Carvana Co. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are to Q1 2023 unless noted. Carvana operates an online used-car retail platform, with revenue also from wholesale sales, loan sales, and ancillary products. Financial statements are unaudited and prepared under U.S. GAAP.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Net sales and operating revenue | $3.061 billion | $2.606 billion | Up 17.5% |
| Gross profit | $591 million | $341 million | Up 73.3%; gross margin approximately 19.3%, versus 13.1% |
| Operating income (loss) | $134 million | $(132) million | Operating margin approximately 4.4%, versus a 5.1% loss margin |
| Net income (loss) | $49 million | $(286) million | Carvana Co. attributable income was $28 million, versus a $160 million loss |
| Adjusted EBITDA | $235 million | $(24) million | Non-GAAP; margin 7.7%, versus (0.9)% |
| Retail units sold | 91,878 | 79,240 | Up 15.9% |
| Total gross profit per retail unit | $6,432 | $4,303 | Up 49.5%; non-GAAP figure was $6,802 versus $4,796 |
| Cash from operating activities | $101 million | $(66) million | Improved by $167 million |
| Cash, cash equivalents and restricted cash | $327 million | $694 million | At March 31, 2024 and March 31, 2023, respectively |
Retail vehicle sales grew 19.0% to $2.175 billion; wholesale sales and revenue rose 6.3% to $657 million; other sales and revenue increased 42.2% to $229 million. Other revenue includes $144 million of gains on finance-receivable sales. Retail vehicle gross profit increased to $283 million from $110 million, with management citing lower days to sale, acquisition costs, reconditioning costs, and inbound transportation costs.
SG&A decreased to $456 million from $472 million, although interest expense increased to $173 million from $159 million, primarily because of higher payment-in-kind interest on senior secured notes. Q1 2024 net income also included $87 million of net other income, including a $75 million unrealized fair-value gain on Root warrants and a $9 million gain on securitization interests. These fair-value items are not equivalent to recurring operating cash generation.
Balance sheet, debt and liquidity
- At March 31, 2024, cash and cash equivalents were $252 million, restricted cash was $75 million, and total assets were $6.983 billion.
- Total debt in the debt-instruments disclosure was $5.791 billion, compared with $6.029 billion at December 31, 2023. The balance included $4.520 billion of senior secured notes, with $75 million of accrued PIK interest, and $205 million of senior unsecured notes. Carvana reported compliance with all debt covenants at quarter end.
- Stockholders’ deficit was $311 million, improving from $384 million at year-end 2023. The balance sheet showed $289 million of equity attributable to Carvana Co. and $600 million of non-controlling interests in deficit.
- Management reported $1.659 billion of committed liquidity resources, including cash and available short-term revolving facilities. Its broader $3.259 billion total liquidity figure also includes additional debt capacity and unpledged securitization interests; these amounts are not all cash or committed borrowing.
- Cash and cash equivalents declined from $530 million at December 31, 2023 to $252 million at March 31, 2024. Cash used in financing activities was $375 million, mainly reflecting repayments of short-term revolving facilities exceeding new borrowings.
Material changes and management outlook
Carvana’s return to GAAP operating and net income and positive operating cash flow contrasts with the year-earlier losses. Management attributed the improvement to higher retail volumes and unit economics, finance-receivable sales, and cost-control initiatives. Retail units sold rose while website inventory at quarter end fell to 30,694 from 41,314 a year earlier. The filing does not provide formal numerical guidance for future quarters.
Management says its priorities are customer experience, operating efficiency, improved gross profit per unit, and using existing infrastructure to support efficient growth. It expects operating expenses may increase as the company returns to growth, expands logistics, increases advertising, and serves more of the U.S. population. Management believes working capital, operating cash flows, and expected continued or new financing arrangements can fund operations for at least one year from the financial-statement issuance date; this depends in part on financing availability and future performance.
Financing arrangements were extended or renewed: the Ally finance-receivable purchase commitment covers up to $4.0 billion through January 2025, and a revolving facility was extended in April 2024 through October 2025. Seasonal patterns, used-car prices, interest rates, and consumer demand may affect results; management notes that used-car sales generally peak late in Q1 and decline through the year.
Risks, contingencies and unusual items
- Leverage and financing: Substantial indebtedness, PIK interest, debt covenants, refinancing needs, and access to securitization and asset-based financing remain important risks. Interest expense was $173 million for the quarter.
- Liquidity: The company’s liquidity assessment relies partly on cash generation and continued or new financing. Facility availability depends on eligible collateral and is not the same as unrestricted cash.
- Fair-value volatility: The $75 million Root-warrant gain was unrealized and based on Level 3 valuation inputs. Beneficial interests in securitizations also use Level 3 inputs and are exposed to underlying loan performance and market conditions.
- Legal and regulatory matters: The company disclosed securities, antitrust, consumer-protection, shareholder, and vehicle titling and registration disputes, as well as state attorney-general inquiries. It has not recorded reserves because loss probabilities or amounts could not be estimated; an adverse outcome could materially affect the business.
- Tax assets and TRA: Carvana recorded a full valuation allowance against deferred tax assets based on cumulative losses. It recorded a $14 million tax receivable agreement liability; a further potential $1.6 billion liability was not recorded because realization of the related tax benefits was not considered more likely than not.
- Related parties: DriveTime and affiliated entities provide or administer certain services and products, including VSCs and warranty administration. The filing reports $41 million of Q1 commissions and expected excess-reserve payments on VSCs sold through DriveTime.
Important facts for investors to verify
- How much of the improvement in earnings and Adjusted EBITDA is repeatable, excluding the $75 million Root-warrant fair-value gain and other non-cash or market-sensitive items?
- Whether higher retail unit volumes and gross profit per unit can be sustained as seasonality, vehicle depreciation, and competition affect pricing and demand.
- How operating cash flow, unrestricted cash, and actual borrowing availability evolve, and whether financing arrangements remain available on acceptable terms.
- How PIK interest and debt maturities affect future interest expense, leverage, and refinancing requirements.
- Developments in disclosed litigation and regulatory inquiries, deferred-tax-asset recoverability, and potential tax receivable agreement obligations.