CVNA Q3 revenue up 105%, shares up 149% YTD
This post covers Carvana (CVNA) Q3 2019 results, recently released on 11/06/2019, showing strong year-over-year growth of 83% in retail used vehicle units sold and delivering the company’s 23rd straight quarter of triple digit year-over-year revenue growth of 105%.
COMPANY BUSINESS PROFILE
Founded in 2012 and based in Phoenix, Arizona, Carvana’s mission is to change the way people buy cars. By removing the traditional dealership infrastructure and replacing it with technology and exceptional customer service, Carvana offers consumers an intuitive and convenient online car buying and financing platform. Carvana.com enables consumers to quickly and easily shop more than 15,000 vehicles, finance, trade-in or sell their current vehicle to Carvana, sign contracts, and schedule as-soon-as-next-day delivery or pickup at one of Carvana’s patented, automated Car Vending Machines.
On April 22, 2019, online startup Carvana, recognized as the industry’s most prominent new competitor in the used-vehicle market, debuted at No. 8 on the Automotive News list of the top 100 retailers, based in the U.S. ranked by used-vehicle retail sales for the year 2018. Carvana retailed 94,108 vehicles in 2018, more than double what it sold the year before. In the news article, Carvana CEO Garcia predicted that the online retailer can reach 2 million units in sales, which would put it far ahead of any other retailer in Automotive News’ top 100. [my comment: ambitious goal, heck yes! We’ll see. For FY 2019, Carvana guidance now projects 174,000-176,000 retail unit sales, a Y-o-Y increase of 85%-87%.]
http://www.nxtbook.com/nxtbooks/crain/an7698534210IRHTD_supp…
Here’s the top 10 retailers, of which only two (CarMax and Carvana) sell only used-vehicles:
**2018 Total**
**Top 10 Used retail number of**
**Used Car Retailers (a) Unit sales dealerships**
1. CarMax 721,512 188
2. Penske Automotive Group 282,500 280
3. AutoNation 237,722 244
4. Lithia Motors 151,234 181
5. Group 1 Automotive 147,999 183
6. Sonic Automotive 139,605 104
7. Hendrick Automotive Group 94,248 96
**8. Carvana 94,108 0 (b)**
9. Asbury Automotive Group 82,377 83
10. Larry H. Miller Dealerships 53,753 63
Total 2,005,058
Notes:
(a) A few retailers that might have qualified for the top 100 declined to respond to the Automotive News’ annual survey. These few included Berkshire Hathaway Automotive (formerly Van Tuyl Group) which would have ranked in the Top 10 above.
(b) Instead of dealerships, Carvana currently has 22 vending machines and 7 Inspection and reconditioning center (IRC) sites.
According to Edmunds, 40,232,959 used vehicles were sold in the U.S. in year 2018. The largest player CarMax had only 1.8% market share, and the combined total for the top ten used vehicle retailers took only 5% market share - both of which reveal and verify that the overall U.S. used-vehicle retail market is gigantic, highly fragmented and wide open to more competition.
CARVANA (CVNA) CORPORATE FINANCIALS
Q3 2019 GAAP Results
https://investors.carvana.com/~/media/Files/C/Carvana-IR/doc…
• Retail units sold totaled 46,413 an increase of 83% Y-o-Y.
• Revenue totaled $1.095 billion, an increase of 105% Y-o-Y, delivering the 23rd straight quarter of triple digit revenue growth.
• Total gross profit, including Gift, was $137.5 million, an increase of 140%
• Net loss, including Gift, was $92.2 million, an increase of 43%
• Basic and diluted net loss, including Gift, per Class A share was $0.78 based on 49.8 million shares of Class A common stock outstanding
Q3 2019 Ex-Gift Results, non-GAAP
• Total gross profit per unit ex-Gift was $2,996, an increase of $694
• EBITDA margin ex-Gift was (5.1%), an improvement from (8.3%)
• Adjusted net loss per Class A share, was $0.56, based on 155.5 million adjusted shares of Class A common stock outstanding, assuming the exchange of all outstanding LLC Units for shares of Class A common stock
Q3 2019 Other Results
• CEO Garcia emphasized: “The most notable accomplishment in the quarter was our 249% growth in buying cars from customers. This offering is now nearly 70% as large as our core business in transaction volume despite only recently receiving significant direct investment and attention. The gains we are making are fundamentally strengthening our platform, and the speed at which we are making those gains speak to the strength of the platform we already have.”
• Completed our third auto loan securitization, selling $600 million of principal balances and continuing to increase the number of investors participating across the capital structure.
• Opened 9 new markets and four vending machines, bringing our end-of-quarter totals to 146 and 22, respectively. [My comment: I finally got to visit for the first time a newly built Carvana vending machine icon as the first Carvana car vending machine built in California opened on 8/15/2019, located at the intersection of the very busy Interstate 405 and Westminster Boulevard in Orange County. Shortly thereafter, the second vending machine opened in the heart of the Inland Empire (San Bernardino County) in the City of Ontario, located directly alongside Interstate 10, near its junction with Interstate 15. Together, I-10 (major link between LA and Palm Springs-Palm Desert) and I-15 (major link between Southern California and Las Vegas) serve as two of the most heavily trafficked thoroughfares in Southern California, averaging 447,000 combined vehicles per day. The site has excellent frontage to and visibility from Interstate 10 due to Carvana’s 8-story Car Vending Machine prototype.]
Recent Notable Accomplishment
Carvana Increased its floor plan line with Ally to $950 million from $650 million, adding significant flexibility to expand our inventory selection and buy more cars from customers
FY 2019 Guidance
Since issuing its initial corporate financial guidance for FY 2019, Carvana management has revised and increased twice its FY 2019 guidance as follows [All financial comparisons stated below are versus FY 2018, unless otherwise noted]:
**Revised Revised**
**Carvana FY Guidance FY Guidance FY Guidance**
**as of Q1 '19 Change as of Q2 '19 Change as of Q3 '19 Change**
Retail Unit sales 165,000 - 170,000 75% - 81% 167,000 - 172,500 78% - 83% **174,000 - 176,000 85% - 87%**
Total Revenue $ 3.5 B - 3.6 B 79% - 84% $ 3.6 B - 3.7 B 84% - 89% **$3.85 B - 3.95 B 97% - 102%**
ex-Gift:
Gross Profit/unit $ 2,450 - 2,650 from $2,133 $ 2,650 - 2,850 from $2,133 **$ 3,825 - 2,875 from $2,133**
EBITDA Margin (5.5%) - (3.5) from (9.9%) (5.5%) - (3.5%) from (9.9%) (5.5%) - (3.5%) from (9.9%)
Market Openings 55 - 60 from 41 55 - 60 from 41 55 - 60 from 41
in 2018* in 2018* in 2018*
* bringing Carvana end-of-year total to 140-145 markets and our total U.S. population coverage to approximately 67%
Long Term Financial Goals
Carvana management remains focused on their highly ambitious long-term goals of selling 2 million+ vehicles per year and becoming the largest and most profitable automotive retailer.
Carvana corporate leadership uses the following long-term financial model to evaluate their results and progress towards each of their financial objectives.
**LONG TERM**
**Carvana (CVNA) FY 2016 FY 2017 FY 2018 Q1 2019 Q2 2019 Q3 2019 TARGET**
YOY Revenue Growth 180% 135% 128% 110% 108% 105% -
Gross Margin
• include Gift 5.3% 7.9% 10.1% 11.7% 14.0% 12.6% 15% - 19%
• exclude Gift 10.3% 11.8% 14.1% 12.7%
Advertising 7.4% 6.5% 5.7% 5.2% 5.1% 5.0% 1.0% - 1.5%
SG&A ex. Advertising & D&A
• include Gift 21.1% 18.2% 14.9% 14.0% 12.4% 13.0% 4.5% - 5.5%
• exclude Gift 14.5% 14.3% 12.3% 12.7%
D & A 1.3% 1.3% 1.2% 1.1% 0.9% 1.0% 0.5% - 1.0%
SG&A Total as % of Revenue
• include Gift 29.8% 26.0% 21.7% 20.6% 18.4% 19.0% 6% - 8%
• exclude Gift 21.3% 20.3% 18.3% 18.7%
Net Loss Margin
• include Gift (25.5)% (19.1)% (13.0)% (10.9)% (8.4)% (6.5)% -
• exclude Gift (12.4)% (10.5)% (8.0)% (6.2)%
EBITDA Margin (exclude Gift) (23.2)% (16.9)% (9.9)% (7.4)% (3.3)% (3.3)% 8% - 13.5%
Here’s CEO Garcia’s statement about the Carvana Expansion Model:
“In addition to launching and rapidly scaling new customer offerings, our business model has proven that it can expand quickly into new markets and regions. We launched 9 new markets in the third quarter to reach a total of 146 as of September 30, 2019. We also opened four new vending machines in the quarter, bringing our total to 22, including two in greater Los Angeles. Our 9 new market openings in Q3 complete a record year of market expansion with 61 new markets adding 8.3% to our population coverage and increasing the total percentage of the U.S. population in our markets to 66.9%, up from 58.6% at the end of FY 2018. In the fourth quarter we plan to focus our operational efforts on alleviating pinch points and preparing the business for another significant growth year in 2020 and therefore do not anticipate opening additional markets in 2019.
In the past, we have discussed a target market framework that covered 80% of the U.S. population. Based on the success of our 2019 cohort, which included many smaller markets than we have historically launched, we now believe we can efficiently serve 90%+ of the U.S. population in our markets over time. In addition, we believe we can efficiently serve another 5% of the U.S. population in smaller cities and towns through delivery from our nearby markets, ultimately bringing the total share of the population we serve to 95%.
As we expand deeper into the city size distribution, we expect growth in population coverage to be more important than growth in number of markets. Rather than continue to guide on number of markets, in 2020 we plan to guide on total population coverage, which we define as the percent of the total U.S. population where we have (a) commenced our suite of local advertising, and (b) launched access to Carvana-branded home delivery through our in-house logistics network.
Continuing the march toward our long-term goal of selling 2 million+ vehicles per year requires a multi-year expansion plan. This means ensuring that our entire operational chain can expand quickly enough to fulfill the strong and growing demand for our offering. In particular, we are building a pipeline of potential IRC sites, which are the longest lead-time component of our model. Our real estate, reconditioning, logistics, wholesale, and purchasing teams have aligned to build out an institutional process for identifying and developing sites that are optimized for supporting our customers and logistics network. We have begun construction on our 8th IRC that should begin vehicle production in 2020, a four-line facility in North Carolina capable of producing ~67k vehicles annually at full utilization. In addition, we have identified five more sites where we expect to launch four-line facilities over time. We believe this is just one of many essential points of progress in laying the foundation to achieving our long-term goals.
IRCs deliver economies of scale that are a powerful force in our model. In particular, new IRCs create benefits in sales volumes and logistics expenses in surrounding markets. As a recent example, we opened two IRC’s earlier this year in Indianapolis and Cleveland. Since the fourth quarter of 2018, the ten markets nearest these IRCs have seen their average logistics expense per unit drop by 20% and their sales grow more than twice as fast as comparable markets as a result of customer reaction to faster delivery times.”
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CORPORATE FINANCIAL PERFORMANCE
**CARVANA**
11/15/19
GICS SECTOR Consumer Discretionary
GISC INDUSTRY Automotive Retail
MARKET CAP $ 12.36 B
Employees 3,879
52-WK HIGH 85.97
PRICE/SHARE 81.57
52-WK LOW 28.44
Price Y-T-D change 149.4%
Price change 52-wk 80.3%
S&P 500 52-wk change 15.1%
EV/EBITDA (mrq) N/A
P/E (ttm) N/A
EV/Revenue (ttm) 3.99
P/S (ttm) 3.61
As of 11/15/2019, Carvana share performance has been superb, up 149% Y-T-D and up 80% over the recent past 52-week period as shown in the following Big Charts that also include some of my other favorite holdings - MBD, AYX and ROKU for comparison:
• Year-to-Date Chart: Carvana is substantially out-performing MDB and AYX, while ROKU for now is superbly performing in a league of its own.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
• Recent 52-week period: Carvana’s performance is on par with MDB and AYX, while ROKU clearly outshines all.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
**5-YEAR SUMMARY OF CVNA CORPORATE FINANCIALS**
**MARKET NO. USED WHOLESALE NET Diluted SHARE**
**CARVANA CAP OF VEHICLE Change VEHICLE Change REVENUE Change INCOME EPS PRICE Change**
**FY/QTR ($M) MKTS UNITS SOLD YoY UNITS SOLD YoY ($M) YoY ($M) ($) ($) YoY**
**Q3 '19 9.976 B 146 46,413 83.3% 11,698 165.4% 1,094.854 104.7% (39.017) (0.78) 66.00 70.3%**
Q2 '19 10.91 B 137 44,000 94.9% 10,756 194.0% 986.221 107.5% (26.610) (0.58) 62.59 50.5%
Q1 '19 10.88 B 109 36,766 99.1% 6,701 186.1% 755.234 109.6% (28.549) (0.60) 41.82 82.4%
FY 2018 4.712 B 85 94,108 112.7% 15,125 132.4% 1,955.467 127.7% (61.754) (2.24) 32.71 71.1%
Q4 '18 4.712 B 85 27,750 105.3% 4,717 155.8% 584.838 120.6% (28.704) (0.74) 32.71 71.1%
Q3 '18 5.428 B 78 25,324 116.1% 4,408 145.3% 534.921 137.3% (16.042) (0.50) 38.75 164.0%
Q2 '18 5.818 B 65 22,570 111.3% 3,658 131.5% 475.286 127.0% (9.965) (0.41) 41.60 103.2%
Q1 '18 3.003 B 56 18,464 121.6% 2,342 81.8% 360.422 126.6% (7.043) (0.53) 22.93 106.6%
FY 2017 2.606 B 44 44,252 135.9% 6,509 145.5% 858.870 135.2% (62.841) (1.31) 19.12
Q4 '17 2.606 B 44 13,517 141.4% 1,844 152.3% 265.053 148.1% (5.480) (0.45) 19.12
Q3 '17 1.949 B 39 11,719 133.3% 1,797 128.3% 225.379 128.0% (4.380) (0.29) 14.68
Q2 '17 2.718 B 30 10,682 145.3% 1,580 151.2% 209.365 142.0% (14.542) (0.28) 20.47
Q1 '17 23 8,334 120.3% 1,288 155.6% 159.073 118.1% (38.439) (0.28) 11.10
FY 2016 21 18,761 187.6% 2,651 147.8% 365.148 180.0% (93.112)
Q4 '16 21 5,600 155.5% 731 106.827 151.3% (35.694) (0.26)
Q3 '16 16 5,023 182.8% 787 98.844 177.1% (21.985) (0.16)
Q2 '16 14 4,355 224.3% 629 86.526 202.5% (18.108) (0.13)
Q1 '16 11 3,783 212.1% 504 72.951 237.7% (17.325) (0.13)
FY 2015 9 6,523 209.9% 1,070 681.0% 130.392 212.8%
Q4 '15 9 2,192 182.8% 42.514 200.7%
Q3 '15 5 1,776 206.7% 35.668 202.4%
Q2 '15 5 1,343 208.0% 28.607 202.8%
Q1 '15 4 1,212 284.8% 21.603 243.0%
FY 2014 3 2,105 137 41.679
Q4 '14 3 775 14.137
Q3 '14 3 579 11.795
Q2 '14 2 436 9.449
Q1 '14 1 315 6.298
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Margins
Carvana margins demand investor vigilance. In the Carvana Long Term Financial Goals, management set forth a long-term target of 15% to 19% for Gross Margin.
**MARGINS GROSS OPERATING PROFIT**
Q3 '19 12.56% (6.43%) (3.56%)
Q2 '19 13.9% (6.5%) (2.7%)
Q1 ’19 11.7% (8.8%) (3.8%)
FY '18 10.1% (11.7%) (3.2%)
Q4 '18 9.6% (12.7%) (4.9%)
Q3 '18 10.7% (10.9%) (2.9%)
Q2 ‘18 10.3% (9.8%) (2.1%)
Q1 ‘18 9.5% (13.6%) (2.0%)
FY '17 7.9% (18.1%) (7.3%)
Q4 ‘17 8.3% (17.0%) (18.9%)
Q3 ‘17 9.1% (17.0%) (1.9%)
Q2 ‘17 7.7% (17.2%) (7.0%)
Q1 ‘17
FY '16 5.3% (24.5%) (25.5%)
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STOCK-BASED COMPENSATION (SBC)
SBC/revenue ratios are favorably low.
**PERIOD SBC SBC/Revenue**
**($ M)**
Q3 '19 9.621 0.9%
Q2 '19 8.034 0.8%
Q1 ’19 7.711 1.0%
Q4 '18 6.205 1.1%
Q3 '18 13.800 2.6%
Q2 ‘18 2.580 0.5%
Q1 ‘18 1.510 0.4%
FY '18 24.095 2.5%
FY '17 5.611 0.7%
FY '16 0.555 0.2%
FY '15 0.490 0.4%
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Capital Structure
**CAPITAL STRUCTURE Q2 2019**
Cash & cash equivalents (mrq) $ 94.943 M
Working Capital $ 590.505 M
Current Ratio (mrq) 2.16
LT Debt (mrq) $ 863.846 M
Total Debt 1,166.283 M
Stockholders’ Equity $ 311.178 M
LT Debt/Stockholders’ Equity 277.6%
Total Debt/Stockholders' Equity 374.8%
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CONCLUSION
For now, I intend to stick with Carvana management’s objectives and Long-Term financial goals, vigilantly watch their execution and progress and keep my Carvana investment.
Carvana is another one of my diversified holdings and is a keeper in my family’s accounts.
As always conduct your own due diligence and decision-making.
Regards,
Ray