Carvana Co. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing text does not provide standalone fourth-quarter results.
Business context
Carvana operates an online used-car retail platform, combining vehicle sales with financing, trade-ins, wholesale sales, and ancillary products. In 2021 it served 81.0% of the U.S. population across 311 markets, had 14 inspection and reconditioning centers, and reported 425,237 retail units sold.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $12.814 billion | $5.587 billion | +129.4% |
| Gross profit | $1.929 billion | $794 million | +142.9% |
| Net loss | $287 million | $462 million | Loss narrowed by $175 million |
| EBITDA (non-GAAP) | $(5) million | $(257) million | Improved by $252 million |
| Retail units sold | 425,237 | 244,111 | +74.2% |
| Total gross profit per unit | $4,537 | $3,252 | +39.5% |
Gross margin was approximately 15.1% of revenue, versus 14.2% in 2020. EBITDA margin was approximately zero, compared with (4.6)% in 2020. Carvana reported a $135 million net loss attributable to Carvana Co. and a basic and diluted loss of $1.63 per Class A share.
Revenue growth reflected higher unit volumes and used-car prices, as well as increased wholesale and finance-related activity. Used-vehicle sales rose to $9.851 billion; wholesale sales to $1.920 billion; and other sales and revenues to $1.043 billion. Other revenues included approximately $718 million of gains on finance-receivable sales. SG&A increased 80.5% to $2.033 billion, including $479 million of advertising expense. Interest expense increased to $176 million.
Cash flow, debt and liquidity
- Net cash used in operating activities was $2.594 billion, versus $608 million used in 2020; management attributed the increase primarily to working capital, particularly a $2.086 billion increase in vehicle inventory.
- Net cash used in investing activities was $627 million, including $557 million of property and equipment purchases and a $126 million investment in Root. Net cash provided by financing activities was $3.528 billion.
- Year-end cash and cash equivalents were $403 million; restricted cash was $233 million. Short-term revolving facilities had $2.053 billion outstanding.
- Total debt, including finance leases, was approximately $5.4 billion, up from $1.7 billion in 2020. The filing reports total liquidity resources of $2.283 billion, including cash, borrowing availability and unpledged assets; this is not equivalent to cash on hand.
- Management stated that working capital, operating results and financing arrangements were expected to fund operations for at least one year from the financial statement issuance date. Senior-note covenants were reported in compliance at year-end.
Material changes, outlook and risks
- Growth accelerated: revenue increased 129.4%, while retail units sold rose 74.2%. Average retail selling price increased 19.3% to $23,167, primarily reflecting used-car market appreciation. Gross profit per unit also improved.
- Despite improved EBITDA and a narrower net loss, the company remained unprofitable and reported accumulated losses of approximately $1.7 billion. Management expects continued investment and states it may continue to incur losses. The filing provides no quantified forward guidance.
- Management expects vehicle sales to grow through deeper market penetration and geographic expansion, but results depend on inventory sourcing, sales velocity, customer acquisition, used-car prices, and financing markets. The company also cautions that seasonality may affect quarterly results.
- Key disclosed risks include substantial and rising indebtedness, large operating cash outflows, reliance on finance-receivable sales for a substantial portion of gross profit, changes in used-car prices and inventory availability, competition, regulation, COVID-19 effects, and dependence on funding markets.
- On February 24, 2022, after year-end, Carvana agreed to acquire ADESA’s U.S. physical auction business for approximately $2.2 billion, subject to customary conditions. The company announced $3.275 billion of committed acquisition financing facilities; the transaction was expected to close in the second quarter of 2022. The acquisition and financing were not reflected in year-end results.
- Other notable items: Carvana invested $126 million in Root preferred shares and recorded a $24 million decrease in the fair value of related warrants during 2021. It recorded a $1.638 billion valuation allowance against deferred tax assets. The auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether sales growth and gross profit per unit can be sustained as used-car prices, inventory supply and market conditions change.
- How operating cash flow and inventory investment evolve, and whether financing availability remains sufficient and affordable.
- The composition, maturity, covenants and refinancing needs of the approximately $5.4 billion of debt, including the impact of the ADESA acquisition financing.
- The durability of finance-receivable sale gains and the performance, valuation and liquidity of retained securitization interests.
- The ADESA transaction’s closing status, integration costs, realized synergies and effect on leverage and liquidity.
- Related-party arrangements, including DriveTime services and VSC activity, and the effects of the Tax Receivable Agreement, which requires payment of 85% of specified realized tax benefits.