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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission File Number: 001-38073
CARVANA CO.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | 81-4549921 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
300 E. Rio Salado Parkway | Tempe | Arizona | 85281 |
(Address of principal executive offices) | (Zip Code) |
(602) 922-9866
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, Par Value $0.001 Per Share | CVNA | New York Stock Exchange |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of October 28, 2024, the registrant had 128,510,301 shares of Class A common stock outstanding and 79,119,471 shares of Class B common stock outstanding.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | |
| | Page |
PART I. | FINANCIAL INFORMATION | |
Item 1. | Financial Statements | |
| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 | |
| Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 | |
| Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2024 and 2023 | |
| Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 4. | Controls and Procedures | |
| | |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and par values)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 871 | | | $ | 530 | |
Restricted cash | 61 | | | 64 | |
Accounts receivable, net | 363 | | | 266 | |
Finance receivables held for sale, net | 553 | | | 807 | |
| | | |
Vehicle inventory | 1,305 | | | 1,150 | |
Beneficial interests in securitizations | 463 | | | 366 | |
Other current assets, including $4 and $3, respectively, due from related parties | 149 | | | 138 | |
Total current assets | 3,765 | | | 3,321 | |
Property and equipment, net | 2,826 | | | 2,982 | |
Operating lease right-of-use assets, including $13 and $10, respectively, from leases with related parties | 452 | | | 455 | |
Intangible assets, net | 39 | | | 52 | |
| | | |
Other assets | 286 | | | 261 | |
Total assets | $ | 7,368 | | | $ | 7,071 | |
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities, including $14 and $7, respectively, due to related parties | $ | 772 | | | $ | 596 | |
Short-term revolving facilities | 76 | | | 668 | |
Current portion of long-term debt | 209 | | | 189 | |
Other current liabilities, including $13 and $3, respectively, due to related parties | 102 | | | 83 | |
Total current liabilities | 1,159 | | | 1,536 | |
Long-term debt, excluding current portion | 5,431 | | | 5,416 | |
Operating lease liabilities, excluding current portion, including $10 and $7, respectively, from leases with related parties | 429 | | | 433 | |
Other liabilities, including $17 and $11, respectively, due to related parties | 63 | | | 70 | |
Total liabilities | 7,082 | | | 7,455 | |
Commitments and contingencies (Note 16) | | | |
Stockholders' equity (deficit): | | | |
Preferred stock, $0.01 par value - 50,000 shares authorized; none issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Class A common stock, $0.001 par value - 500,000 shares authorized; 126,444 and 114,239 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Class B common stock, $0.001 par value - 125,000 shares authorized; 80,935 and 85,619 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Additional paid-in capital | 2,106 | | | 1,869 | |
| | | |
Accumulated deficit | (1,495) | | | (1,626) | |
Total stockholders' equity attributable to Carvana Co. | 611 | | | 243 | |
Non-controlling interests | (325) | | | (627) | |
Total stockholders' equity (deficit) | 286 | | | (384) | |
Total liabilities & stockholders' equity (deficit) | $ | 7,368 | | | $ | 7,071 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Sales and operating revenues: | | | | | | | |
Retail vehicle sales, net | $ | 2,543 | | | $ | 1,949 | | | $ | 7,129 | | | $ | 5,737 | |
Wholesale sales and revenues, including $7, $4, $21 and $14, respectively, from related parties | 786 | | | 610 | | | 2,163 | | | 2,005 | |
Other sales and revenues, including $52, $35, $141 and $104, respectively, from related parties | 326 | | | 214 | | | 834 | | | 605 | |
Net sales and operating revenues | 3,655 | | | 2,773 | | | 10,126 | | | 8,347 | |
Cost of sales, including $1, $1, $4 and $3, respectively, to related parties | 2,848 | | | 2,291 | | | 8,013 | | | 7,025 | |
Gross profit | 807 | | | 482 | | | 2,113 | | | 1,322 | |
Selling, general and administrative expenses, including $7, $8, $22 and $26, respectively, to related parties | 469 | | | 433 | | | 1,380 | | | 1,357 | |
Other operating expense, net | 1 | | | 1 | | | 3 | | | 7 | |
Operating income (loss) | 337 | | | 48 | | | 730 | | | (42) | |
Interest expense | 157 | | | 153 | | | 503 | | | 467 | |
Loss (Gain) on debt extinguishment | 4 | | | (878) | | | 6 | | | (878) | |
Other expense (income), net | 29 | | | 3 | | | (23) | | | (8) | |
Net income before income taxes | 147 | | | 770 | | | 244 | | | 377 | |
Income tax (benefit) provision | (1) | | | 29 | | | (1) | | | 27 | |
Net income | 148 | | | 741 | | | 245 | | | 350 | |
Net income (loss) attributable to non-controlling interests | 63 | | | (41) | | | 114 | | | (214) | |
Net income attributable to Carvana Co. | $ | 85 | | | $ | 782 | | | $ | 131 | | | $ | 564 | |
| | | | | | | |
Net earnings per share of Class A common stock - basic | $ | 0.69 | | | $ | 7.05 | | | $ | 1.09 | | | $ | 5.24 | |
Net earnings per share of Class A common stock - diluted | $ | 0.64 | | | $ | 3.60 | | | $ | 1.01 | | | $ | 1.78 | |
| | | | | | | |
Weighted-average shares of Class A common stock outstanding - basic | 123,883 | | | 110,844 | | | 119,719 | | | 107,692 | |
Weighted-average shares of Class A common stock outstanding - diluted | 133,555 | | | 205,958 | | | 129,253 | | | 197,124 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(In millions, except number of shares, which are reflected in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interests | | Total Stockholders' Equity (Deficit) |
Balance, December 31, 2022 | 106,037 | | | $ | — | | | 82,900 | | | $ | — | | | $ | 1,558 | | | $ | (2,076) | | | $ | (535) | | | $ | (1,053) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (160) | | | (126) | | | (286) | |
Exchanges of LLC Units and adjustments to non-controlling interests related to RSU vesting and NQSO exercises | 14 | | | — | | | — | | | — | | | 1 | | | — | | | (1) | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Contribution of Class A common stock from related party | (16) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class A common stock to settle vested restricted stock units | 39 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes | (30) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Options exercised | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | 17 | | | — | | | — | | | 17 | |
Balance, March 31, 2023 | 106,047 | | | $ | — | | | 82,900 | | | $ | — | | | $ | 1,576 | | | $ | (2,236) | | | $ | (662) | | | $ | (1,322) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (58) | | | (47) | | | (105) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Contribution of Class A common stock from related party | (16) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class A common stock to settle vested restricted stock units | 415 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class A common stock under ESPP | 20 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
Options exercised | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | 23 | | | — | | | — | | | 23 | |
Balance, June 30, 2023 | 106,469 | | | $ | — | | | 82,900 | | | $ | — | | | $ | 1,597 | | | $ | (2,294) | | | $ | (709) | | | $ | (1,406) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | 782 | | | (41) | | | 741 | |
Issuance of Class A common stock, net of underwriters' discounts and commissions and offering expenses | 7,157 | | | — | | | — | | | — | | | 327 | | | — | | | — | | | 327 | |
Issuance of Class B common stock and LLC Units | — | | | — | | | 2,721 | | | — | | | — | | | — | | | 126 | | | 126 | |
Adjustment to non-controlling interests related to equity offerings | — | | | — | | | — | | | — | | | (83) | | | — | | | 83 | | | — | |
Exchanges of LLC Units and adjustments to non-controlling interests related to RSU vesting and NQSO exercises | 17 | | | — | | | (2) | | | — | | | — | | | — | | | — | | | — | |
Establishment of deferred tax assets related to increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | 21 | | | — | | | — | | | 21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interests | | Total Stockholders' Equity (Deficit) |
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | (21) | | | — | | | — | | | (21) | |
Contribution of Class A common stock from related party | (17) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class A common stock to settle vested restricted stock units | 344 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes | — | | | — | | | — | | | — | | | (10) | | | — | | | — | | | (10) | |
Options exercised | 5 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | 20 | | | — | | | — | | | 20 | |
Balance, September 30, 2023 | 113,975 | | | $ | — | | | 85,619 | | | $ | — | | | $ | 1,851 | | | $ | (1,512) | | | $ | (541) | | | $ | (202) | |
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - (Continued)
(Unaudited)
(In millions, except number of shares, which are reflected in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interests | | Total Stockholders' Equity (Deficit) |
Balance, December 31, 2023 | 114,239 | | | $ | — | | | 85,619 | | | $ | — | | | $ | 1,869 | | | $ | (1,626) | | | $ | (627) | | | $ | (384) | |
Net income | — | | | — | | | — | | | — | | | — | | | 28 | | | 21 | | | 49 | |
Exchanges of LLC Units and adjustments to non-controlling interests related to RSU vesting and NQSO exercises | 29 | | | — | | | — | | | — | | | (6) | | | — | | | 6 | | | — | |
Establishment of deferred tax assets related to increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
Contribution of Class A common stock from related party | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class A common stock to settle vested restricted stock units | 2,272 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Options exercised | 19 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | 24 | | | — | | | — | | | 24 | |
Balance, March 31, 2024 | 116,558 | | | $ | — | | | 85,619 | | | $ | — | | | $ | 1,887 | | | $ | (1,598) | | | $ | (600) | | | $ | (311) | |
Net income | — | | | — | | | — | | | — | | | — | | | 18 | | | 30 | | | 48 | |
Issuance of Class A common stock, net of underwriters' discounts and commissions and offering expenses | 3,047 | | | — | | | — | | | — | | | 347 | | | — | | | — | | | 347 | |
Adjustment to non-controlling interests related to equity offerings | — | | | — | | | — | | | — | | | (155) | | | — | | | 155 | | | — | |
Exchanges of LLC Units and adjustments to non-controlling interests related to RSU vesting and NQSO exercises | 73 | | | — | | | — | | | — | | | (4) | | | — | | | 4 | | | — | |
Establishment of deferred tax assets related to increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | 25 | | | — | | | — | | | 25 | |
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | (25) | | | — | | | — | | | (25) | |
| | | | | | | | | | | | | | | |
Issuance of Class A common stock to settle vested restricted stock units | 1,172 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class A common stock under ESPP | 6 | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
| | | | | | | | | | | | | | | |
Options exercised | 198 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | 3 | |
Equity-based compensation | — | | | — | | | — | | | — | | | 27 | | | — | | | — | | | 27 | |
Balance, June 30, 2024 | 121,054 | | | $ | — | | | 85,619 | | | $ | — | | | $ | 2,106 | | | $ | (1,580) | | | $ | (411) | | | $ | 115 | |
Net income | — | | | — | | | — | | | — | | | — | | | 85 | | | 63 | | | 148 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interests | | Total Stockholders' Equity (Deficit) |
Exchanges of LLC Units and adjustments to non-controlling interests related to RSU vesting and NQSO exercises | 4,718 | | | — | | | (4,684) | | | — | | | (23) | | | — | | | 23 | | | — | |
Establishment of deferred tax assets related to increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | 168 | | | — | | | — | | | 168 | |
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group | — | | | — | | | — | | | — | | | (168) | | | — | | | — | | | (168) | |
| | | | | | | | | | | | | | | |
Issuance of Class A common stock to settle vested restricted stock units | 617 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes | — | | | — | | | — | | | — | | | (4) | | | — | | | — | | | (4) | |
Options exercised | 55 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | 27 | | | — | | | — | | | 27 | |
Balance, September 30, 2024 | 126,444 | | | $ | — | | | 80,935 | | | $ | — | | | $ | 2,106 | | | $ | (1,495) | | | $ | (325) | | | $ | 286 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In millions)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 245 | | | $ | 350 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 231 | | | 270 | |
Equity-based compensation expense | 69 | | | 52 | |
Loss on disposal of property and equipment | 3 | | | 8 | |
Loss (Gain) on debt extinguishment | 6 | | | (878) | |
Payment-in-kind interest expense | 388 | | | 46 | |
Provision for bad debt and valuation allowance | 24 | | | 34 | |
Amortization of debt issuance costs | 13 | | | 20 | |
Unrealized gain on warrants to acquire Root Class A common stock | (27) | | | (3) | |
Unrealized gain on beneficial interests in securitizations | (15) | | | (12) | |
| | | |
Changes in finance receivable related assets: | | | |
Originations of finance receivables | (6,051) | | | (4,509) | |
Proceeds from sale of finance receivables, net | 6,464 | | | 5,207 | |
Gain on loan sales | (541) | | | (360) | |
| | | |
Principal payments received on finance receivables held for sale | 142 | | | 160 | |
Other changes in assets and liabilities: | | | |
Vehicle inventory | (154) | | | 777 | |
Accounts receivable | (105) | | | (73) | |
Other assets | (16) | | | 27 | |
Accounts payable and accrued liabilities | 171 | | | (84) | |
Operating lease right-of-use assets | 3 | | | 63 | |
Operating lease liabilities | 1 | | | (52) | |
Other liabilities | 7 | | | (1) | |
Net cash provided by operating activities | 858 | | | 1,042 | |
Cash Flows from Investing Activities: | | | |
Purchases of property and equipment | (67) | | | (69) | |
Proceeds from disposal of property and equipment | 9 | | | 58 | |
Payments for acquisitions, net of cash acquired | — | | | (7) | |
Principal payments received on and proceeds from sale of beneficial interests | 52 | | | 40 | |
Net cash (used in) provided by investing activities | (6) | | | 22 | |
Cash Flows from Financing Activities: | | | |
Proceeds from short-term revolving facilities | 2,601 | | | 5,756 | |
Payments on short-term revolving facilities | (3,193) | | | (6,861) | |
Proceeds from issuance of long-term debt | 160 | | | 110 | |
Payments on long-term debt | (427) | | | (470) | |
| | | |
Payments of debt issuance costs | (3) | | | (52) | |
Net proceeds from issuance of Class A common stock | 347 | | | 453 | |
Proceeds from equity-based compensation plans | 3 | | | — | |
Tax withholdings related to restricted stock units and awards | (2) | | | (12) | |
Net cash used in financing activities | (514) | | | (1,076) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 338 | | | (12) | |
Cash, cash equivalents and restricted cash at beginning of period | 594 | | | 628 | |
Cash, cash equivalents and restricted cash at end of period | $ | 932 | | | $ | 616 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BUSINESS ORGANIZATION
Description of Business
Carvana Co. and its wholly-owned subsidiary Carvana Co. Sub LLC (collectively, "Carvana Co.," and, together with its consolidated subsidiaries, the "Company"), is the leading e-commerce platform for buying and selling used cars. The Company is transforming the used car sales experience by giving consumers what they want - a wide selection, great value and quality, transparent pricing, and a simple, no pressure transaction. Using the website or mobile application, customers can complete all phases of a used vehicle transaction, including financing their purchase, trading in their current vehicle, and purchasing complementary products such as vehicle service contracts ("VSC"), auto insurance, and GAP waiver coverage. Each element of the Company's business, from inventory procurement to fulfillment and overall ease of the online transaction, has been built for this singular purpose.
Organization
Carvana Co. is a holding company that was formed as a Delaware corporation on November 29, 2016, for the purpose of completing its initial public offering ("IPO") and related transactions in order to operate the business of Carvana Group, LLC and its subsidiaries (collectively, "Carvana Group"). Substantially all of the Company's assets and liabilities represent the assets and liabilities of Carvana Group, except the Company's Senior Secured Notes and Senior Unsecured Notes (each as defined in Note 9 — Debt Instruments) which were issued by Carvana Co. and are guaranteed by its and Carvana Group's existing domestic restricted subsidiaries, excluding, in the case of the Senior Unsecured Notes, ADESA US Auction, LLC ("ADESA"), and its subsidiaries.
In accordance with Carvana Group, LLC's amended and restated limited liability company agreement (the "LLC Agreement"), Carvana Co. is the sole manager of Carvana Group and conducts, directs and exercises full control over the activities of Carvana Group. There are two classes of common ownership interests in Carvana Group, Class A common units (the "Class A Units") and Class B common units (the "Class B Units"). As further discussed in Note 10 — Stockholders' Equity (Deficit), the Class A Units and Class B Units (collectively, the "LLC Units") do not hold voting rights, which results in Carvana Group being considered a variable interest entity ("VIE"). Due to Carvana Co.'s power to control and its significant economic interest in Carvana Group, it is considered the primary beneficiary of the VIE and the Company consolidates the financial results of Carvana Group. As of September 30, 2024, Carvana Co. owned approximately 60.4% of Carvana Group and the LLC Unitholders (as defined in Note 10 — Stockholders' Equity (Deficit)) owned the remaining 39.6%.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company's most recent Annual Report on Form 10-K filed on February 22, 2024.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly the Company’s financial position as of September 30, 2024, results of operations and changes in stockholders' equity (deficit) for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.
Certain prior period amounts have been reclassified to conform to current period presentation to account for the additions of other operating expense, net and operating income (loss) in our accompanying unaudited condensed consolidated statements of operations.
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
As discussed in Note 1 — Business Organization, Carvana Group is considered a VIE and Carvana Co. consolidates its financial results due to the determination that it is the primary beneficiary. All intercompany balances and transactions have been eliminated.
Liquidity
The Company has incurred losses in prior periods and may incur additional losses in the future as it continues to focus on driving profitability through operating efficiency. Historically, the Company's capital and liquidity needs have been primarily satisfied through its debt and equity financings, operating cash flows, and short-term revolving facilities. During the three months ended September 30, 2024, the Company repurchased and cancelled an additional $100 million of principal amount of 2028 Senior Secured Notes (as defined below) and extended one of its short-term revolving credit facilities through August 2025. Management believes that current working capital, cash flows from operations, and expected continued or new financing arrangements will be sufficient to fund operations for at least one year from the financial statement issuance date.
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period, which management considers to be critical accounting estimates. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company's assets and liabilities and the results of operations.
Accounting Standards Issued But Not Yet Adopted
The Company assessed all Accounting Standards Updates issued but not yet adopted and determined they are not relevant to the Company or are not expected to have a material impact upon adoption.
Securities and Exchange Commission ("SEC") Final Rules Issued But Not Yet Adopted
In March 2024, the SEC issued its final rules on the enhancement and standardization of climate-related disclosures for investors. The rules will require registrants to disclose certain climate-related information in registration statements and annual reports on Form 10-K, including among others, climate-related financial metrics and qualitative and quantitative disclosures regarding greenhouse gas emissions. The final rules follow a phase-in timeline and would begin to apply prospectively to the Company's fiscal year beginning January 1, 2025. In April 2024, the SEC voluntarily stayed the effectiveness of the rules as a result of pending completion of judicial review of consolidated challenges to the rules. The Company is currently evaluating the potential impact of these rules on its consolidated financial statements and disclosures. However, there is uncertainty regarding the timing of their application and content.
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 3 — PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in millions) |
Land and site improvements | $ | 1,333 | | | $ | 1,331 | |
Buildings and improvements | 1,376 | | | 1,344 | |
Transportation fleet | 549 | | | 570 | |
Software | 337 | | | 296 | |
Furniture, fixtures, and equipment | 145 | | | 144 | |
Total property and equipment excluding construction in progress | 3,740 | | | 3,685 | |
Less: accumulated depreciation and amortization on property and equipment | (975) | | | (775) | |
Property and equipment excluding construction in progress, net | 2,765 | | | 2,910 | |
Construction in progress | 61 | | | 72 | |
Property and equipment, net | $ | 2,826 | | | $ | 2,982 | |
Depreciation and amortization expense on property and equipment in cost of sales was $33 million and $42 million during the three months ended September 30, 2024 and 2023, respectively. Depreciation and amortization expense on property and equipment in selling, general and administrative expense was $36 million and $40 million during the three months ended September 30, 2024 and 2023, respectively.
Depreciation and amortization expense on property and equipment in cost of sales was $107 million and $130 million during the nine months ended September 30, 2024 and 2023, respectively. Depreciation and amortization expense on property and equipment in selling, general and administrative expense was $111 million and $126 million during the nine months ended September 30, 2024 and 2023, respectively.
NOTE 4 — INTANGIBLE ASSETS, NET
The following table summarizes intangible assets, net as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
| | | | |
| | (in millions) |
| | | | |
Customer relationships | | $ | 50 | | | $ | 50 | |
Developed technology | | 41 | | | 41 | |
| | | | |
Intangible assets, acquired cost | | 91 | | | 91 | |
Less: accumulated amortization | | (52) | | | (39) | |
Intangible assets, net | | $ | 39 | | | $ | 52 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Amortization expense was $4 million and $5 million during the three months ended September 30, 2024 and 2023, respectively, and $13 million during each of the the nine months ended September 30, 2024 and 2023. As of September 30, 2024, the remaining weighted-average amortization period for definite-lived intangible assets was 4.3 years. The anticipated annual amortization expense to be recognized in future years as of September 30, 2024 is as follows:
| | | | | |
| Expected Future Amortization |
| (in millions) |
Remainder of 2024 | $ | 5 | |
2025 | 14 | |
2026 | 7 | |
2027 | 5 | |
2028 | 3 | |
| |
Thereafter | 5 | |
Total | $ | 39 | |
NOTE 5 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table summarizes accounts payable and accrued liabilities as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in millions) |
Accounts payable, including $14 and $7, respectively, due to related parties | $ | 231 | | | $ | 231 | |
Accrued compensation and benefits | 96 | | | 41 | |
Sales taxes and vehicle licenses and fees | 87 | | | 77 | |
Reserve for returns and cancellations | 66 | | | 57 | |
Customer deposits | 50 | | | 30 | |
Accrued interest expense | 42 | | | 7 | |
Accrued advertising costs | 15 | | | 4 | |
Income tax liability | — | | | 3 | |
Accrued property and equipment | — | | | 1 | |
Other accrued liabilities | 185 | | | 145 | |
Total accounts payable and accrued liabilities | $ | 772 | | | $ | 596 | |
| | | |
NOTE 6 — RELATED PARTY TRANSACTIONS
Lease Agreements
In November 2014, the Company and DriveTime Automotive Group, Inc. (together with its consolidated affiliates, collectively, “DriveTime”), a related party of the Company due to Ernest Garcia II, Ernest Garcia III, and entities controlled by one or both of them (collectively the "Garcia Parties") controlling and owning substantially all of the interests in DriveTime, entered into a lease agreement, which currently governs the occupation of two inspection and reconditioning centers in Blue Mound, Texas and Delanco, New Jersey. The lease for the Blue Mound, Texas location expires in 2029, with two five-year renewal options, and the lease for the Delanco location expires in 2026, with no current renewal options. The Company makes monthly lease payments based on DriveTime's actual rent expense. In addition, the Company is responsible for the actual insurance costs, tenant improvements required to conduct operations, and real estate taxes.
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
In February 2017, the Company entered into a lease agreement with DriveTime for sole occupancy of a fully operational inspection and reconditioning center in Winder, Georgia. In May 2024, the lease expiration for the Winder location was extended to 2030, subject to two remaining renewal options of five years each.
Expenses related to these operating lease agreements are allocated based on usage to inventory and selling, general and administrative expenses in the accompanying unaudited condensed consolidated balance sheets and statements of operations. Costs allocated to inventory are recognized as cost of sales when the inventory is sold. Total costs related to these operating lease agreements, including those noted above, were $1 million during each of the three months ended September 30, 2024 and 2023, and $3 million and $2 million during the nine months ended September 30, 2024 and 2023, respectively, allocated between inventory and selling, general and administrative expenses.
Office Leases
In September 2016, the Company entered into a lease for office space in Tempe, Arizona. In connection with that lease, the Company entered into a sublease with DriveTime for the use of another floor in the same building. The lease and sublease each had a term of 83 months, subject to the right to exercise three five-year extension options. Pursuant to the sublease, the Company paid the rent equal to the amounts due under DriveTime's master lease directly to DriveTime's landlord. The lease and sublease expired in February 2024. The rent expense incurred related to the first floor sublease was less than $1 million during the three months ended September 30, 2023 and during each of the nine months ended September 30, 2024 and 2023.
In December 2019, an affiliate of DriveTime ("Verde"), purchased an office building in Tempe, Arizona that the Company leased from an unrelated landlord prior to Verde's purchase. In connection with the purchase, Verde assumed that lease. The lease has an initial term of ten years expiring in 2029, subject to the right to exercise two five-year extension options. The rent expense incurred under the lease with Verde was less than $1 million during each of the three and nine months ended September 30, 2024 and 2023.
Wholesale Sales and Revenues
DriveTime purchases wholesale vehicles from, and sells wholesale vehicles to, both the Company and unrelated third parties through both competitive online auctions that are managed by unrelated third parties and the Company's wholesale marketplace platform. Additionally, beginning in September 2023, the Company has provided DriveTime with reconditioning services through its wholesale marketplace platform. The Company recognized $7 million and $4 million of wholesale sales and revenues from DriveTime, including for reconditioning services, during the three months ended September 30, 2024 and 2023, respectively, and $21 million and $14 million during the nine months ended September 30, 2024 and 2023, respectively.
Retail Vehicle Acquisitions and Reconditioning
During the second quarter of 2021, the Company began acquiring reconditioned retail vehicles from DriveTime. The purchase price of each vehicle was equal to the wholesale price of the vehicle plus a fee for transportation and reconditioning services. As of September 30, 2024 and December 31, 2023, zero and less than $1 million, respectively, related to these vehicles and reconditioning services were included in vehicle inventory in the accompanying unaudited condensed consolidated balance sheets. The Company also recognized zero and $1 million of cost of goods sold during the three months ended September 30, 2024 and 2023, respectively, and less than $1 million and $3 million during the nine months ended September 30, 2024 and 2023, respectively.
Master Dealer Agreement
In December 2016, the Company entered into a master dealer agreement with DriveTime (the "Master Dealer Agreement"), most recently amended in April 2021, pursuant to which the Company may sell VSCs to customers purchasing a vehicle from the Company. The Company earns a commission on each VSC sold to its customers and DriveTime is obligated by and subsequently administers the VSCs. The Company collects the retail purchase price of the VSCs from its customers and remits the purchase price net of commission to DriveTime. The Master Dealer Agreement further allows the Company to receive payments for excess reserves based on the performance of the VSCs versus the reserves held by the VSC administrator, once a required claims period for such VSCs has passed. During the three months ended September 30, 2024 and 2023, the Company recognized $50 million and $32 million, respectively, and during the nine months ended September 30, 2024 and 2023, the
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Company recognized $136 million and $100 million, respectively, of commissions earned on VSCs sold to its customers and administered by DriveTime, net of a reserve for estimated contract cancellations, and payments for excess reserves to which it expects to be entitled. The commission earned on the sale of VSCs and expected payments for excess reserves is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.
Beginning in 2017, DriveTime also administers the Company's limited warranty provided to all customers. The Company pays a per-vehicle fee to DriveTime to administer the limited warranty included with every purchase. The Company incurred $5 million and $4 million during the three months ended September 30, 2024 and 2023, respectively, and $13 million during each of the nine months ended September 30, 2024 and 2023, related to the administration of limited warranty.
Profit Sharing Agreement
In June 2018, the Company entered into an agreement with an unaffiliated third party, pursuant to which the Company would sell certain Road Hazard ("RH") and Pre-Paid Maintenance ("PPM") contracts. Under this agreement, third parties would administer the RH and PPM contracts, including providing customer and administrative services, and pay a profit sharing component to the Company. In 2022, the Company began selling equivalent offerings from DriveTime, pursuant to the Master Dealer Agreement discussed above, and all rights and obligations in connection with existing RH and PPM contracts were transferred to DriveTime (the "Transferred Contracts"). Finally, in December 2022, the Company entered into a profit sharing agreement with DriveTime with regard to the Transferred Contracts (the "Profit Sharing Agreement"). The Company recognized $2 million and $3 million in revenue during the three months ended September 30, 2024 and 2023, respectively, and $5 million and $4 million during the nine months ended September 30, 2024 and 2023, respectively, under the Profit Sharing Agreement.
Servicing and Administrative Fees
DriveTime provides servicing and administrative functions associated with the Company's finance receivables. The Company incurred expenses of $2 million during each of the three months ended September 30, 2024 and 2023, and $7 million and $10 million during the nine months ended September 30, 2024 and 2023, respectively, related to these services.
Aircraft Time Sharing Agreement
The Company entered into an agreement to share usage of two aircraft owned by Verde and operated by DriveTime on October 22, 2015, and the agreement was subsequently amended in 2017. Pursuant to the agreement, the Company agreed to reimburse DriveTime for actual expenses for each of its flights. The original agreement was for 12 months, with perpetual 12-month automatic renewals. Either the Company or DriveTime can terminate the agreement with 30 days’ prior written notice. The Company reimbursed DriveTime less than $1 million under this agreement during each of the three and nine months ended September 30, 2024 and 2023.
Shared Services Agreement with DriveTime
In November 2014, the Company and DriveTime entered into a shared services agreement whereby DriveTime provided certain accounting and tax, legal and compliance, information technology, telecommunications, benefits, insurance, real estate, equipment, corporate communications, software and production, and other services primarily to facilitate the transition of these services to the Company on a standalone basis (as amended from time to time the "Shared Services Agreement"). The Shared Services Agreement operates on a year-to-year basis, with the Company having the right to terminate any or all services with 30 days' prior written notice and DriveTime having the right to terminate any or all services with 90 days' prior written notice. Charges allocated to the Company are based on the Company’s actual use of the specific services detailed in the Shared
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Services Agreement. The Company incurred less than $1 million in expenses related to the Shared Services Agreement during each of the three and nine months ended September 30, 2024 and 2023.
Accounts Payable Due to Related Party
As of September 30, 2024 and December 31, 2023, $14 million and $7 million, respectively, was due to related parties primarily related to the agreements mentioned above, and is included in accounts payable and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.
As further discussed in Note 14 — Income Taxes, as of September 30, 2024 and December 31, 2023, the Company recorded a tax receivable agreement ("TRA") liability of $37 million and $14 million, respectively, of which $28 million and $11 million, respectively, is due to related parties. Refer to Note 14 — Income Taxes for further discussion of the TRA. As of September 30, 2024, $14 million is included in other current liabilities and $23 million is included in other liabilities on the accompanying unaudited condensed consolidated balance sheets. As of December 31, 2023, $14 million is included in other liabilities on the accompanying unaudited condensed consolidated balance sheets.
Contributions of Class A Common Stock From Ernest Garcia III
On January 5, 2022, in recognition of the Company selling its 1 millionth vehicle in the fourth quarter of 2021, the Company's CEO, Ernest Garcia III ("Mr. Garcia"), committed to giving then-current employees 23 shares of Class A common stock each from his personal shareholdings once employees reach their two-year employment anniversary ("CEO Milestone Gift" or "Gift"). As a result and during the three months ended March 31, 2022, the Company granted 23 restricted stock units ("RSUs") to each current employee, which vested after completion of their second year of employment, for a total of 435,035 RSUs granted during the period. For every Gift that vested, and pursuant to a contribution agreement (the "Contribution Agreement") entered into by and between the Company and Mr. Garcia on February 22, 2022, Mr. Garcia contributed to the Company, at the end of each fiscal quarter, the number of shares of Class A common stock, granted pursuant to the CEO Milestone Gift, that had vested during such quarter. The shares contributed were shares of Class A common stock that Mr. Garcia individually owned, at no charge. During the three months ended September 30, 2024 and 2023, zero and 16,859 RSUs, respectively, and during the nine months ended September 30, 2024 and 2023, 1,104 and 48,484 RSUs, respectively, vested and an equal number of shares of Class A common stock were contributed by Mr. Garcia. As of January 2024, all RSUs granted pursuant to the CEO Milestone Gift had vested or been forfeited. Although the Company does not expect Mr. Garcia to incur any tax obligations related to the contribution, the Company has agreed to indemnify Mr. Garcia from any such obligations that may arise.
NOTE 7 — FINANCE RECEIVABLE SALE AGREEMENTS
The Company originates loans for its customers and sells them to partners and investors pursuant to finance receivable sale agreements. Historically, the Company has sold loans through two types of arrangements: forward flow agreements and fixed pool loan sales, including securitization transactions.
Master Purchase and Sale Agreement
In December 2016, the Company entered into a master purchase and sale agreement (the "Master Purchase and Sale Agreement" or "MPSA") with Ally Bank and Ally Financial Inc. (collectively the "Ally Parties"). Pursuant to the MPSA, the Company sells finance receivables meeting certain underwriting criteria under a committed forward flow arrangement without recourse to the Company for their post-sale performance. On January 11, 2024, the Company and the Ally Parties amended the MPSA to reestablish the commitment by the Ally Parties to purchase up to $4.0 billion of principal balances of finance receivables between January 11, 2024 and January 10, 2025.
During the three months ended September 30, 2024 and 2023, the Company sold $0.7 billion and $1.0 billion, respectively, in principal balances of finance receivables under the MPSA. During the nine months ended September 30, 2024 and 2023, the Company sold $2.15 billion and $2.7 billion, respectively, in principal balances of finance receivables under the MPSA, and had $1.85 billion of unused capacity as of September 30, 2024.
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Securitization Transactions
The Company sponsors and establishes securitization trusts to purchase finance receivables from the Company. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that the Company sells to the securitization trusts. Upon sale of the finance receivables to the securitization trusts, the Company recognizes a gain or loss on sales of finance receivables. The net proceeds from the sales are the fair value of the assets obtained as part of the transactions and typically include cash and at least 5% of the beneficial interests issued by the securitization trusts to comply with the Risk Retention Rules as defined and further discussed in Note 8 — Securitizations and Variable Interest Entities.
During the three months ended September 30, 2024 and 2023, the Company sold $1.2 billion and $1.0 billion, respectively, in principal balances of finance receivables through securitization transactions. During the nine months ended September 30, 2024 and 2023, the Company sold $3.2 billion and $2.3 billion, respectively, in principal balances of finance receivables through securitization transactions.
Fixed Pool Loan Sales
During the three and nine months ended September 30, 2024, the Company completed fixed pool loan sales of $0.4 billion and $0.8 billion, respectively, in principal balances of finance receivables to an unrelated third party on terms substantially similar to the Company’s securitization transactions and sales under the MPSA. There were no fixed pool loan sales during the three and nine months ended September 30, 2023.
Gain on Loan Sales
The total gain related to finance receivables sold to financing partners and pursuant to securitization transactions was $224 million and $146 million during the three months ended September 30, 2024 and 2023, respectively, and $541 million and $360 million during the nine months ended September 30, 2024 and 2023, respectively, which is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.
NOTE 8 — SECURITIZATIONS AND VARIABLE INTEREST ENTITIES
As noted in Note 7 — Finance Receivable Sale Agreements, the Company sponsors and establishes securitization trusts to purchase finance receivables from the Company. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that the Company sells to the securitization trusts. Upon sale of the finance receivables to the securitization trusts, the Company recognizes a gain or loss on sales of finance receivables. The net proceeds from the sales are the fair value of the assets obtained as part of the transactions and typically include cash and at least 5% of the beneficial interests issued by the securitization trusts to comply with Regulation RR of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Risk Retention Rules"). The beneficial interests retained by the Company include, but are not limited to, rated notes and certificates of the securitization trusts. The holders of the certificates issued by the securitization trusts have rights to cash flows only after the holders of the notes issued by the securitization trusts have received their contractual cash flows. The securitization trusts have no direct recourse to the Company’s assets, and holders of the securities issued by the securitization trusts can look only to the assets of the securitization trusts that issued their securities for payment. The beneficial interests held by the Company are subject principally to the credit and prepayment risk stemming from the underlying finance receivables.
The securitization trusts established in connection with asset-backed securitization transactions are VIEs. For each VIE that the Company establishes in its role as sponsor of securitization transactions, it performs an analysis to determine whether or not it is the primary beneficiary of the VIE. The Company’s continuing involvement with the VIEs consists of retaining a portion of the securities issued by the VIEs, providing industry standard representations and warranties regarding the underlying finance receivables, and performing ministerial duties as the trust administrator. As of September 30, 2024, the Company was not the primary beneficiary of these securitization trusts because its retained interests in the VIEs do not have exposures to losses or benefits that could potentially be significant to the VIEs. As such, the Company does not consolidate the securitization trusts.
The assets the Company retains in the unconsolidated VIEs are presented as beneficial interests in securitizations on the accompanying unaudited condensed consolidated balance sheets, which as of September 30, 2024 and December 31, 2023 were $463 million and $366 million, respectively. The Company held no other assets or liabilities related to its involvement with unconsolidated VIEs as of September 30, 2024 and December 31, 2023.
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table summarizes the carrying value and total exposure to losses of its assets related to unconsolidated VIEs with which the Company has continuing involvement, but is not the primary beneficiary at September 30, 2024 and December 31, 2023. Total exposure represents the estimated loss the Company would incur under severe, hypothetical circumstances, such as if the value of the interests in the securitization trusts and any associated collateral declined to zero. The Company believes the possibility of this is remote. As such, the total exposure presented below is not an indication of the Company's expected losses.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Carrying Value | | Total Exposure | | Carrying Value | | Total Exposure |
| | | | | | | |
| (in millions) |
Rated notes | $ | 361 | | | $ | 361 | | | $ | 287 | | | $ | 287 | |
Certificates and other assets | 102 | | | 102 | | | 79 | | | 79 | |
Total unconsolidated VIEs | $ | 463 | | | $ | 463 | | | $ | 366 | | | $ | 366 | |
The beneficial interests in securitizations are considered securities available for sale subject to restrictions on transfer pursuant to the Company’s obligations as a sponsor under the Risk Retention Rules. As described in Note 9 — Debt Instruments, the Company has entered into secured borrowing facilities through which it finances certain of these retained beneficial interests in securitizations. These securities are interests in securitization trusts, thus there are no contractual maturities. The amortized cost and fair value of securities available for sale as of September 30, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | | | | | |
| (in millions) |
Rated notes | $ | 360 | | | $ | 361 | | | $ | 294 | | | $ | 287 | |
Certificates and other assets | 102 | | | 102 | | | 71 | | | 79 | |
Total securities available for sale | $ | 462 | | | $ | 463 | | | $ | 365 | | | $ | 366 | |
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 9 — DEBT INSTRUMENTS
Debt instruments, excluding finance leases, which are discussed in Note 15 — Leases, as of September 30, 2024 and December 31, 2023 consisted of the following:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in millions) |
Asset-based financing: | | | |
Floor plan facility | $ | 76 | | | $ | 113 | |
Finance receivable facilities | — | | | 555 | |
Financing of beneficial interests in securitizations | 359 | | | 293 | |
| | | |
Real estate financing | 485 | | | 485 | |
Total asset-based financing | 920 | | | 1,446 | |
Senior Secured Notes (1) | 4,409 | | | 4,378 | |
Senior Unsecured Notes | 205 | | | 205 | |
Total debt | 5,534 | | | 6,029 | |
Less: current portion | (209) | | | (777) | |
Less: unamortized debt issuance costs (2) | (50) | | | (60) | |
Plus: unamortized premium (3) | 29 | | | 37 | |
Total included in long-term debt, net | $ | 5,304 | | | $ | 5,229 | |
(1) Includes $35 million and $185 million of accrued paid-in-kind ("PIK") interest as of September 30, 2024 and December 31, 2023, respectively. Accrued PIK interest increases the principal amount of Senior Secured Notes on each semi-annual interest payment date.
(2) The unamortized debt issuance costs related to long-term debt are presented as a reduction of the carrying amount of the corresponding liabilities on the accompanying unaudited condensed consolidated balance sheets. Unamortized debt issuance costs related to revolving debt arrangements are presented within other assets on the accompanying unaudited condensed consolidated balance sheets and not included here.
(3) The unamortized premium relates to a portion of the notes exchange offers completed in September 2023 which were accounted for as a debt modification.
Short-Term Revolving Facilities
Floor Plan Facility
The Company previously entered into a floor plan facility with the Ally Parties to finance its vehicle inventory, which was secured by Carvana LLC's vehicle inventory, general intangibles, accounts receivable, and finance receivables (as amended, the "Floor Plan Facility"). On September 1, 2023, the Company amended the Floor Plan Facility in connection with the issuance of the Senior Secured Notes (as defined below) to provide for an additional exclusive grant of collateral over certain deposit accounts and the cash on deposit in those accounts in favor of the lender and to amend certain other affirmative and negative covenants. The Company amended and restated the Floor Plan Facility on November 1, 2023 to resize the line of credit to $1.5 billion through April 30, 2025 and to lower the interest rate to (i) a prime rate plus 0.10% when amounts drawn under the facility are under 50% of the then current inventory balance and (ii) a prime rate plus 0.50% when amounts drawn are over 50%.
Under the Floor Plan Facility, repayment of amounts drawn for the purchase of a vehicle should generally be made within several days after selling or otherwise disposing of the vehicle. Outstanding balances related to vehicles held in inventory for more than 120 days require monthly principal payments equal to 10% of the original principal amount of that vehicle until the remaining outstanding balance is equal to the lesser of (i) 50% of the original principal amount or (ii) 50% of the wholesale value. Prepayments may be made without incurring a premium or penalty. Additionally, the Company is permitted to make prepayments to the lender to be held as principal payments under the Floor Plan Facility and subsequently reborrow such
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
amounts. The Floor Plan Facility also requires monthly interest payments and restricted cash requirements on a sliding scale whereby at least 12.5% of the total principal amount owed to the lender is required to be held as restricted cash if amounts drawn are under 50% of the then current inventory balance, which requirement increases to (i) 17.5% required to be held as restricted cash if amounts drawn are between 50% and 59.99%, (ii) 22.5% required to be held as restricted cash if amounts drawn are between 60% and 69.99%, and (iii) 25% required to be held as restricted cash if amounts drawn are equal to or over 70%. The Company is also required to pay the lender an availability fee based on the average unused capacity during the prior calendar quarter under the Floor Plan Facility.
As of September 30, 2024, the Company had $76 million outstanding under the facility, unused capacity of $1.4 billion, and held $10 million in restricted cash related to this facility. During the three months ended September 30, 2024, the Company's effective interest rate on the facility was 7.11%.
As of December 31, 2023, the Company had $113 million outstanding under the facility, unused capacity of $1.4 billion, and held $14 million in restricted cash related to this facility. During the year ended December 31, 2023, the Company's effective interest rate on the facility was 7.86%.
Finance Receivable Facilities
The Company has various short-term revolving credit facilities to fund certain finance receivables originated by the Company prior to selling them, which are typically secured by the finance receivables pledged to them (the "Finance Receivable Facilities").
In January 2020, the Company entered into an agreement pursuant to which a lender agreed to provide a revolving credit facility to fund certain finance receivables originated by the Company. In 2023, the Company amended its agreement to, among other things, adjust the line of credit to $500 million, and in January 2024, the maturity date was extended to January 19, 2025.
In February 2020, the Company entered into an agreement pursuant to which a second lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. In December 2021, the Company amended its agreement to, among other things, increase the line of credit to $600 million, and in December 2023, the maturity date was extended to December 8, 2025.
In April 2021, the Company entered into an agreement pursuant to which a third lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. In December 2021, the Company amended its agreement to, among other things, increase this line of credit to $600 million, and in April 2024 the maturity date was extended to October 10, 2025.
In March 2022, the Company entered into an agreement pursuant to which a fourth lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company. In August 2024, the Company amended its agreement to extend the maturity date to August 7, 2025.
In May 2023, the Company entered into an agreement pursuant to which a fifth lender agreed to provide a $500 million revolving credit facility to fund certain finance receivables originated by the Company until May 31, 2024. In May 2024, the Company amended its agreement to extend the maturity date to August 15, 2025.
The Finance Receivable Facilities require that any undistributed amounts collected on the pledged finance receivables be held as restricted cash. The Finance Receivable Facilities require monthly payments of interest and fees based on usage and unused facility amounts. The Finance Receivable Facilities self-amortize from the end of the draw period until maturity, offer full prepayment rights, and have no credit sublimits or aging restrictions, subject to negotiated concentration limits. The subsidiaries that entered into these Finance Receivable Facilities are each wholly-owned, special purpose entities whose assets are not available to the general creditors of the Company. As of September 30, 2024 and December 31, 2023, the Company had zero and $555 million, respectively, outstanding under these Finance Receivable Facilities, unused capacity of $2.7 billion and $2.1 billion, respectively, and held $14 million and $8 million, respectively, in restricted cash related to these Finance Receivable Facilities. During the three months ended September 30, 2024, the Company's effective interest rate on these
CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Finance Receivable Facilities was 7.04%. During the year ended December 31, 2023, the Company's effective interest rate on these Finance Receivable Facilities was 6.60%.
Long-Term Debt
Senior Secured Notes
The Company has issued various tranches of Senior Secured Notes (collectively, the "Senior Secured Notes") as further described below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior Secured Notes | September 30, 2024 | | December 31, 2023 | | Year 1 PIK Interest Rate | | Year 2 Cash/PIK Toggle Interest Rate | | Thereafter Cash Interest Rate |
| | | | | | | | | |
| (in millions, except percentages) |
Notes due December 1, 2028 (the "2028 Senior Secured Notes") | $ | 732 | | | $ | 981 | | | 12% | | 9%/12% | | 9% |
Notes due June 1, 2030 (the "2030 Senior Secured Notes") | 1,660 | | | 1,471 | | | 13% | | 11%/13% | | 9% |
Notes due June 1, 2031 (the "2031 Senior Secured Notes") | 1,982 | | | 1,741 | | | 14% | | --/14% | | 9% |
Accrued PIK interest | 35 | | | 185 | | | | | | | |
Total principal amount | $ | 4,409 | | | $ | 4,378 | | | | | | | |
Less: unamortized debt issuance costs | (43) | | | (53) | | | | | | | |
Plus: unamortized premium | 29 | | | 37 | | | | | | | |
Total Senior Secured debt | $ | 4,395 | |