sales, commission rates we receive, VSC early cancellation frequency and product features. The GAP waiver coverage revenue we recognize depends on the number of retail units we sell, the number of customers that choose to finance their purchases with us, the frequency of GAP waiver coverage early cancellation, and the conversion rate of GAP waiver coverage on those sales.
In September 2022, we completed our integrated auto insurance solution with Root, through which customers may conveniently access auto insurance directly from the Carvana e-commerce platform. We receive commissions and Root Warrants based on the Root insurance policies sold through the integrated solution. The commission revenue we recognize depends on the number of retail units we sell, the conversion rate of auto policies on those sales, commission rates we receive, and forecasted attrition. The revenue we recognize from Root Warrants as non-cash consideration depends on the probability of achieving certain auto policy sales thresholds within a specific timeline as well as our performance under the agreement with Root.
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Cost of Sales
Cost of sales includes the cost to acquire, recondition, and transport vehicles associated with preparing them for resale, and wholesale marketplace cost of sales. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the vehicle market. Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles, as well as indirect costs, such as IRC overhead. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition to the IRC or other site. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value. Wholesale marketplace cost of sales include costs related to the sale of wholesale marketplace units by third-party sellers through our wholesale marketplace platform, including labor, rent, depreciation and amortization.
Retail Vehicle Gross Profit
Retail vehicle gross profit is the vehicle sales price minus our costs of sales associated with vehicles that we list and sell on our website. Retail vehicle gross profit per unit is our aggregate retail vehicle gross profit in any measurement period divided by the number of retail units sold in that period.
Wholesale Gross Profit
Wholesale gross profit is the vehicle sales price minus our cost of sales associated with vehicles we sell to wholesalers, and wholesale marketplace revenues less wholesale marketplace cost of sales. Factors affecting wholesale gross profit include the number of wholesale units sold, the average wholesale selling price of these vehicles, the average acquisition price associated with these vehicles, the buyer and seller fees, and the number of wholesale marketplace units sold.
Other Gross Profit
Other sales and revenues consist of 100% gross margin products for which gross profit equals revenue. Therefore, changes in gross profit and the associated drivers are identical to changes in revenues from these products and the associated drivers.
Selling, General and Administrative Expenses
SG&A expenses include expenses associated with advertising and providing customer service to customers, operating our vending machines, hubs, physical auctions, logistics and fulfillment network and other corporate overhead expenses, including expenses associated with information technology, product development, engineering, legal, accounting, finance, and business development. SG&A expenses exclude the costs of inspecting and reconditioning vehicles and transporting vehicles from the point of acquisition to the IRC, which are included in cost of sales, and payroll costs for our employees related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.
Other Operating Expense, Net
Other operating expense, net primarily includes other general operating expenses such as gains or losses from disposals of long-lived assets.
Interest Expense
Interest expense includes interest incurred on our various tranches of Senior Secured Notes and Senior Unsecured Notes, our Floor Plan Facility, and our Finance Receivable Facilities (each as defined in Note 9 — Debt Instruments of our financial statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q), as well as our notes payable, finance leases, and long-term debt, which are used to fund general working capital, our inventory, our transportation fleet, and certain of our property and equipment. Interest expense also includes amortization of capitalized debt issuance costs, which is offset by amortization of debt premium and interest income earned on cash and cash equivalents. Interest expense excludes the interest incurred during various construction projects to build, upgrade or remodel certain facilities, which is capitalized to property and equipment and depreciated over the estimated useful lives of the related assets.
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Other Income, Net
Other income, net includes changes in fair value on our beneficial interests in securitizations, purchase price adjustment receivables, and fair value adjustments related to our Root Warrants as discussed in Note 17 — Fair Value of Financial Instruments of our financial statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.
Income Tax Benefit
Income taxes are recognized based upon our anticipated underlying annual blended federal and state income tax rates adjusted, as necessary, for any discrete tax matters occurring during the period. As the sole managing member of Carvana Group, LLC (together with its subsidiaries “Carvana Group”), Carvana Co. consolidates the financial results of Carvana Group. Carvana Group, LLC is treated as a partnership and therefore not subject to U.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated by Carvana Group is passed through to and included in the taxable income or loss of its members, including Carvana Co., based on its economic interest held in Carvana Group. Carvana Co. is taxed as a corporation and is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of Carvana Group, as well as any stand-alone income or loss generated by Carvana Co.
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Results of Operations
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| (dollars in millions, except per unit amounts) | |||||||||||||||||||||||||||||||||||
| Net sales and operating revenues: | |||||||||||||||||||||||||||||||||||
| Retail vehicle sales, net | $ | 2,175 | $ | 1,827 | 19.0% | ||||||||||||||||||||||||||||||
Wholesale sales and revenues (1) | 657 | 618 | 6.3% | ||||||||||||||||||||||||||||||||
Other sales and revenues (2) | 229 | 161 | 42.2% | ||||||||||||||||||||||||||||||||
| Total net sales and operating revenues | $ | 3,061 | $ | 2,606 | 17.5% | ||||||||||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||||||||||||||
Retail vehicle gross profit | $ | 283 | $ | 110 | 157.3% | ||||||||||||||||||||||||||||||
Wholesale gross profit (1) | 79 | 70 | 12.9% | ||||||||||||||||||||||||||||||||
Other gross profit (2) | 229 | 161 | 42.2% | ||||||||||||||||||||||||||||||||
| Total gross profit | $ | 591 | $ | 341 | 73.3% | ||||||||||||||||||||||||||||||
| Unit sales information: | |||||||||||||||||||||||||||||||||||
| Retail vehicle unit sales | 91,878 | 79,240 | 15.9% | ||||||||||||||||||||||||||||||||
| Wholesale vehicle unit sales | 44,155 | 35,110 | 25.8% | ||||||||||||||||||||||||||||||||
| Per unit selling prices: | |||||||||||||||||||||||||||||||||||
| Retail vehicles | $ | 23,673 | $ | 23,056 | 2.7% | ||||||||||||||||||||||||||||||
Wholesale vehicles (3) | $ | 9,625 | $ | 11,592 | (17.0)% | ||||||||||||||||||||||||||||||
| Per retail unit gross profit: | |||||||||||||||||||||||||||||||||||
Retail vehicle gross profit | $ | 3,080 | $ | 1,388 | 121.9% | ||||||||||||||||||||||||||||||
| Wholesale gross profit | 860 | 883 | (2.6)% | ||||||||||||||||||||||||||||||||
| Other gross profit | 2,492 | 2,032 | 22.6% | ||||||||||||||||||||||||||||||||
| Total gross profit | $ | 6,432 | $ | 4,303 | 49.5% | ||||||||||||||||||||||||||||||
| Per wholesale unit gross profit: | |||||||||||||||||||||||||||||||||||
Wholesale vehicle gross profit (4) | $ | 1,042 | $ | 1,253 | (16.8)% | ||||||||||||||||||||||||||||||
Wholesale marketplace: | |||||||||||||||||||||||||||||||||||
| Wholesale marketplace units sold | 242,647 | 213,764 | 13.5% | ||||||||||||||||||||||||||||||||
| Wholesale marketplace revenues | $ | 232 | $ | 211 | 10.0% | ||||||||||||||||||||||||||||||
Wholesale marketplace gross profit (5) | $ | 33 | $ | 26 | 26.9% | ||||||||||||||||||||||||||||||
(1) Includes $7 and $5, respectively, of wholesale sales and revenues from related parties.
(2) Includes $42 and $36, respectively, of other sales and revenues from related parties.
(3) Excludes wholesale marketplace revenues and wholesale marketplace units sold.
(4) Excludes wholesale marketplace gross profit and wholesale marketplace units sold.
(5) Includes $25 and $26, respectively, of depreciation and amortization expense.
Retail Vehicle Sales
Retail vehicle sales increased by $348 million to $2.2 billion during the three months ended March 31, 2024, compared to $1.8 billion during the three months ended March 31, 2023. The increase in revenue was primarily due to an increase in the number of retail vehicles sold to 91,878 from 79,240 during the three months ended March 31, 2024 and 2023, respectively. Additionally, the average selling price of our retail units sold increased to $23,673 in the three months ended March 31, 2024
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from $23,056 in the prior year, due primarily to improvements in turn times offset by overall depreciation in the used vehicle market compared to the three months ended March 31, 2023.
Wholesale Sales and Revenues
Wholesale sales and revenues increased by $39 million to $657 million during the three months ended March 31, 2024, compared to $618 million during the three months ended March 31, 2023. Wholesale marketplace revenues were higher during the three months ended March 31, 2024 at $232 million, compared to $211 million during the three months ended March 31, 2023, primarily due to an increase in the number of wholesale marketplace units sold to 242,647 from 213,764 during the three months ended March 31, 2024 and 2023, respectively. Additionally, there was an increase in the number of wholesale units sold that were acquired from customers on our website to 44,155 from 35,110 during the three months ended March 31, 2024 and 2023, respectively.
Other Sales and Revenues
Other sales and revenues increased by $68 million to $229 million during the three months ended March 31, 2024, compared to $161 million during the three months ended March 31, 2023. The increase was primarily due to an increase in gain on loan sales as a result of a more normalized level of loan sales, higher loan sale pricing, and increased retail units sold during the three months ended March 31, 2024, partially offset by lower interest income due to lower levels of finance receivables held for sale.
Retail Vehicle Gross Profit
Retail vehicle gross profit increased by $173 million to $283 million during the three months ended March 31, 2024, compared to $110 million during the three months ended March 31, 2023. This increase was driven primarily by an increase in retail vehicle gross profit per unit to $3,080 for the three months ended March 31, 2024, compared to $1,388 for the three months ended March 31, 2023. The per unit increase was primarily driven by lower average days to sale, lower vehicle acquisition costs, and lower reconditioning and inbound transport costs on retail vehicles sold during the three months ended March 31, 2024.
Wholesale Gross Profit
Wholesale gross profit increased by $9 million to $79 million during the three months ended March 31, 2024, compared to $70 million during the three months ended March 31, 2023. This increase was primarily driven by an increase in wholesale marketplace gross profit by $7 million to $33 million during the three months ended March 31, 2024, compared to $26 million for the three months ended March 31, 2023. Additionally, the increase was driven by an increase in wholesale units sold to 44,155 from 35,110 for the three months ended March 31, 2024 and 2023, respectively, partially offset by a decrease in wholesale vehicle gross profit per wholesale unit to $1,042 from $1,253, respectively. The increase in wholesale units sold was primarily a result of an increase in overall vehicle acquisitions during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease in wholesale vehicle gross profit per wholesale unit was primarily a result of higher depreciation in the wholesale vehicle market during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Other Gross Profit
Other sales and revenues consist of 100% gross margin products for which gross profit equals revenue. Therefore, changes in other gross profit and the associated drivers are identical to changes in other sales and revenues and the associated drivers.
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Components of SG&A
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Compensation and benefits (1) | $ | 173 | $ | 176 | |||||||||||||||||||
| Advertising | 54 | 56 | |||||||||||||||||||||
Market occupancy (2) | 18 | 21 | |||||||||||||||||||||
Logistics (3) | 29 | 35 | |||||||||||||||||||||
Other (4) | 182 | 184 | |||||||||||||||||||||
| Total | $ | 456 | $ | 472 | |||||||||||||||||||
(1) Compensation and benefits includes all payroll and related costs, including benefits, payroll taxes, and equity-based compensation, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.
(2) Market occupancy costs includes occupancy costs of our vending machine and hubs. It excludes occupancy costs related to reconditioning vehicles which are included in cost of sales and the portion related to corporate occupancy which are included in other costs.
(3) Logistics includes fuel, maintenance and depreciation related to operating our own transportation fleet, and third-party transportation fees, except the portion related to inbound transportation, which is included in cost of sales.
(4) Other costs include all other selling, general and administrative expenses such as IT expenses, corporate occupancy, professional services and insurance, limited warranty, and title and registration.
Selling, general and administrative expenses decreased by $16 million to $456 million during the three months ended March 31, 2024, compared to $472 million during the three months ended March 31, 2023. Starting in 2022, we implemented a number of profitability initiatives to reduce selling, general and administrative expenses and drive the Company towards profitability. These initiatives included reducing our employee headcount, reducing our real estate spend, and improving the targeting of our advertising spend, among other actions. These reductions were partially offset by the increase in retail units sold which contributed to an increase primarily in other selling, general and administrative expenses.
Other Operating Expense, Net
Other operating expense, net was $1 million of expense during each of the three months ended March 31, 2024 and 2023.
Interest Expense
Interest expense increased by $14 million to $173 million during the three months ended March 31, 2024 compared to $159 million during the three months ended March 31, 2023, primarily due to increased PIK interest on the Senior Secured Notes.
Other Income, Net
Other income, net increased by $84 million to income of $87 million during the three months ended March 31, 2024 compared to income of $3 million during the three months ended March 31, 2023. The increase was due to a $75 million increase in the fair value of our Root Warrants and $9 million increase in the fair value of our beneficial interests in securitizations during the three months ended March 31, 2024.
Income Tax Benefit
Income tax benefit decreased to a $1 million benefit during the three months ended March 31, 2024 compared to a $2 million benefit during the three months ended March 31, 2023.
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Non-GAAP Financial Measures
To supplement the unaudited condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we also present the following non-GAAP measures: Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A expenses, non-GAAP; and Total SG&A expenses per retail unit, non-GAAP.
Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A expenses, non-GAAP; and Total SG&A expenses per retail unit, non-GAAP
Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A expenses, non-GAAP; and Total SG&A expenses per retail unit, non-GAAP are supplemental measures of operating performance that do not represent and should not be considered an alternative to net income (loss), gross profit, or SG&A expenses, as determined by GAAP.
Adjusted EBITDA is defined as net income (loss) plus income tax provision (benefit), interest expense, other operating expense (income), net, other expense (income), net, depreciation and amortization expense in cost of sales and SG&A expenses, goodwill impairment, share-based compensation expense in cost of sales and SG&A expenses, and restructuring expense in cost of sales and SG&A expenses, minus revenue related to our Root Warrants and gain on debt extinguishment. Adjusted EBITDA margin is Adjusted EBITDA as a percentage of total revenues.
Gross profit, non-GAAP is defined as GAAP gross profit plus depreciation and amortization expense in cost of sales, share-based compensation expense in cost of sales, and restructuring expense in cost of sales, minus revenue related to our Root Warrants. Total gross profit per retail unit, non-GAAP is Gross profit, non-GAAP divided by retail vehicle unit sales.
SG&A expenses, non-GAAP is defined as GAAP SG&A expenses minus depreciation and amortization expense in SG&A expenses, share-based compensation expense in SG&A expenses, and restructuring expense in SG&A expenses. Total SG&A expenses per retail unit, non-GAAP is SG&A expenses, non-GAAP divided by retail vehicle unit sales.
We use these non-GAAP measures to measure the operating performance of our business as a whole and relative to our total revenues and retail vehicle unit sales. We believe that these metrics are useful measures to us and to our investors because they exclude certain financial, capital structure, and non-cash items that we do not believe directly reflect our core operations and may not be indicative of our recurring operations, in part because they may vary widely across time and within our industry independent of the performance of our core operations. We believe that excluding these items enables us to more effectively evaluate our performance period-over-period and relative to our competitors. Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A expenses, non-GAAP; and Total SG&A expenses per retail unit, non-GAAP may not be comparable to similarly titled measures provided by other companies due to potential differences in methods of calculations.
A reconciliation of Adjusted EBITDA to net income (loss), Gross profit, non-GAAP to gross profit, and SG&A expenses, non-GAAP to SG&A expenses, which are the most directly comparable GAAP measures, and calculations of Adjusted EBITDA margin, Total gross profit per retail unit, non-GAAP, and Total SG&A expenses per retail unit, non-GAAP is as follows:
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| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
(dollars in millions, except per unit amounts) | |||||||||||||||||||||||
| Net income (loss) | $ | 49 | $ | (286) | |||||||||||||||||||
| Income tax benefit | (1) | (2) | |||||||||||||||||||||
| Interest expense | 173 | 159 | |||||||||||||||||||||
| Other operating expense, net | 1 | 1 | |||||||||||||||||||||
| Other income, net | (87) | (3) | |||||||||||||||||||||
| Depreciation and amortization expense in cost of sales | 39 | 44 | |||||||||||||||||||||
| Depreciation and amortization expense in SG&A expenses | 43 | 49 | |||||||||||||||||||||
| Share-based compensation expense in SG&A expenses | 23 | 15 | |||||||||||||||||||||
| Root warrant revenue | (5) | (5) | |||||||||||||||||||||
Restructuring expense | — | 4 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 235 | $ | (24) | |||||||||||||||||||
| Total revenues | $ | 3,061 | $ | 2,606 | |||||||||||||||||||
| Net income (loss) margin | 1.6 | % | (11.0) | % | |||||||||||||||||||
| Adjusted EBITDA margin | 7.7 | % | (0.9) | % | |||||||||||||||||||
| Gross profit | $ | 591 | $ | 341 | |||||||||||||||||||
| Depreciation and amortization expense in cost of sales | 39 | 44 | |||||||||||||||||||||
| Root warrant revenue | (5) | (5) | |||||||||||||||||||||
| Gross profit, non-GAAP | $ | 625 | $ | 380 | |||||||||||||||||||
| Retail vehicle unit sales | 91,878 | 79,240 | |||||||||||||||||||||
| Total gross profit per retail unit | $ | 6,432 | $ | 4,303 | |||||||||||||||||||
| Total gross profit per retail unit, non-GAAP | $ | 6,802 | $ | 4,796 | |||||||||||||||||||
| SG&A expenses | $ | 456 | $ | 472 | |||||||||||||||||||
| Depreciation and amortization expense in SG&A expenses | 43 | 49 | |||||||||||||||||||||
| Share-based compensation expense in SG&A expenses | 23 | 15 | |||||||||||||||||||||
| Restructuring expense in SG&A expenses | — | 4 | |||||||||||||||||||||
| SG&A expenses, non-GAAP | $ | 390 | $ | 404 | |||||||||||||||||||
| Retail vehicle unit sales | 91,878 | 79,240 | |||||||||||||||||||||
| Total SG&A expenses per retail unit | $ | 4,963 | $ | 5,957 | |||||||||||||||||||
| Total SG&A expenses per retail unit, non-GAAP | $ | 4,245 | $ | 5,098 | |||||||||||||||||||
Liquidity and Capital Resources
General
We generate cash from the sale of retail vehicles, wholesale vehicles, loans we originate, and ancillary products such as VSCs and GAP waiver coverage. We generate additional cash flows through our financing activities including our short-term revolving inventory and finance receivable facilities and real estate and equipment financing, the issuance of long-term notes
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and new issuances of equity. Historically, cash generated from financing activities has funded growth and expansion into new markets and strategic initiatives and we expect this to continue in the future.
In response to the macroeconomic environment in 2022 through 2024, we increased focus on driving profitability through initiatives to better conform our expense structure to unit volume levels. We expect to continue focus on these profitability initiatives as we return to growth in the future. We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months.
Our ability to service our debt and fund working capital, capital expenditures, and business development efforts in the long-term will depend on our ability to generate cash from operating and financing activities, which is subject to our future operating performance, as well as to general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our future capital requirements will depend on many factors, including our ability to refinance indebtedness, our ability to obtain supplemental liquidity through debt, equity, including the issuance of equity pursuant to our "at-the-market offering" program, strategic relationships or other arrangements on terms available or acceptable to us, our rate of revenue growth, our construction of IRCs and vending machines, the timing and extent of our spending to support our technology and software development efforts, our advertising spend, and increased population coverage. If we need to obtain supplemental liquidity, there can be no assurance that financing alternatives will be available in sufficient amounts or on terms acceptable to us in the future.
Finally, subject to the restrictions in the indentures governing the Senior Secured Notes, we or our affiliates may, at any time, and from time to time, repurchase portions of our Class A common stock, our Senior Unsecured Notes, our Senior Secured Notes, or any other securities we may issue, from time to time, in open market transactions, privately negotiated transactions, in exchange for property or other securities or otherwise. Any repurchase decisions will be made after consideration of market conditions and liquidity needs and will be upon such terms and at such prices as we determine appropriate. However, there is no guarantee that a repurchase will take place.
Liquidity Resources
We had the following committed liquidity resources, secured debt capacity, and other unpledged assets available as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Cash and cash equivalents | $ | 252 | $ | 530 | |||||||
Availability under short-term revolving facilities (1) | 1,407 | 1,006 | |||||||||
| Committed liquidity resources available | $ | 1,659 | $ | 1,536 | |||||||
| Super senior debt capacity | 1,262 | 1,262 | |||||||||
| Pari passu senior debt capacity | 250 | 250 | |||||||||
| Unpledged beneficial interests in securitizations | 88 | 80 | |||||||||
| Total liquidity resources | $ | 3,259 | $ | 3,128 | |||||||
(1) Based on pledging all eligible vehicles and finance receivables under the Floor Plan Facility and Finance Receivables Facilities, excluding the impact to restricted cash requirements.
Our total liquidity resources are composed of cash and cash equivalents, availability under existing credit facilities, additional capacity under the indentures governing our Senior Secured Notes, which allow us to incur additional debt that can be senior or pari passu in lien priority as to the collateral securing the obligations under the Senior Secured Notes, and additional unpledged securities that can be financed using traditional asset-based financing sources.
Cash and cash equivalents includes cash deposits and highly liquid investment instruments with original maturities of three months or less, such as money market funds.
Availability under short-term revolving facilities is the available amount we can borrow under the Floor Plan Facility and Finance Receivable Facilities based on the pledgeable value of vehicle inventory and finance receivables on our balance sheet on the period end date. Availability under short-term revolving facilities is distinct from the total commitment amount of these
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facilities because it represents the currently borrowable amount, rather than committed future amounts that could be borrowed to finance future additional assets. Effective November 1, 2023, we amended our vehicle inventory Floor Plan Facility to resize the line of credit to $1.5 billion through April 30, 2025.
As of March 31, 2024 and December 31, 2023, the short-term revolving facilities had a total commitment of $4.2 billion each, an outstanding balance of $275 million and $668 million, and unused capacity of $3.9 billion and $3.5 billion, respectively.
Super senior debt capacity and pari passu senior debt capacity represents basket capacity to incur additional debt that could be senior or pari passu in lien priority to the collateral securing the obligations under the Senior Secured Notes, subject to the terms and conditions set forth in the indentures governing the Senior Secured Notes. The availability of such additional sources depends on many factors and there can be no assurance that financing alternatives will be available to us in the future.
Unpledged beneficial interests in securitizations includes retained beneficial interests in securitizations that have not been previously pledged or sold. We historically have financed the majority of our retained beneficial interests in securitizations and expect to continue to do so in the future.
Additionally, in January 2024, we amended our Master Purchase and Sale Agreement to, among other things, reestablish the commitment by the purchaser to purchase up to $4.0 billion of principal balances of finance receivables between January 11, 2024 and January 10, 2025.
To optimize our cost of capital, in any given period we may choose not to maximize borrowings on our short-term revolving facilities, maximize revolving commitment size, or immediately sale-leaseback real estate, and we may also choose to retain beneficial interests in securitizations for varying amounts of time. This has the benefit of reducing interest expense and debt issuance costs and providing flexibility to minimize financing costs over time.
We consider our total liquidity resources as an input into our planning. In general, changes in total liquidity resources fall into two broad categories: changes due to current business operations and changes due to investments in automotive retail assets.
Changes in liquidity due to current business operations include Adjusted EBITDA, non-real estate capital expenditures, including technology, furniture, fixtures, and equipment, and changes in traditional working capital, including accounts receivable, accounts payable, accrued expenses, and other miscellaneous assets and liabilities.
In the ordinary course of business, we sponsor and engage in securitization transactions to sell our finance receivables to a diverse pool of investors. These securitizations involve unconsolidated variable interest entities in which we retain at least 5% of the credit risk of the underlying finance receivable by holding at least 5% of the notes and certificates issued by these entities. We are exposed to market risk in the securitization market. See Note 8 — Securitizations and Variable Interest Entities, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, for further discussion regarding our transactions with unconsolidated variable interest entities.
In addition we also invest in and generate several types of assets, including vehicle inventory, finance receivables, retained beneficial interests in securitizations, and real estate. To maximize capital efficiency, we generally seek to finance these assets with matched sources of asset-based financing, including short-term revolving facilities for vehicle inventory and finance receivables, beneficial interests financing for retained beneficial interests in securitizations, and sale-leaseback or other real estate financing for IRCs and vending machines. We have historically used these sources of financing to finance our investment in these assets and expect to continue to do so in the future.
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As of March 31, 2024 and December 31, 2023, our outstanding principal amount of indebtedness was $5.8 billion and $6.0 billion, respectively, summarized in the table below. See Note 9 — Debt Instruments included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q for further information on our debt.
| March 31, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Asset-Based Financing: | |||||||||||
| Floor plan facility | $ | 103 | $ | 113 | |||||||
| Finance receivable facilities | 172 | 555 | |||||||||
| Financing of beneficial interests in securitizations | 306 | 293 | |||||||||
| Real estate financing | 485 | 485 | |||||||||
| Total asset-based financing | 1,066 | 1,446 | |||||||||
Senior Secured Notes (1) | 4,520 | 4,378 | |||||||||
| Senior Unsecured Notes | 205 | 205 | |||||||||
| Total debt | 5,791 | 6,029 | |||||||||
| Less: current portion | (390) | (777) | |||||||||
Less: unamortized debt issuance costs (2) | (57) | (60) | |||||||||
Plus: unamortized premium (3) | 35 | 37 | |||||||||
| Total included in long-term debt, net | $ | 5,379 | $ | 5,229 | |||||||
1) Includes $75 million and $185 million of accrued PIK interest as of March 31, 2024 and December 31, 2023, respectively. Accrued PIK interest increases the principal amount of Senior Secured Notes on each semi-annual interest payment date.
(2) The unamortized debt issuance costs related to long-term debt are presented as a reduction of the carrying amount of the corresponding liabilities on the accompanying unaudited condensed consolidated balance sheets. Unamortized debt issuance costs related to revolving debt arrangements are presented within other assets on the accompanying unaudited condensed consolidated balance sheets and not included here.
(3) The unamortized premium relates to a portion of the notes exchange offers completed in September 2023 which were accounted for as a debt modification.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 101 | $ | (66) | |||||||
| Net cash provided by (used in) investing activities | 7 | (19) | |||||||||
| Net cash (used in) provided by financing activities | (375) | 151 | |||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (267) | 66 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 594 | 628 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 327 | $ | 694 | |||||||
Operating Activities
Our primary sources of operating cash flows result from the sales of retail vehicles, wholesale vehicles, loans we originate, and ancillary products. Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, and cash used to acquire customers. Cash provided by operating activities was $101 million during the three months ended March 31, 2024 and cash used in operating activities was $66 million during the three months ended March 31, 2023, an increase in cash provided by operating activities of $167 million, primarily due to normalized sales of finance receivables
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during the three months ended March 31, 2024, a reduction in interest paid due to PIK interest on the Senior Secured Notes, and reduced selling, general and administrative expenses and reconditioning costs due to our profitability initiatives, partially offset by increased vehicle inventory acquisitions.
Investing Activities
Our primary use of cash for investing activities is purchases of property and equipment. Cash provided by investing activities was $7 million during the three months ended March 31, 2024 and cash used in investing activities was $19 million during the three months ended March 31, 2023, a decrease in cash used in investing activities of $26 million, primarily driven by decreased purchases of property and equipment as part of our effort to align our capital expenditures to current volumes along with increased principal payments received on and proceeds from the sale of beneficial interests in securitizations.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term debt activity, including proceeds from and payments on our short-term revolving facilities. Cash used in financing activities was $375 million during the three months ended March 31, 2024 and cash provided by financing activities was $151 million during the three months ended March 31, 2023, a decrease in cash provided by financing activities of $526 million. The change primarily relates to higher payments on short-term revolving facilities relative to borrowings.
Contractual Obligations and Commitments
As of March 31, 2024, there have been no material changes to the contractual obligations or commitments previously disclosed in our most recent Annual Report on Form 10-K, filed February 22, 2024.
Fair Value Measurements
We report money market securities, certain receivables, the Root Warrants and beneficial interests in securitizations at fair value. See Note 17 — Fair Value of Financial Instruments, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our most recent Annual Report on Form 10-K, filed on February 22, 2024.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as "anticipate," "believe," "envision," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "ongoing," "contemplate," and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:
•short-term and long-term liquidity;
•expectations relating to the automotive market and our industry;
•macroeconomic conditions, economic slowdowns or recessions;
•future financial position;
•business strategy;
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•operational efficiency;
•efficiency gains and opportunities to improve our results, including opportunities to increase our margins and reduce our expenses;
•normalization of inventory;
•benefits from new technology;
•long-term financial goals and growth opportunities;
•budgets, projected costs, and plans;
•future industry growth;
•financing sources;
•potential sales of our Class A common stock, including through use of the at-the-market program;
•the impact of litigation, government inquiries, and investigations; and
•all other statements regarding our intent, plans, beliefs, or expectations or those of our directors or officers.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, the following:
•the impact on our business from the larger automotive ecosystem, including consumer demand, global supply chain challenges, and other macroeconomic issues;
•our ability to utilize our available infrastructure capacity and realize the expected benefits therefrom, including increased margins and lower expenses;
•our ability to scale up our business;
•our ability to raise additional capital, the quality of the financial markets, and our substantial indebtedness;
•the restrictions that could limit the flexibility in operating our business imposed by the covenants contained in the indentures governing our Senior Secured Notes and indentures governing future debt securities;
•the volatility of the trading price of our Class A common stock, including as a result of the use of the at-the-market program or the issuance of other equity, such as the issuance of Class A LLC Units;
•our history of losses and ability to maintain profitability in the future;
•our ability to effectively manage our historical rapid growth;
•our ability to maintain customer service quality and reputational integrity and enhance our brand;
•the seasonal and other fluctuations in our quarterly operating results;
•our relationship with DriveTime and its affiliates;
•our ability to compete in the highly competitive industry in which we participate;
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•the changes in prices of new and used vehicles;
•our ability to acquire desirable inventory;
•our ability to sell our inventory expeditiously;
•our access to structured finance, securitization, or derivative markets at competitive rates and in sufficient amounts;
•our dependence on the sale of automotive finance receivables for a substantial portion of our gross profits;
•our exposure to credit losses and prepayments on our interests in automotive finance receivables;
•our reliance on credit data for the automotive finance receivables we sell;
•our ability to successfully market and brand our business;
•our reliance on internet searches to drive traffic to our website and mobile application;
•our ability to comply with the laws and regulations to which we are subject;
•the changes in the laws and regulations to which we are subject;
•our ability to comply with the Telephone Consumer Protection Act of 1991;
•the evolution of regulation of the internet and e-commerce;
•our ability to grow complementary product and service offerings;
•our ability to obtain affordable inventory insurance;
•our ability to maintain adequate relationships with the lenders that finance our vehicle inventory purchases;
•errors in contracts with customers;
•our reliance on our proprietary credit scoring model in the forecasting of loss rates;
•our reliance on internal and external logistics to transport our vehicle inventory;
•our ability to protect the personal information and other data that we collect, process, and store;
•disruptions in availability and functionality of our website and mobile application;
•our ability to protect our intellectual property, technology, and confidential information;
•our ability to comply with the terms of open source licenses;
•conditions affecting automotive manufacturers, including manufacturer recalls and strikes;
•risks associated with the construction and operation of our IRCs, hubs, vending machines, and auction sites;
•our dependence on key personnel to operate our business;
•our minority equity investment in Root, Inc.;
•the diversion of management's attention and other disruptions associated with potential future acquisitions and strategic initiatives;
•the legal proceedings to which we may be subject in the ordinary course of business;
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•risks relating to our corporate structure and tax receivable agreements;
•risks relating to our Section 382 Tax Asset Preservation Plan;
•our management’s accounting judgments and estimates, as well as changes to accounting policies; and
•other factors disclosed in the section titled "Risk Factors" in our most recent Annual Report on Form 10-K and other filings we make with the Securities and Exchange Commission.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our quantitative and qualitative disclosures about market risk from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our most recent Annual Report on Form 10-K, filed on February 22, 2024.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal controls over financial reporting that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims, legal actions, and government inquiries that arise in the ordinary course of business. Although the results of litigation, claims, and inquiries cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity and capital resources.
Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. The results of any current or future litigation or government inquiries cannot be predicted with certainty, and regardless of the outcome, litigation and government inquiries can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. For more information, see “Legal Matters” in Note 16 — Commitments and Contingencies, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed under the heading "Risk Factors" in our most recent Annual Report on Form 10-K, filed on February 22, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the three months ended March 31, 2024, pursuant to the terms of the Exchange Agreement entered into in connection with our IPO, certain LLC Unitholders exchanged less than 0.1 million LLC Units for less than 0.1 million newly issued shares of Class A common stock. These shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On March 14, 2024 , Gregory Sullivan , a member of the Company's board of directors , entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (a "10b5-1 Plan"). Mr. Sullivan's 10b5-1 Plan provides for the potential sale of up to 5,000 shares of Class A common stock between the first potential sale date on June 13, 2024 and the expiration of the 10b5-1 Plan on May 31, 2025.
On March 15, 2024 , Tom Taira , the Company's President of Special Products , entered into a 10b5-1 Plan . Mr. Taira's 10b5-1 Plan provides for the potential sale of up to 133,556 shares of Class A common stock, including shares obtained from the exercise of vested stock options covered by the 10b5-1 Plan, between the first potential sale date on June 14, 2024 and the expiration of the 10b5-1 Plan on December 31, 2025.
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ITEM 6. EXHIBITS
| Exhibit No. | Description | |||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||
*Certain portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K. The registrant agrees to furnish supplementally an unredacted copy of this exhibit to the Securities and Exchange Commission upon its request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: | May 1, 2024 | Carvana Co. | ||||||||||||
| (Registrant) | ||||||||||||||
| By: | /s/ Mark Jenkins | |||||||||||||
| Mark Jenkins | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| (On behalf of the Registrant and as Principal Financial Officer) | ||||||||||||||
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Exhibit 10.2
AMENDMENT TO FIFTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
This Amendment (this “Amendment”) to the FIFTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (the “LLC Agreement”) of Carvana Group, LLC, a Delaware limited liability company (the “Company”), is entered into as of March 4, 2024, by Carvana Co. Sub LLC, a Delaware limited liability company (the “Manager”).
WHEREAS, pursuant to Section 11.2 of the LLC Agreement, the LLC Agreement may be amended by the Manager; and
WHEREAS, the undersigned Manager desires to amend the LLC Agreement pursuant to the terms and provisions of this Amendment.
NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the parties hereto hereby agree as follows:
1.Definitions. Terms capitalized herein and not otherwise defined herein shall have the meanings ascribed to such terms in the LLC Agreement, as amended hereby.
2.Amendment to LLC Agreement.
a.Article I of the LLC Agreement is hereby amended to insert the following definitions in the appropriate alphabetic location therein to read in their entirety as follows:
“Net Loss” means, with respect to a Fiscal Year, the excess if any, of Losses for such Fiscal Year over Profits for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 4.3 and Section 4.4).
“Net Profit” means, with respect to a Fiscal Year, the excess if any, of Profits for such Fiscal Year over Losses for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 4.3 and Section 4.4).
b.Section 4.2 of the LLC Agreement is hereby amended by amending and restating Section Section 4.2 to read in its entirety as follows:
“Section 4.2 Allocations. Net Profits or Net Losses for any Fiscal Year shall be allocated among the Unitholders in such a manner as to reduce or eliminate, to the extent possible, any difference, as of the end of such Fiscal Year, between (a) the sum of (i) the Capital Account of each Unitholder, (ii) such Unitholder’s share of Minimum Gain (as determined according to Treasury Regulation Section 1.704-2(g)) and (iii) such Unitholder’s partner nonrecourse debt minimum gain (as defined in Treasury Regulation Section 1.704-2(i)(2)) and (b) the respective net amounts, positive or negative, which would be distributed to them or for which they would be liable to the Company under this Agreement and the Delaware Act, determined as if
the Company were to (i) liquidate the assets of the Company for an amount equal to their Book Value and (ii) distribute the proceeds of such liquidation pursuant to Section 10.2. For purposes of allocating Net Profits and Net Losses pursuant to this Section 4.2, (and Profits and Losses pursuant to Section 4.3 and Section 4.4, to the extent applicable), all outstanding Class B Common Units shall be treated as vested; provided that, in the event that a Unitholder’s Unvested Class B Common Units are forfeited or repurchased, Forfeiture Allocations as described in Section 4.3(f) may, in the discretion of the Manager, be made.”
3.General.
a.Reference to LLC Agreement. Upon the effectiveness of this Amendment, each reference in the LLC Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import shall mean and be a reference to the LLC Agreement, as amended hereby. Except as expressly provided herein, the LLC Agreement shall remain in full force and effect and is hereby ratified and confirmed.
b.Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the Members and their respective successors and assigns.
c.Governing Law. This Amendment shall be construed in accordance with and be enforced and governed by the internal laws of the State of Delaware, without regard to choice of law or conflicts of law principles.
d.Counterparts; Electronic Signature. This Amendment may be executed in one or more counterparts, each of which taken together shall constitute one and the same instrument. A fax or electronic signature hereto (including .pdf) shall be as legally binding as a signed original for all purposes.
[Signature pages follow.]
IN WITNESS HEREOF, the undersigned has executed this Amendment to Fifth Amended and Restated Limited Liability Company Agreement of Carvana Group, LLC, effective as of the date first written above.
MANAGER:
CARVANA CO. SUB LLC
By: /s/ Paul Breaux
Name: Paul Breaux
Its: Vice President and Secretary
Exhibit 31.1
Certification of the Chief Executive Officer
Pursuant to Rule 13a-14(a)
I, Ernest Garcia, III, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Carvana Co.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: | May 1, 2024 | /s/ Ernest C. Garcia, III | |||||||||
Ernest C. Garcia, III | |||||||||||
Chairman and Chief Executive Officer | |||||||||||
Exhibit 31.2
Certification of the Chief Financial Officer
Pursuant to Rule 13a-14(a)
I, Mark Jenkins, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Carvana Co.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: | May 1, 2024 | /s/ Mark Jenkins | |||||||||
Mark Jenkins | |||||||||||
Chief Financial Officer | |||||||||||
Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to Rule 18 U.S.C. Section 1350
In connection with the Quarterly Report on Form 10-Q of Carvana Co. (the “Company”) for the quarter ended March 31, 2024, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Ernest Garcia, III, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: | May 1, 2024 | /s/ Ernest C. Garcia, III | |||||||||
Ernest C. Garcia, III | |||||||||||
Chairman and Chief Executive Officer | |||||||||||
Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to Rule18 U.S.C. Section 1350
In connection with the Quarterly Report on Form 10-Q of Carvana Co. (the “Company”) for the quarter ended March 31, 2024, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Mark Jenkins, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: | May 1, 2024 | /s/ Mark Jenkins | |||||||||
Mark Jenkins | |||||||||||
Chief Financial Officer | |||||||||||