10-QPeriod: Q3 FY2018

CARVANA CO. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 7, 2018For Securities:CVNA

Summary

Carvana Co. (CVNA) filed its quarterly report on November 7, 2018, for the period ending September 29, 2018. The report highlights continued expansion and financing efforts, particularly concerning the sale of automotive finance receivables. Management emphasized the effectiveness of disclosure controls and procedures. However, a significant portion of the filing is dedicated to outlining substantial risks, including the company's history of losses, ability to manage rapid growth, dependence on the sale of automotive finance receivables for gross profits, and substantial existing indebtedness. Investors should note that Carvana is actively seeking to expand its capacity to sell automotive finance receivables, with new agreements in place to purchase up to an additional $2.6 billion. This highlights the critical nature of this financing mechanism for the company's liquidity. The company also disclosed significant existing debt obligations of $804.2 million as of September 30, 2018, which could limit financial flexibility and operational choices. The potential impact of tax law changes on the value of expected tax benefits was also a noted concern.

Financial Highlights

43 data points
Beta

Revenue

$534.92M

10.7% Gross Margin

Net Income

-$16.04M

-3.0% Net Margin

EPS (Diluted)

$-0.10

Total Assets

$1.21B

Cash & Equivalents

$439.79M

Free Cash Flow

-$118.19M

Financial Statements
Beta
Revenue$534.92M
Cost of Revenue$477.62M
Gross Profit$57.31M
SG&A Expenses$115.77M
Interest Expense$5.65M
Net Income-$16.04M
EPS (Basic)$-0.10

Key Highlights

  • 1Carvana is actively working to expand its capacity for selling automotive finance receivables, with recent agreements committing purchasers to buy up to an additional $2.6 billion.
  • 2As of September 30, 2018, Carvana had substantial consolidated indebtedness of $804.2 million, including $350.0 million in Senior Notes and $349.4 million under its Floor Plan Facility.
  • 3The company reported that its disclosure controls and procedures were effective as of the end of the reporting period, with no material changes to internal controls over financial reporting.
  • 4There have been no material changes to the risk factors disclosed in the previous Form 10-K, except for specific updates regarding the sale of automotive finance receivables, the realization of tax benefits, and substantial indebtedness.
  • 5The company is seeking to mitigate risks associated with its financing receivables by securing new arrangements and extending existing ones, noting that the loss of such relationships could materially affect its ability to originate finance receivables.
  • 6The reduction in U.S. federal corporate tax rates is expected to reduce the value of certain tax benefits Carvana anticipated from future exchanges of LLC Units, impacting its expected cash flows and stockholder equity.
  • 7Several amendments to financing and sale agreements were executed in early November 2018, including amendments to purchase agreements for finance receivables, an increase to the Floor Plan Facility credit line, and an extension to the Master Sale-Leaseback Agreement.

Frequently Asked Questions

Carvana heavily relies on the sale of automotive finance receivables to third-party investors. This process is crucial for generating gross profits and providing liquidity to fund its operations and growth. The company is actively seeking to expand its capacity to sell these receivables through new and extended agreements.

As of September 30, 2018, Carvana reported substantial consolidated indebtedness totaling $804.2 million. This includes $350.0 million in Senior Notes, $349.4 million under its Floor Plan Facility with Ally Financial, and other long-term indebtedness related to sale-leaseback transactions and equipment financing.

The significant indebtedness requires considerable cash flow for interest and principal payments, potentially reducing funds available for working capital, capital expenditures, and strategic initiatives. Debt agreements also include covenants and restrictions that may limit Carvana's ability to incur additional debt, pay dividends, sell assets, or engage in other business activities deemed beneficial.

Yes, Carvana executed several amendments in early November 2018. These include commitments to purchase up to an additional $2.6 billion in automotive finance receivables, amendments to extend the purchaser's commitment under the 2017 Master Transfer Agreement, an increase in the Floor Plan Facility credit line to $650.0 million, and an extension of the Master Sale-Leaseback Agreement's term.