10-QPeriod: Q1 FY2023

CARVANA CO. Quarterly Report for Q1 Ended Mar 31, 2023

Filed May 4, 2023For Securities:CVNA

Summary

Carvana Co. (CVNA) reported a significant year-over-year decrease in net sales and operating revenues for the first quarter of 2023, down 25.5% to $2.6 billion. This decline was primarily driven by a 33.1% drop in retail vehicle sales, reflecting a challenging macroeconomic environment characterized by increased interest rates and inflation, impacting vehicle affordability. Despite the revenue contraction, the company managed to improve its gross profit by 14.4% to $341 million, largely due to a substantial increase in gross profit per unit across both retail and wholesale segments. This improvement was attributed to lower acquisition, reconditioning, and inbound transport costs for retail vehicles, and lower acquisition costs for wholesale vehicles. While the company continues to navigate a difficult market, its focus on operational efficiency and profitability initiatives has led to a significant reduction in selling, general, and administrative (SG&A) expenses, down 35% year-over-year. However, interest expense increased significantly by $95 million due to higher borrowings and rising interest rates. Carvana ended the quarter with $694 million in cash, cash equivalents, and restricted cash, and its liquidity resources totaled $3.5 billion, indicating a continued ability to fund operations, although debt levels remain substantial at $8.5 billion.

Financial Highlights

42 data points
Beta

Revenue

$2.61B

13.1% Gross Margin

Net Income

-$160.00M

-6.1% Net Margin

EPS (Diluted)

$-0.30

Total Assets

$8.65B

Cash & Equivalents

$488.00M

Free Cash Flow

-$98.00M

Financial Statements
Beta
Revenue$2.61B
Cost of Revenue$2.27B
Gross Profit$341.00M
SG&A Expenses$472.00M
Operating Income-$132.00M
Interest Expense$159.00M
Net Income-$160.00M
EPS (Basic)$-0.30
EPS (Diluted)$-0.30
Shares Outstanding (Basic)530.05M

Key Highlights

  • 1Total net sales and operating revenues decreased by 25.5% to $2.6 billion in Q1 2023 compared to Q1 2022.
  • 2Retail vehicle sales declined by 33.1% to $1.8 billion, primarily due to a 24.7% decrease in retail unit sales.
  • 3Gross profit increased by 14.4% to $341 million, driven by a significant improvement in gross profit per unit for both retail and wholesale vehicles.
  • 4Selling, General, and Administrative (SG&A) expenses decreased substantially by 35% to $472 million, reflecting cost-saving initiatives.
  • 5Interest expense rose by 148% to $159 million, mainly due to increased borrowings and higher interest rates.
  • 6The company ended the quarter with $694 million in cash, cash equivalents, and restricted cash, with total liquidity resources of $3.5 billion.
  • 7Total debt increased slightly to $8.5 billion as of March 31, 2023.

Frequently Asked Questions

Carvana's revenue declined by 25.5% to $2.6 billion in Q1 2023 compared to Q1 2022. The primary driver was a 33.1% decrease in retail vehicle sales, which was a result of a 24.7% drop in the number of retail units sold. This decline was attributed to challenging macroeconomic conditions, including higher interest rates and inflation, which impacted vehicle affordability, as well as Carvana's own focus on profitability initiatives that led to reduced advertising spend and inventory levels.

Despite lower sales, Carvana's gross profit increased by 14.4% to $341 million. This improvement was driven by a significant increase in gross profit per unit for both retail and wholesale vehicles. For retail vehicles, gross profit per unit rose by 71.8% to $1,388, primarily due to lower acquisition, reconditioning, and inbound transport costs. Wholesale gross profit per unit also saw a substantial increase of 174.2% to $1,253, driven by lower acquisition costs for wholesale vehicles sold. Additionally, the company significantly reduced its SG&A expenses by 35% through cost-saving measures.

Carvana ended the first quarter of 2023 with $694 million in cash, cash equivalents, and restricted cash. Its total liquidity resources, including availability under revolving facilities and unpledged assets, stood at $3.5 billion. However, the company's total debt increased slightly to $8.5 billion as of March 31, 2023. While the company has sufficient liquidity for the next 12 months, its substantial debt load and the increase in interest expense, which rose by 148% to $159 million, remain key financial considerations.

The acquisition of ADESA's U.S. physical auction business in May 2022 has influenced Carvana's financial results in Q1 2023. Wholesale sales and revenues saw an increase of $211 million due to the inclusion of wholesale marketplace revenues from ADESA. Wholesale gross profit also benefited, including $26 million from wholesale marketplace gross profit in Q1 2023. However, this was partially offset by a decrease in wholesale units sold that were acquired directly from customers.