Carvana Co. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports annual results; it does not provide a clear standalone Q4 income statement or cash-flow summary.
Business context
Carvana operates an online used-car retail platform, supported by vehicle reconditioning, logistics, financing and ancillary products. Its ADESA U.S. auction business adds 56 auction sites. At year-end, Carvana served 316 metropolitan markets covering 81.1% of the U.S. population.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $10.771 billion | $13.604 billion | Down 20.8% |
| Gross profit | $1.724 billion | $1.246 billion | Up 38.4% |
| Gross margin | 16.0% | 9.2% | Improved |
| Net income (loss), consolidated | $150 million | $(2.894) billion | Improved |
| Adjusted EBITDA, non-GAAP | $339 million | $(1.041) billion | Improved |
| Retail units sold | 312,847 | 412,296 | Down 24.1% |
| Operating cash flow | $803 million | $(1.324) billion | Improved by $2.127 billion |
| Cash and cash equivalents, year-end | $530 million | $434 million | Up $96 million |
| Interest expense | $632 million | $486 million | Up $146 million |
Retail vehicle sales were $7.514 billion, down 26.7%; wholesale sales and revenues were $2.504 billion, down 4.0%; and other sales and revenues were $753 million, up 1.6%. Total gross profit per retail unit rose to $5,511 from $3,022. The filing’s non-GAAP total gross profit per unit was $5,984, versus $3,337.
SG&A fell to $1.796 billion from $2.736 billion, reflecting cost reductions, lower headcount, reduced advertising and logistics expense, and lower unit volume. Property and equipment purchases were $87 million, compared with $512 million in 2022. The filing does not label a free-cash-flow measure; operating cash flow less reported property and equipment purchases was approximately $716 million.
At year-end, total debt including finance leases was reported at $6.296 billion principal, versus $8.391 billion in 2022; carrying amounts and balance-sheet classifications differ. Cash, cash equivalents and restricted cash totaled $594 million. Committed liquidity resources were $1.536 billion, including $1.006 billion of availability under revolving facilities. The company reported total liquidity resources of $3.128 billion, including additional borrowing capacity and unpledged interests; substantially all real estate was pledged as Senior Secured Notes collateral.
Material changes versus FY2022
- Revenue and retail volume contracted amid high interest rates, inflation and lower vehicle affordability, alongside Carvana’s profitability initiatives. Average retail selling price declined 3.4%, to $24,018.
- Gross profit rose despite lower sales, with retail vehicle gross profit per unit increasing to $2,385 from $900. Management attributed the improvement mainly to shorter time to sale and lower reconditioning and inbound transportation costs.
- Wholesale marketplace units sold increased to 871,200 from 485,333; marketplace revenue rose to $856 million from $490 million. Comparability is affected by ADESA being acquired in May 2022.
- Operating cash flow turned positive, chiefly due to lower finance receivables held for sale, vehicle inventory investment, SG&A and reconditioning costs.
- Debt restructuring exchanged $5.5 billion of unsecured notes for $4.2 billion of secured notes and cash consideration. The transaction generated a reported $878 million gain on debt extinguishment and increased collateralization of debt.
Outlook, risks and unusual items
- Management said existing working capital, operating cash flows and expected financing arrangements should be sufficient to fund operations for at least 12 months from the financial-statement issuance date. It provided no specific 2024 revenue, earnings or unit-sales guidance in the supplied filing text.
- Management’s stated priorities are improving operating efficiency, strengthening unit economics, providing customer service and using existing infrastructure to support efficient growth. Sustained profitability and positive free cash flow are objectives, not assurances.
- The company cautioned that reduced used-car demand, higher benchmark rates, vehicle depreciation and its profitability initiatives could continue to affect retail volumes in 2024. It also identifies substantial debt, access to financing and receivables-sale markets, inventory pricing and liquidity as significant risks.
- The $150 million consolidated net income included the $878 million debt-extinguishment gain. Net income attributable to Carvana Co. was $450 million, while the reported diluted EPS was $0.75; the filing’s basic EPS was $4.12. These measures differ in part because of non-controlling interests and assumed conversions of LLC units.
- Carvana reported $4.4 billion of accumulated net losses since inception and a full valuation allowance against approximately $2.0 billion of deferred tax assets. The debt exchange generated $1.4 billion of cancellation-of-debt income for tax purposes; the company recorded a $14 million Tax Receivable Agreement liability related to estimated tax savings used to offset that income.
- Legal and regulatory disputes include securities, antitrust, consumer-protection, shareholder and vehicle-title matters. The company said it had not established reserves because loss probability or damages could not be estimated; an unfavorable outcome could be material. The independent auditor issued unqualified opinions on the financial statements and internal controls, and reported no material cybersecurity incidents as of the filing date.
Important facts for investors to verify
- How much of FY2023’s reported earnings and operating improvement is repeatable without the debt-extinguishment gain, and how non-GAAP adjustments reconcile to GAAP results.
- Whether higher gross profit per unit and lower costs can be sustained while retail sales volume, website inventory and customer traffic remain lower.
- Debt service, cash interest and PIK-interest burden under the secured-note terms, collateral and covenants; also verify maturities and refinancing needs for revolving facilities.
- Whether stated liquidity remains accessible in practice, given pledged assets, facility borrowing conditions and dependence on finance-receivable sales and securitization markets.
- Developments in material litigation and regulatory matters, title and registration processes, and any related reserves or cash exposures.
- Potential dilution from equity issuance and LLC-unit exchanges, and governance implications of the Garcia Parties’ approximately 87% of voting power at year-end.