10-QPeriod: Q2 FY2018

CARVANA CO. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 8, 2018For Securities:CVNA

Summary

Carvana Co. (CVNA) reported significant growth in its second quarter and first half of 2018, driven by a substantial increase in used vehicle sales. Total net sales and operating revenues surged by approximately 127% year-over-year for both the three and six-month periods, reaching $475.3 million and $835.7 million, respectively. This top-line growth was fueled by a more than doubling of retail unit sales, expanding from 10,682 to 22,570 units for the quarter and from 19,016 to 41,034 units for the half-year. The company also demonstrated improved operational efficiency, with average days to sale decreasing significantly, leading to a higher gross profit per unit. Despite the impressive revenue and unit sales growth, Carvana continued to operate at a net loss. The net loss attributable to Carvana Co. widened in the quarter to $9.965 million from $4.276 million in the prior year period, and for the six months to $17.0 million from $8.466 million. This was largely due to increased selling, general, and administrative expenses, particularly in advertising and compensation, as the company invested heavily in market expansion and infrastructure. The company maintained a strong focus on liquidity, supported by its IPO and follow-on offering proceeds, and has sufficient working capital for at least the next twelve months.

Financial Highlights

42 data points
Beta

Revenue

$475.29M

10.3% Gross Margin

Net Income

-$9.96M

-2.1% Net Margin

EPS (Diluted)

$-0.08

Total Assets

$881.76M

Cash & Equivalents

$199.19M

Free Cash Flow

-$93.45M

Financial Statements
Beta
Revenue$475.29M
Cost of Revenue$426.25M
Gross Profit$49.03M
SG&A Expenses$95.65M
Interest Expense$4.17M
Net Income-$9.96M
EPS (Basic)$-0.08

Key Highlights

  • 1Total net sales and operating revenues grew by 127% year-over-year to $475.3 million for the three months ended June 30, 2018, and by 126.8% to $835.7 million for the six months ended June 30, 2018.
  • 2Retail unit sales more than doubled, increasing by 111.3% to 22,570 units for the quarter and by 115.8% to 41,034 units for the six-month period.
  • 3Average days to sale improved significantly, decreasing from 105 days to 66 days for the quarter and from 100 days to 67 days for the six-month period, indicating increased operational efficiency.
  • 4Total gross profit per unit increased by 44.8% to $2,173 for the quarter and by 49.6% to $2,029 for the six-month period, reflecting improved profitability per vehicle sold.
  • 5Despite revenue growth, Carvana continued to report net losses, with the net loss attributable to Carvana Co. increasing in both periods.
  • 6Selling, general, and administrative expenses rose significantly due to investments in market expansion, advertising, and increased headcount.
  • 7The company ended the period with a solid cash position of $217.5 million and adequate liquidity to fund operations for at least the next 12 months, supported by recent equity offerings and financing facilities.

Frequently Asked Questions

Carvana's primary growth driver is the significant increase in retail unit sales, fueled by the expansion into new markets and increased penetration in existing ones. This growth in unit sales directly translates to higher revenues across vehicle sales, financing, and ancillary products.

The increase in net loss is primarily attributable to Carvana's strategic investments in future growth. Selling, general, and administrative expenses, particularly advertising and compensation, increased substantially to support market expansion and enhance brand awareness. These investments are expected to drive future revenue growth but impact profitability in the short term.

Carvana is improving its efficiency by significantly reducing the 'average days to sale.' This metric, representing the time between acquiring a vehicle and selling it to a customer, has decreased due to expanded inventory selection, enhanced marketing, increased brand awareness, customer referrals, and a broader market presence, indicating a more streamlined supply chain and sales process.

Carvana maintains a strong liquidity position, with $217.5 million in cash, cash equivalents, and restricted cash as of June 30, 2018. This is supported by proceeds from recent equity offerings and its floor plan facility. Management believes its current liquidity is sufficient to fund operations for at least the next 12 months, but acknowledges potential needs for additional financing to support continued growth.