Workflow
Carvana (CVNA) - 2022 Q4 - Annual Report

Part I Item 1. Business Carvana is a leading e-commerce platform for used car transactions, expanding infrastructure with the 2022 ADESA acquisition and shifting focus to profitability - Carvana is an e-commerce platform for buying and selling used cars, focusing on selection, value, transparent pricing, and a simple transaction process24 - On May 9, 2022, Carvana acquired ADESA's U.S. physical auction business for approximately $2.2 billion in cash, adding 56 auction sites and significantly expanding its infrastructure27 - As of December 31, 2022, Carvana's distribution network services 81.1% of the U.S. population across 316 metropolitan cities2885 - In 2022, due to economic changes, the company shifted its priority to driving profitability through operating efficiency and expense reduction, a change from its historical focus on rapid growth59 Company Scale and Reach (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Employees | Over 16,600 full-time and part-time | | U.S. Patents Issued | 21 | | International Patents Issued | 1 | | Trademark Registrations | 31 domestic, 6 international | | Customer Satisfaction Rating | 4.7 out of 5.0 (based on over 176,000 surveys) | Item 1A. Risk Factors The company faces significant risks from macroeconomic conditions, substantial debt, Garcia Parties' control, and ADESA integration challenges - The business is highly sensitive to macroeconomic conditions. In fiscal year 2022, industry headwinds led to a 3.0% decrease in retail vehicles sold and a 33.4% decrease in gross profit per unit. Interest expense also increased significantly by $310 million133 - The company has a history of losses, with an accumulated deficit of approximately $3.7 billion as of December 31, 2022, and may not achieve or maintain profitability in the future139 - The Garcia Parties control approximately 88% of the voting power of outstanding capital stock as of December 31, 2022, allowing them to effectively control company decisions, which may create conflicts of interest with other stockholders283 - The company faces risks related to the integration of the ADESA acquisition, including potential difficulties in assimilating corporate cultures, loss of employees, and the assumption of unknown liabilities. A non-cash goodwill impairment charge of $847 million related to the acquisition was recorded as of December 31, 2022308314 - The company has substantial indebtedness, which could affect financial flexibility. As of December 31, 2022, this included $5.7 billion in senior notes and $1.5 billion in borrowings under inventory and finance receivable facilities257 Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None328 Item 2. Properties The company utilizes a mix of owned and leased facilities for operations, including corporate, IRCs, and ADESA properties Owned vs. Leased Properties (as of Dec 31, 2022) | Description of Use | Owned Interior Square Footage | Leased Interior Square Footage | Owned Land Acreage | Leased Land Acreage | | :--- | :--- | :--- | :--- | :--- | | Corporate headquarters | — | 1,385,877 | — | 48 | | Other facilities | 5,026,496 | 6,527,992 | 4,203 | 3,361 | Item 3. Legal Proceedings The company is involved in routine legal actions, with management not expecting a material adverse financial impact - The company is involved in various claims and legal actions arising in the ordinary course of business330 - Management does not believe the ultimate resolution of current legal actions will have a material adverse effect on the company's financial position or operations330 Item 4. Mine Safety Disclosures This item is not applicable - Not applicable332 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Carvana's Class A common stock trades on NYSE as "CVNA" since 2017, with no cash dividends paid or anticipated - Carvana's Class A common stock began trading on the NYSE under the ticker "CVNA" on April 28, 2017335 - The company has never paid cash dividends on its Class A common stock and does not intend to in the foreseeable future338 - During the year ended December 31, 2022, certain LLC Unitholders exchanged less than 1 million LLC Units for less than 1 million shares of Class A common stock342 Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2022 saw a $2.9 billion net loss due to macroeconomic headwinds, lower gross profit, a $847 million goodwill impairment, and increased interest expense Key Operating Metrics (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Retail units sold | 412,296 | 425,237 | | Average monthly unique visitors (in thousands) | 21,763 | 17,854 | | Total website units | 63,992 | 71,062 | | Total gross profit per unit | $3,022 | $4,537 | Results of Operations Summary (in millions) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total net sales and operating revenues | $13,604 | $12,814 | 6.2% | | Total gross profit | $1,246 | $1,929 | (35.4)% | | Selling, general and administrative expenses | $2,736 | $2,033 | 34.6% | | Goodwill impairment | $847 | $0 | NM | | Interest expense | $486 | $176 | 176.1% | | Net loss | $(2,894) | $(287) | 908.4% | - The decrease in retail units sold was driven by macroeconomic factors including increased interest rates and inflation, leading to decreased vehicle affordability406 - A non-cash goodwill impairment charge of $847 million was recorded in 2022 related to the ADESA acquisition396418 - As of December 31, 2022, the company had total liquidity resources of $3.9 billion, including $434 million in cash and cash equivalents and $1.4 billion in availability under short-term revolving facilities435 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Primary market risks include interest rate sensitivity on variable-rate debt and inflation impacting vehicle affordability and operational costs - The primary market risk exposure is from changing interest rates on short-term revolving facilities. A 100-basis point change in market rates would result in a $19 million change to annual interest expense based on the $1.5 billion outstanding debt as of December 31, 2022479 - Long-term debt, consisting of Senior Notes, has fixed interest rates, minimizing risk to results of operations from market rate changes480 - The company is affected by inflation through decreased vehicle affordability and rising costs for supply chain, logistics, materials, and labor, which adversely affected results in 2022482 Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2022, including balance sheets, income statements, cash flows, and detailed notes Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $8,698 | $7,015 | | Cash and cash equivalents | $434 | $403 | | Vehicle inventory | $1,876 | $3,149 | | Total Liabilities | $9,751 | $6,490 | | Short-term revolving facilities | $1,534 | $2,053 | | Long-term debt, excluding current portion | $6,574 | $3,208 | | Total Stockholders' Equity (Deficit) | $(1,053) | $525 | Consolidated Statement of Operations Highlights (in millions) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net sales and operating revenues | $13,604 | $12,814 | $5,587 | | Gross profit | $1,246 | $1,929 | $794 | | Net loss | $(2,894) | $(287) | $(462) | Consolidated Statement of Cash Flows Highlights (in millions) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,324) | $(2,594) | | Net cash used in investing activities | $(2,583) | $(627) | | Net cash provided by financing activities | $3,899 | $3,528 | Note 3 — Business Combinations Carvana acquired ADESA's U.S. auction business for $2.2 billion in May 2022, adding 56 sites and $838 million in goodwill - On May 9, 2022, the Company acquired 100% of the equity interests in the U.S. physical auction business of ADESA for approximately $2.2 billion in cash577 ADESA Acquisition Purchase Price Allocation (in millions) | Account | Value | | :--- | :--- | | Net Assets Acquired | $1,357 | | Purchase price consideration | $2,195 | | Goodwill | $838 | - From the acquisition date to December 31, 2022, ADESA operations recognized $490 million of wholesale sales and revenues and a net loss of $101 million583 Note 5 — Goodwill and Intangible Assets A $847 million non-cash goodwill impairment charge was recorded in Q4 2022, reducing the ADESA acquisition goodwill to zero - A significant decline in market capitalization in Q4 2022 triggered a goodwill impairment test592 - A non-cash goodwill impairment charge of $847 million was recorded, reducing the goodwill balance from the ADESA acquisition to zero as of December 31, 2022592 Note 10 — Debt Instruments Total debt reached $8.0 billion by year-end 2022, comprising $1.5 billion in short-term facilities and $5.7 billion in long-term Senior Notes Debt Instruments Summary (as of Dec 31, 2022, in millions) | Debt Type | Outstanding Principal | | :--- | :--- | | Asset-based financing | | | Floor plan facility | $569 | | Finance receivable facilities | $965 | | Financing of beneficial interest in securitizations | $268 | | Notes payable | $3 | | Real estate financing | $486 | | Senior notes | $5,725 | | Total debt | $8,016 | - In May 2022, the company issued $3.275 billion of 10.250% Senior Unsecured Notes due 2030660 - The company was in compliance with all debt covenants as of December 31, 2022664 Note 15 — Income Taxes A $2.1 billion valuation allowance was recorded against deferred tax assets due to cumulative losses, with an unrecorded $1.6 billion TRA liability - The company recorded a full valuation allowance of $2.1 billion against its deferred tax assets, concluding it is more likely than not they would not be realized due to cumulative losses733 - As of December 31, 2022, the company had federal and state net operating loss carryforwards of $1.9 billion729 - The company has an unrecorded liability of approximately $1.6 billion related to the Tax Receivable Agreement (TRA) as of December 31, 2022740 Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022797 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022798 Part III Items 10-14. Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for these items is incorporated by reference from the company's 2023 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2023 Proxy Statement805806810811812 Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding options (thousands) | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance (thousands) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,265 | $80.26 | 7,162 | | Total | 1,265 | $80.26 | 7,162 | Part IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including Schedule II and the Exhibit Index Schedule II - Valuation and Qualifying Accounts (in millions) | Description | Balance at beginning of 2022 | Charged to costs and expenses | Charged to other accounts | Balance at end of 2022 | | :--- | :--- | :--- | :--- | :--- | | Deferred tax asset valuation allowance | $1,638 | $398 | $22 | $2,058 | Item 16. Form 10-K Summary This item is not applicable - None816