Carvana Co. Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited results are compared with Q1 2019. Carvana operates an e-commerce platform for buying and selling used vehicles.
Financial and operating highlights
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.098 billion | $755.2 million |
| Gross profit | $138.4 million | $88.5 million |
| Gross margin | 12.6% | 11.7% |
| Net loss, consolidated | $183.6 million | $82.6 million |
| Net loss attributable to Carvana Co. | $59.9 million | $23.1 million |
| Basic and diluted loss per Class A share | $1.19 | $0.56 |
| EBITDA (non-GAAP) | $(138.9) million | $(59.0) million |
| EBITDA margin (non-GAAP) | (12.6)% | (7.8)% |
| Net cash used in operating activities | $168.5 million | $214.5 million |
| Net cash used in investing activities | $88.7 million | $43.2 million |
| Net cash provided by financing activities | $283.7 million | $276.1 million |
Revenue rose 45.4%, with retail vehicle unit sales up 42.6% to 52,427. Total gross profit per retail unit was $2,640, up 9.6%; average days to sale increased to 68 from 63. SG&A rose to $275.7 million from $155.2 million, and interest expense increased to $28.9 million from $15.6 million. Other expense was $17.4 million, primarily reflecting COVID-related fair-value declines in certain assets.
At March 31, 2020, cash and cash equivalents were $72.4 million and restricted cash was $72.6 million. Total committed liquidity resources, as defined in the filing, were $339.5 million. Total debt, including finance leases and before certain unamortized adjustments, was $1.814 billion, versus $1.514 billion at year-end 2019. Short-term revolving facilities had $812.2 million outstanding. Total stockholders’ equity was $13.2 million, down from $191.9 million at December 31, 2019.
Material changes and unusual items
- Retail sales growth reflected more markets, inventory selection, marketing and brand awareness. Carvana had 161 markets at quarter-end, versus 109 a year earlier, and approximately 33,570 vehicles listed online.
- Used-vehicle gross profit per unit increased to $1,581 from $1,282, while wholesale gross profit per unit declined to $114 from $453. COVID-related inventory valuation adjustments reduced gross profit by approximately $6.5 million for retail inventory and $2.8 million for wholesale inventory.
- Other expense included a $16.5 million decline in the fair value of certain assets, including securitization interests and a purchase-price adjustment receivable. The filing also reports an $11.4 million unrealized loss on securitization interests in operating cash flow reconciliation.
- Capital expenditures drove investing cash use higher. Property and equipment purchases were $89.4 million, compared with $43.2 million in Q1 2019.
- On April 1, 2020, after quarter-end, Carvana raised approximately $599.5 million net through a registered direct offering of about 13.3 million Class A shares at $45 per share. The filing says CEO Ernest Garcia III and Verde, an affiliate of Ernest Garcia II, each invested approximately $25 million.
Outlook, risks and contingencies
- Management gave no quantified financial guidance. It expected COVID-19 to weigh on retail unit sales, vehicle prices, days to sale and loan-sale gains, and said the duration and overall effect were not predictable.
- Carvana paused certain market openings and vending-machine launches and cut or deferred discretionary spending, including hiring, travel, facilities and technology investment. It adjusted marketing, staffing and purchasing to demand. Management stated it believed available working capital, financing and these actions were sufficient to fund operations for at least one year from the financial statement issuance date.
- The Ally forward-flow agreement was amended to provide for purchases of up to $2.0 billion of finance-receivable principal through March 2021. At March 31, the company reported $851.0 million available under active finance-receivable facilities and $211.8 million unused under the $950 million floor-plan facility, which matured in October 2020.
- The filing identifies risks from COVID-19-related demand, operating and supply-chain disruption, capital-market volatility, and uncertainty in estimates such as loan losses, inventory values and fair values. Carvana had incurred losses since inception and expected further losses.
- Carvana reported ordinary-course legal matters and did not expect their resolution to have a material adverse effect. It was in compliance with senior-note covenants at quarter-end. It disclosed an approximately $180.1 million unrecorded potential tax receivable agreement liability; no liability was recorded because realization of the related tax assets was not considered more likely than not.
Important facts for investors to verify
- Whether COVID-related changes in demand, used-vehicle values and loan-sale pricing materially affected subsequent sales, gross profit and receivable monetization.
- Post-quarter liquidity and dilution effects of the $599.5 million net equity offering, together with continued operating cash use and debt growth.
- Availability, terms and renewal of floor-plan, finance-receivable and other financing facilities, including the October 2020 floor-plan maturity.
- Changes in inventory markdowns, securitization fair values and credit-loss assumptions as market conditions evolve.
- Progress toward improving profitability while managing elevated SG&A and infrastructure commitments; the filing provides no quantified earnings outlook.