01—Abstract
Summary
Summary of the 10-K filed March 6, 2018. Cited figures are marked; the original filing is the authoritative source.
Carvana Co. (NYSE: CVNA) reported its first full year as a public company in its 10-K for fiscal 2017, showing rapid top-line growth alongside widening losses.
Net sales and operating revenues rose 135% to $858.9 milliona, driven by retail unit sales of 44,252 (up 136%) as the company expanded from 21 to 44 metropolitan markets. Gross profit improved sharply to $68.1 million from $19.2 million, and total gross profit per retail unit climbed to $1,539 from $1,023, though the business remains unprofitable overall. The loss picture deteriorated.
Net loss widened to $164.3 millionb from $93.1 million, driven mainly by SG&A expenses of $223.4 million (up 106%), including advertising of $55.7 million and compensation growth tied to market expansion. EBITDA was negative $145.1 million, a -16.9% margin, which is an improvement on the prior year's -23.2% margin. Operating cash flow was negative $199.9 million, reflecting inventory build and the cost of growth.
Because Carvana Co. holds only about 12.9% of Carvana Group, most of the net loss is attributed to non-controlling interests, leaving a net loss attributable to Carvana Co. of $62.8 millionc. Balance-sheet and capital-structure considerations are central for investors. Cash rose to $172.7 million after the May 2017 IPO (about $205.8 million net) and a December 2017 Class A Convertible Preferred issuance (about $98.5 million net).
The Floor Plan Facility with Ally stood at $248.8 milliond against a $350 million limit beginning in 2018, and total debt including notes and finance leases was about $302.7 million. The Garcia family controls roughly 97% of voting power through Class B shares, and a Tax Receivable Agreement obligates Carvana to pay 85% of realized tax benefits to LLC Unitholders, which the company estimates could be substantial.
02—Key points
Key Highlights
- Revenue grew 135% to $858.9 million in 2017, with retail units sold rising 136% to 44,252 vehicles as markets expanded from 21 to 44.
- Gross profit increased to $68.1 million from $19.2 million, and total gross profit per retail unit rose to $1,539 from $1,023, though used-vehicle gross profit per unit remained modest at $741.
- Net loss widened to $164.3 million from $93.1 million, mainly due to SG&A growth to $223.4 million, including $55.7 million of advertising, as the company invested in new markets and infrastructure.
- Operating cash outflow was $199.9 million, and EBITDA was negative $145.1 million (-16.9% margin, improved from -23.2% in 2016).
- Liquidity rose after the IPO and convertible preferred issuance, with cash of $172.7 million, but the Ally Floor Plan Facility balance of $248.8 million and total debt of about $302.7 million create dependence on lender renewals (Ally agreement matures December 2018).
- Carvana Co. owns only about 12.9% of Carvana Group, so the controlling Garcia family holds roughly 97% of voting power, and a Tax Receivable Agreement requires 85% of realized tax savings to be paid to LLC Unitholders.
- Auditor Grant Thornton issued an unqualified opinion, but the company disclosed that it has not yet provided management's internal control assessment due to its emerging growth company status, and it has a full valuation allowance against deferred tax assets.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 6, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $858.87M$365.15M | +135.2% |
| Cost of Revenue | $790.78M$345.95M | +128.6% |
| Gross Profit | $68.09M$19.20M | +254.7% |
| SG&A Expenses | $223.40M$108.68M | +105.6% |
| Interest Expense | $7.66M$3.59M | +113.5% |
| Net Income | -$62.84M-$93.11M | +32.5% |
05—Questions
Frequently Asked Questions
Is Carvana close to profitability?
Not yet. The company has reported losses in every year since its 2012 inception, with a net loss of $164.3 million in 2017. Management expects continued losses as it invests in new markets, advertising, and logistics. Gross profit is improving quickly, and EBITDA margin improved from -23.2% to -16.9%, but the filing gives no timeline for profitability.
How much of Carvana's loss belongs to public shareholders?
Only a portion. Carvana Co. owns about 12.9% of Carvana Group, so about $101.5 million of the 2017 net loss was attributed to non-controlling interests. The net loss attributable to Carvana Co. Class A shareholders was $62.8 million, and loss per Class A share was $1.31. Exchanges of LLC Units would change this ownership split over time.
What are the main risks to Carvana's financing?
The business depends heavily on its Ally Floor Plan Facility to fund inventory, with $248.8 million outstanding at year-end and an increase to $350 million starting in 2018. The Ally agreement matures in December 2018 and may be extended only at Ally's discretion. Carvana also depends on sales of automotive finance receivables, with third-party agreements expiring around November 2018, and on credit from DriveTime for certain services. Failure to renew any of these could constrain inventory and revenue.
Who controls the company, and how could that affect minority shareholders?
The Garcia Parties hold Class B shares carrying ten votes each and control roughly 97% of voting power as of December 31, 2017. They can elect the board and approve major transactions, and they can pursue acquisitions or transactions that may not match public shareholders' interests. Carvana is also a 'controlled company' under NYSE rules, and one Garcia family member controls DriveTime, a related party and potential competitor.
Why does the company's IPO-related capital matter for future dilution?
The company has reserved 14.0 million Class A shares for its 2017 incentive plan, with 12.7 million still available, and 117 million Class A-equivalent LLC Units can be exchanged into Class A shares. The Class A Convertible Preferred Stock, issued in December 2017 for $100 million, converts into about 5.08 million Class A shares at $19.69 per share and represents roughly 22% of outstanding Class A common on an as-converted basis. Future exchanges, conversions, and equity issuances could all dilute existing holders.
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