Carvana Co. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Carvana operates an online used-car buying and selling platform, with vehicle sales, financing, wholesale sales, and ancillary products as principal revenue sources.
Financial performance and key metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $5.587 billion | $3.940 billion |
| Gross profit | $793.8 million; 14.2% of revenue | $506.4 million; 12.9% of revenue |
| Net loss | $462.2 million | $364.6 million |
| Net loss per Class A share | $2.63 | $2.45 |
| EBITDA, non-GAAP | $(257.2) million; (4.6)% margin | $(242.8) million; (6.2)% margin |
| Cash used in operating activities | $608.4 million | $757.1 million |
| Cash used in investing activities | $345.9 million | $227.7 million |
| Cash provided by financing activities | $1.165 billion | $1.015 billion |
- Revenue rose 41.8%, while retail units sold increased 37.5% to 244,111. Retail vehicle sales were $4.741 billion; wholesale sales were $445.2 million; other sales and revenues were $400.7 million.
- Total gross profit per retail unit increased 14.0% to $3,252. Used-vehicle gross profit per unit was $1,472; wholesale gross profit per unit was $610.
- SG&A increased to $1.126 billion from $786.7 million, including $286.4 million of advertising versus $204.0 million. Interest expense rose to $131.5 million from $80.6 million, including $33.7 million of debt-extinguishment costs.
- At year-end, cash and cash equivalents were $300.8 million, restricted cash was $28.3 million, and total assets were $3.035 billion. Vehicle inventory was $1.036 billion.
- Year-end debt principal, including finance leases, was approximately $1.744 billion ($1.722 billion net carrying amount). This included $1.1 billion of senior notes, $39.8 million drawn on short-term revolving facilities, and asset-based and real-estate financing.
- The company reported $1.408 billion of committed liquidity resources available, including cash and availability under revolving and sale-leaseback arrangements. It separately reported approximately $2.2 billion of unused short-term revolving capacity; availability depends on eligible collateral and facility terms.
- Q4 2020: Revenue was $1.826 billion, gross profit $243.9 million, and net loss $154.6 million. Q4 2019 revenue was $1.104 billion and net loss was $125.7 million.
Material changes versus the prior comparable period
- Revenue and retail volume grew substantially as Carvana expanded from 146 to 266 markets, reaching a reported 73.7% of the U.S. population, versus 66.9% a year earlier.
- Gross profit increased 56.7% and gross margin improved, reflecting higher unit volume and per-unit gains across retail, wholesale, and other revenue. Other sales and revenues include finance-receivable gains; those gains were $217.6 million in 2020 versus $137.3 million in 2019.
- Despite higher revenue and gross profit, the consolidated net loss widened by $97.6 million. SG&A growth, increased interest expense, and investment in expansion weighed on results.
- Operating cash outflow narrowed by $148.7 million, but remained significant. Investing outflow increased as the company built IRCs, vending machines, and other infrastructure.
- In 2020, Carvana raised approximately $1.059 billion net through Class A equity offerings and issued $1.1 billion of 2025 and 2028 senior notes. Proceeds were partly used to redeem $600 million of 2023 notes, incurring the stated extinguishment costs.
Outlook, commentary, risks, and unusual items
- Management expects continued investment in market expansion, inventory, logistics and reconditioning capacity, technology, and advertising. It did not provide specific numerical financial guidance in the supplied filing text.
- Management said demand recovered after early-2020 COVID-19 disruption, with used-vehicle sales up year over year by 25%, 39%, and 43% in Q2, Q3, and Q4, respectively. It cautioned that pandemic effects, stimulus, demand, supply chains, and capital markets remain uncertain.
- Management reported fourth-quarter production and logistics constraints, including increased average delivery times; it said normalized inventory availability and delivery times could have supported stronger growth.
- The company has never been profitable since inception and reported accumulated losses of approximately $1.4 billion at year-end. It expects continued losses while investing in growth. Management said existing working capital and financing arrangements were sufficient for at least one year from the financial-statement issuance date.
- Key risks include dependence on vehicle sourcing and timely inventory turnover; reliance on finance-receivable sales and securitization markets for a substantial portion of gross profit; substantial debt and cash requirements; COVID-19 and macroeconomic uncertainty; regulatory and consumer-protection exposure; and execution risks from rapid expansion.
- Carvana has significant related-party ties to DriveTime, including product administration, servicing, leases, and other arrangements. The Garcia Parties control approximately 90% of voting power, and the company operates with a dual-class structure.
- The company’s tax-receivable agreement generally requires payment to LLC unitholders of 85% of certain realized tax benefits. The filing reports an unrecorded estimated TRA liability of approximately $607.3 million at year-end.
- Ordinary-course legal claims were disclosed; management did not believe their resolution would materially adversely affect the company. Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified transfers of finance receivables and related gains as a critical audit matter.
Important facts for investors to verify
- Whether retail growth, gross profit per unit, and margins can persist as markets mature and pandemic-related demand and vehicle-price conditions change.
- The quality and repeatability of finance-receivable sale gains, including securitization pricing, loan performance, retained interests, and repurchase exposure.
- Cash burn, collateral-dependent revolving-facility availability, debt maturities and covenants, and the company’s capacity to fund continued expansion.
- The scale and terms of related-party arrangements, the 85% Tax Receivable Agreement obligation, and the implications of Garcia Parties’ voting control.
- Whether production capacity and delivery times recover from the constraints management described, and how that affects customer experience and inventory turnover.