Carvana Co. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated results include Carvana Group and ADESA U.S. physical auction operations.
Business context and performance
Carvana operates an online used-car retail platform, originates and sells customer auto loans, offers ancillary products, and operates wholesale auctions through ADESA. Management emphasized improving profitability through expense reduction and operating efficiency, amid lower vehicle demand and affordability pressures.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $2.968B | $3.884B | $5.574B | $7.381B |
| Gross profit | $499M | $396M | $840M | $694M |
| Gross margin | 16.8% | 10.2% | 15.1% | 9.4% |
| Net loss | $105M | $439M | $391M | $945M |
| Net loss attributable to Carvana Co. | $58M | $238M | $218M | $498M |
| Adjusted EBITDA (non-GAAP) | $155M | $(216)M | $131M | $(564)M |
| Retail units sold | 76,530 | 117,564 | 155,770 | 222,749 |
Financial position, cash flow and liquidity
- Q2 revenue fell 23.6%; retail vehicle sales declined 33.8%. Retail unit sales fell 34.9%, while Q2 gross profit rose 26.0%, reflecting higher per-unit profitability and lower acquisition, reconditioning and inbound transportation costs.
- SG&A was $452M in Q2, down from $721M, and $924M for the first half, down from $1.448B. Interest expense increased to $155M in Q2 from $116M, and to $314M for the first half from $180M, primarily due to debt issued in 2022 and higher rates and working-capital financing costs.
- Six-month operating cash flow was positive $443M, versus negative $487M in 2022, primarily reflecting lower inventory purchases, SG&A and reconditioning costs. Investing cash flow was positive $6M versus negative $2.525B; financing cash flow was negative $400M versus positive $3.573B. Cash, cash equivalents and restricted cash ended at $677M, including $541M unrestricted cash.
- At June 30, total assets were $7.849B and total liabilities $9.255B; stockholders’ deficit was $1.406B. Vehicle inventory was $1.302B, down from $1.876B at year-end 2022.
- Reported debt principal, including asset-based financing and senior notes, was approximately $7.65B before finance leases and debt issuance costs. The MD&A reported total debt including finance leases of $7.977B, versus $8.391B at year-end. Senior notes totaled $5.725B, including $3.275B of 2030 notes bearing 10.25% interest.
- Management reported $1.505B of committed liquidity resources: $541M cash and $964M available under short-term revolving facilities. Including unpledged real estate and securitization interests, total liquidity resources were $3.560B. These broader resources include assets that may need to be financed to generate cash.
Material changes, outlook and risks
- Management cited rising interest rates, inflation and reduced vehicle affordability, alongside lower advertising and inventory levels from profitability initiatives, as factors weighing on retail sales. The company served 316 markets and 81.1% of the U.S. population; website inventory was 37,570 units, versus 78,910 a year earlier.
- The filing gives no specific numerical revenue, earnings or unit-sales guidance. Management said working capital, operating cash flows and expected continued or new financing arrangements should fund operations for at least one year from the financial-statement issuance date. It also noted that certain facilities mature within the next year and need to be amended, extended or replaced.
- After quarter-end, on July 17, 2023, Carvana signed a transaction support agreement with holders representing over 90% of senior-note principal. The proposed package included at least $350M of new equity, exchanges of up to $4.376B of senior notes for new secured notes, and a cash tender offer for certain 2025 notes. The agreement was conditional and could terminate; completion and expected benefits were not assured. The new secured debt could rank ahead of common stock.
- On July 19, Carvana established an at-the-market program permitting sales up to the greater of $1.0B in offering value or 35M Class A shares. Issuances could dilute existing shareholders; the company did not assure that shares would be sold.
- Other material risks include substantial debt and refinancing needs, dependence on finance-receivable sales and securitization markets, used-car price and demand volatility, and ongoing litigation and regulatory matters. The company said it could not estimate potential losses for the disclosed legal proceedings and had not recorded reserves. It reported compliance with debt covenants at June 30.
Investor verification priorities
- Track completion, terms and timing of the debt exchanges, 2025-note tender and minimum equity raise, including the resulting secured-debt priority and covenants.
- Verify actual ATM share sales, proceeds and dilution, and how any proceeds are used.
- Monitor unrestricted cash, borrowing availability, facility maturities and extensions, debt service costs, and liquidity after accounting for asset eligibility and restricted cash.
- Assess whether improved gross profit per unit and lower expenses can be sustained while retail unit sales and website inventory remain substantially below prior-year levels.
- Review future operating cash flow, finance-receivable sale gains, securitization access, and the sensitivity of retained securitization interests to valuation assumptions.
- Follow developments in litigation, regulatory inquiries, and other contingencies for any change in estimated exposure.