Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Unless the context requires otherwise, references in this report to "Carvana," the "Company," "we," "us," and "our" refer to Carvana Co. and its consolidated subsidiaries. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our most recent Annual Report filed on Form 10-K, as well as our unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q.

Overview

Carvana is the leading e-commerce platform for buying and selling used cars. We are transforming the used car buying and selling experience by giving consumers what they want - a wide selection, great value and quality, transparent pricing, and a simple, no pressure transaction. Each element of our business, from inventory procurement to fulfillment and overall ease of the online transaction, has been built for this singular purpose.

Our business combines a comprehensive online sales experience with a vertically integrated supply chain that allows us to sell high-quality vehicles to our customers transparently and efficiently at a low price. Using our website, customers can complete all phases of a retail vehicle purchase transaction. Specifically, our online sales experience allows customers to:

Purchase a retail vehicle. As of June 30, 2023, we listed 37,570 total retail units on our website, where customers can select and purchase a vehicle, including arranging financing and signing contracts, directly from their desktop or mobile device. Selling vehicles to retail customers is the primary driver of our business. Selling retail vehicles generates revenue equal to the selling price of the vehicle, less an allowance for returns, and also enables multiple additional revenue streams, including vehicle service contracts ("VSCs"), GAP waiver coverage, other ancillary products, and trade-ins.
Finance their purchase. Customers can pay for their Carvana vehicle using cash, financing from other parties such as banks or credit unions, or financing with us using our proprietary loan origination platform. Customers who choose to apply for our in-house financing fill out a short prequalification form, select from a range of financing terms we provide and, if approved, apply the financing to their purchase in our online checkout process. We generally seek to sell the loans we originate to financing partners or pursuant to a securitization transaction and, in each case, we generally earn a premium upon sale.
Protect their purchase. Customers have the option to protect their vehicle with a VSC as part of our online checkout process. VSCs provide customers with protection against the costs of certain mechanical repairs after the expiration of their vehicle’s original manufacturer warranty. We earn a fee for selling VSCs on behalf of an affiliate of DriveTime Automotive Group, Inc. (together with its consolidated affiliates, collectively, “DriveTime”), which is the obligor under these VSCs. We generally have no contractual liability to customers for claims under these agreements. We also offer GAP waiver coverage to customers in most states in which we operate. We have also partnered with Root, Inc. ("Root") to offer an integrated auto insurance solution, through which customers in most states may conveniently access auto insurance directly from the Carvana e-commerce platform.
Sell us their car. We allow our customers to trade-in a vehicle and apply the trade-in value to their purchase, or to sell us a vehicle independent of a purchase. Using our digital appraisal tool, customers can receive a conditional offer for their vehicle nearly instantaneously from our site simply by answering a few questions about the vehicle condition and features. We generate trade-in offers using a proprietary valuation algorithm supported by extensive used vehicle market and customer-behavior data. When customers accept our offer, they can schedule a time to have the vehicle picked up at their home or elsewhere within one of our markets and receive payment, eliminating the need to visit a dealership or negotiate a private sale. We take their vehicles into inventory and sell them either at auction as a wholesale sale or through our website as a retail sale. Vehicles sold at auction typically do not meet the quality or condition standards required to be included in retail inventory displayed for sale on our website.

To enable a seamless customer experience, we have built a vertically-integrated used vehicle supply chain, supported by proprietary software systems and data.

Vehicle acquisition. We primarily acquire our used vehicle inventory directly from customers when they trade in or sell us their vehicles and through the large and liquid national used car auction market. Acquiring directly from customers eliminates auction fees and provides more diverse vehicles. The remainder of our inventory is acquired from vehicle finance and leasing companies, rental car companies, and other suppliers, which suppliers may also provide reconditioning services. We use proprietary algorithms to determine which cars to bid on at auction and how much to bid. Our software sifts through over 100,000 vehicles per day and filters out vehicles with reported accidents, poor condition ratings, or other unacceptable attributes, and can evaluate the tens of thousands of potential vehicle purchases that remain per day, creating a competitive advantage versus in-person sourcing methods generally used by traditional dealerships. Once our algorithms have identified a suitable vehicle for purchase, bids are verified and executed by a centralized team of inventory-sourcing professionals. For vehicles sold to us through our website, we use proprietary algorithms to determine an appropriate offer. We assess vehicles on the basis of quality, inventory fit, consumer desirability, relative value, expected reconditioning costs, and vehicle location to identify what we believe represent the most in-demand and profitable vehicles to acquire for inventory. We utilize a broad range of data sources, including proprietary site data, and a variety of external data sources to support our assessments.
Inspection and reconditioning. Once we acquire a vehicle from a customer, we leverage our in-house logistics or a vendor to transport the vehicle to a greenfield inspection and reconditioning center or auction location with reconditioning capacity ("IRC"), at which point the vehicle is entered into our inventory management system. We then begin a 150-point inspection process covering controls, features, brakes, tires, and cosmetics. Each IRC includes trained technicians, vehicle lifts, paint-less dent repair, and paint capabilities and receives on-site support from vendors with whom we have integrated systems to ensure ready access to parts and materials. When an inspection is complete, we estimate the necessary reconditioning cost for accident-free vehicles to be deemed "Carvana Certified" and expected timing for that vehicle to be made available for sale on our website.
Photography and merchandising. To provide transparency to our customers, our patented, automated photo booths capture a 360-degree exterior and interior virtual tour of each vehicle in our website inventory. Our photo booths photograph the interior and exterior of the vehicle while technicians annotate material defects based on visibility-threshold category. We also feature integrations with various vehicle data providers for vehicle feature and option information. We have instituted a unified cosmetic standard across all IRCs and certain auction sites to better ensure a consistent customer experience.
Transportation and fulfillment. Third-party vehicle transportation is often slow, expensive, and unreliable. To address these challenges, we built an in-house auto logistics network backed by a proprietary transportation management system ("TMS") to transport our vehicles to customers in our markets. The system is based on a "hub and spoke" model, which connects all IRCs to vending machines and hubs via our owned and leased fleet of multi-car and single car haulers. Our TMS allows us to efficiently manage locations, routes, route capacities, trucks, and drivers while also dynamically optimizing for speed and cost. We store inventory primarily at the IRCs and other sites, and when a vehicle is sold, it is delivered directly to customers in our markets or transported to a vending machine or certain hubs for pick-up by the customer. Due to our robust and proprietary logistics infrastructure, we are able to offer our customers and operations team highly accurate predictions of vehicle availability, minimizing unanticipated delays and ensuring a seamless and reliable customer experience.

Retail Vehicle Unit Sales

Since launching to customers in Atlanta, Georgia in January 2013, we have historically experienced rapid growth in sales through our website www.carvana.com. Due to profitability initiatives and macroeconomic impacts, including rising interest rates during the first six months of 2023, the number of vehicles we sold to retail customers decreased by 34.9% to 76,530, in the three months ended June 30, 2023 compared to 117,564 in the three months ended June 30, 2022. During the six months

ended June 30, 2023, the number of vehicles we sold to retail customers decreased by 30.1% to 155,770, compared to 222,749 in the six months ended June 30, 2022.

While our current focus is on profitability, we view the number of vehicles we sell to retail customers as the most important long-term measure of our performance, and we expect to continue to focus on building a scalable platform to efficiently increase our retail units sold. This focus on retail units sold is motivated by several factors:

Retail units sold enable multiple revenue streams, including the sale of the vehicle itself, the sale of finance receivables originated to finance the vehicle, the sale of VSCs, GAP waiver coverage, other ancillary products, and the sale of vehicles acquired from customers.
Retail units sold are the primary driver of customer referrals and repeat sales. Each time we sell a vehicle to a new customer, that customer may refer future customers and can become a repeat buyer in the future.
Retail units sold are an important driver of the average number of days between when we acquire the vehicle and when we sell it. Reducing average days to sale impacts gross profit on our vehicles because used vehicles depreciate over time.
Retail units sold allow us to benefit from economies of scale due to our centralized online sales model. We believe our model provides meaningful operating leverage in acquisition, reconditioning, transport, customer service, and delivery.

While our near-term objectives are geared towards a reduction in our selling, general and administrative ("SG&A") expenses, in the long-term, we plan to invest in technology and infrastructure to support efficient growth in retail units sold. This includes continued investment in our vehicle acquisition, reconditioning and logistics network, as well as continued investment in product development and engineering to deliver customers a best-in-class experience.

Markets and Population Coverage

Our historical growth in retail units sold has been driven by increased penetration in our existing markets and expansion into new markets. We define a market as a metropolitan area in which we have commenced local advertising and generally offer home delivery to customers with a Carvana employee in a branded delivery truck. We define our population coverage as the percentage of U.S. population that lives within those markets. Opening a new market involves hiring a team of customer advocates, connecting the market to our existing logistics network and initiating local advertising. As a market scales, we may elect to build a vending machine in the market to further increase customer awareness and enhance our fulfillment operations.

Our expansion model has historically enabled us to increase our number of markets, resulting in servicing more of the U.S. population, in each of the past ten years. We served 316 markets as of June 30, 2023, an increase from 315 markets as of June 30, 2022, serving 81.1% of the U.S. population. Over time, we have continually improved our market expansion playbook, which we believe provides us with the capability to efficiently execute our long-term growth plan. We continually evaluate consumer demand and our operational capacity and necessary efficiencies to determine our market opening and vending machine launch strategy.

When we open a market, we commence advertising using a blend of brand and direct advertising channels. Our advertising spend in each market is approximately proportionate to each market’s population, subject to adjustments based on specific characteristics of the market, used vehicle market seasonality, and special events such as vending machine openings. This historically has led to increased market penetration over time following the market opening. We also advertise on national television to increase brand awareness.

Revenue and Gross Profit

We generate revenue on retail units sold from four primary sources: the sale of the retail vehicles, wholesale sales of vehicles we acquire from customers, including sales through our wholesale marketplace, gains on the sales of loans originated to finance the vehicles, and sales of ancillary products such as VSCs and GAP waiver coverage.

Our largest source of revenue, retail vehicle sales, totaled $2.0 billion and $3.0 billion during the three months ended June 30, 2023 and 2022, respectively, and $3.8 billion and $5.7 billion during the six months ended June 30, 2023 and 2022, respectively. We generally expect retail vehicle sales to trend proportionately with retail units sold, absent any material changes

in macroeconomic conditions. We generate gross profit on retail vehicle sales from the difference between the retail selling price of the vehicle and our cost of sales associated with acquiring the vehicle and preparing it for sale.

Wholesale sales and revenues includes sales of trade-ins and other vehicles acquired from customers that do not meet the requirements for our retail inventory. Subsequent to our acquisition of the U.S. physical auction business of ADESA U.S. Auction, LLC ("ADESA") from KAR Auction Services, Inc. on May 9, 2022 (the "ADESA Acquisition"), we also include revenue earned from the sale of wholesale marketplace units by non-Carvana sellers through our wholesale marketplace platform, including auction fees and related service revenues, in wholesale sales and revenues. Wholesale sales and revenues totaled $777 million and $704 million during the three months ended June 30, 2023 and 2022, respectively, and $1.4 billion and $1.3 billion during the six months ended June 30, 2023 and 2022, respectively. We generally expect wholesale sales to trend proportionately with retail units sold through trade-ins and from customers who wish to sell us a car independent of a retail sale and with the movement of wholesale marketplace units. We generate gross profit on wholesale vehicle sales from the difference between the wholesale selling price of the vehicle and our cost of sales associated with acquiring the vehicle and preparing it for sale. We generate a gross profit on wholesale marketplace units from the difference between the revenue earned from the sale of wholesale marketplace units through our wholesale marketplace platform less our cost of sales associated with operating the wholesale marketplace platform.

Other sales and revenues, which primarily includes gains on the sales of finance receivables we originate, sales commissions on ancillary products such as VSCs, GAP waiver coverage, and auto insurance, totaled $230 million and $218 million during the three months ended June 30, 2023 and 2022, respectively, and $391 million and $408 million during the six months ended June 30, 2023 and 2022, respectively. We generally expect other sales and revenues to trend proportionately with retail units sold. We also expect other sales and revenues to increase as we improve our ability to monetize loans we originate, including through securitization transactions, and sell and offer attractive financing solutions and ancillary products to our customers, including products customarily sold by automotive retailers or insurance products customarily sold by traditional insurance companies, absent any material changes in macroeconomic conditions. Other sales and revenues are 100% gross margin products for which gross profit equals revenue.

During current macroeconomic uncertainty, our highest priority will continue to be providing exceptional customer experiences while improving efficiency, increasing our brand awareness and utilizing our infrastructure to support efficient growth in retail units sold, to help us move along the path to achieve profitability and positive free cash flow. Secondarily, we plan to pursue several strategies designed to increase our total gross profit per unit. These strategies may include the following:

Increase the purchase of vehicles from customers. Over time, we plan to grow the number of vehicles that we purchase from our customers as trade-ins or independent of a retail sale. This will provide additional vehicles for our retail business, which on average are more profitable compared to the same vehicle acquired at auction, and expand our inventory selection. In addition, this in turn will grow our wholesale business.
Reduce average days to sale. Our goal is generally to increase our sales at a faster rate than we increase our inventory size, which we believe would decrease average days to sale due to a relative increase in demand versus supply. Reductions in average days to sale lead to fewer vehicle price reductions, and therefore higher average selling prices, all other factors being equal. Higher average selling prices in turn lead to higher gross profit per unit sold, all other factors being equal.
Leverage existing inspection and reconditioning infrastructure. As we scale, we intend to more fully utilize the capacity at our existing IRCs, which collectively have capacity to inspect and recondition approximately 1.1 million vehicles per year at full utilization**.** We also intend to use existing capacity in the facilities acquired in the ADESA Acquisition.
Increase utilization of our logistics network. As we scale, we intend to more fully utilize our in-house logistics network to transport cars to our IRCs or other sites after acquisition from customers or wholesale auctions.
Increase conversion on existing products. We plan to continue to improve our website to highlight the benefits of our complementary product offerings, including financing, VSCs, GAP waiver coverage, other ancillary products, and trade-ins.
Add new products and services. We plan to utilize our online sales platform to offer additional complementary products and services to our customers.
Increase monetization of our finance receivables. We plan to continue selling finance receivables in securitization transactions and otherwise expand our base of financial partners who purchase the finance receivables originated on our platform to reduce our effective cost of funds.
Optimize purchasing and pricing. We are constantly improving the ways in which we predict customer demand, value vehicles sight unseen and optimize what we pay to acquire those vehicles. We also regularly test different pricing of our products, including vehicle sticker prices, trade-in and independent vehicle offers, and ancillary product prices, and we believe we can improve by further optimizing prices over time.

Seasonality

Retail and wholesale used vehicle sales generally exhibit seasonality with sales peaking late in the first calendar quarter and diminishing through the rest of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter. Due to our historical rapid growth, our overall sales patterns in the past have not always reflected the general seasonality of the used vehicle industry. However, as our business and markets have and continue to mature, our results have become more reflective of typical market seasonality. Used vehicle prices also exhibit seasonality, with used vehicles depreciating at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year, all other factors being equal. We expect to experience seasonal and other fluctuations in our quarterly operating results, including as a result of macroeconomic conditions, which may not fully reflect the underlying performance of our business.

Investment in Growth

We have historically aggressively invested in the growth of our business. Due to the current macroeconomic environment, we are focused on driving profitability through operating efficiency and reducing expenses. While we intend to become increasingly efficient over time, we also anticipate that our operating expenses will increase substantially in the long-term as we continue to expand our logistics network, increase our advertising spending, and serve more of the U.S. population. There is no guarantee that we will be able to realize the desired return on our investments.

Relationships with Related Parties

For discussion about our relationships with related parties, refer to Note 7 — Related Party Transactions of our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.

Key Operating Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our progress and make strategic decisions. Our key operating metrics reflect the key drivers of our growth, including increasing brand awareness, enhancing the selection of vehicles we make available to our customers, and serving more of the U.S. population. Our key operating metrics also demonstrate our ability to translate these drivers into retail sales and to monetize these retail sales through a variety of product offerings.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Retail units sold	76,530		117,564		155,770		222,749


Average monthly unique visitors (in thousands)	14,552		23,547		14,623		24,138

Total website units	37,570		78,910		37,570		78,910




Total gross profit per unit	$	6,520	$	3,368	$	5,393	$	3,116
Total gross profit per unit, non-GAAP	$	7,030	$	3,683	$	5,893	$	3,354

Retail Units Sold

We define retail units sold as the number of vehicles sold to customers in a given period, net of returns under our seven-day return policy. We view retail units sold as a key measure of our growth for several reasons. First, retail units sold is the primary driver of our revenues and, indirectly, gross profit, since retail unit sales enable multiple complementary revenue streams, including financing, VSCs, GAP waiver coverage, other ancillary products, and trade-ins. Second, growth in retail units sold

increases the base of available customers for referrals and repeat sales. Third, growth in retail units sold is an indicator of our ability to successfully scale our logistics, fulfillment, and customer service operations.

Average Monthly Unique Visitors

We define a monthly unique visitor as an individual who has visited our website within a calendar month, based on data provided by Google Analytics. We calculate average monthly unique visitors as the sum of monthly unique visitors in a given period, divided by the number of months in that period. We view average monthly unique visitors as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising campaigns, and consumer awareness of our brand.

Total Website Units

We define total website units as the number of vehicles listed on our website on the last day of a given reporting period, including vehicles available for sale, vehicles currently engaged in a purchase or reserved by a customer, and vehicles that can be reserved that generally have not yet completed the inspection and reconditioning process. We view total website units as a key measure of our growth. Growth in total website units increases the selection of vehicles available to our consumers, which we believe will allow us to increase the number of vehicles we sell over time. Moreover, growth in total website units indicates our ability to scale our vehicle purchasing, inspection and reconditioning operations. As part of our inventory strategy, over time we may choose not to expand total website units while continuing to grow sales, thereby improving other key operating metrics of the business.

Total Gross Profit per Unit

We define total gross profit per unit as the aggregate gross profit in a given period, divided by retail units sold in that period including gross profit generated from the sale of retail vehicles, gains on the sales of loans originated to finance the vehicles, commissions on sales of VSCs, GAP waiver coverage and other ancillary products, and gross profit generated from wholesale sales of vehicles. We operate an integrated business with the objective of increasing the number of retail units sold and total gross profit per unit. Gross profits generated from the sale of retail and wholesale units are interrelated. For example, our nationwide reconditioning and inspection centers are designed to produce vehicles for both retail and wholesale sales, our vehicle storage locations have shared parking for both retail and wholesale vehicles, and our integrated multi-vehicle logistics and last mile delivery network is operated in service of both retail and wholesale sales. Such interrelationships require us to share finite operational capacity and optimize joint decisions between retail and wholesale sales, in order to position us to achieve our objective of increasing total gross profit per unit. As a result, the inclusion of gross profit generated from wholesale sales of vehicles in total gross profit per unit reflects our integrated business model and the interrelationship between wholesale and retail vehicle sales. We believe the total gross profit per unit metrics provide investors with the greatest opportunity to view our performance through the same lens that our management does, and therefore assists investors to best evaluate our business and measure our progress.

We define total gross profit per unit, non-GAAP as the aggregate gross profit, non-GAAP in a given period, divided by retail units sold in that period. Gross profit, non-GAAP is defined as gross profit plus depreciation and amortization in cost of sales, share-based compensation including the CEO Milestone Gift in cost of sales, and restructuring costs, minus revenue related to our Root warrants. Refer to "Non-GAAP Financial Measures" for more information, including the reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures.

Components of Results of Operations

Retail Vehicle Sales

Retail vehicle sales represent the aggregate sales of used vehicles to customers through our website. Revenue from retail vehicles sales is recognized upon delivery to the customer or pick up of the vehicle by the customer, and is reported net of a reserve for expected returns. Factors affecting retail vehicle sales revenue include the number of retail units sold and the average selling price of these vehicles. Changes in retail units sold are a much larger driver of changes in revenue than are changes in average selling price.

The number of retail vehicles we sell depends on the volume of traffic to our website, our population coverage, our inventory selection, the effectiveness of our branding and marketing efforts, the quality of our customers' purchase experience, our volume of referrals and repeat customers, the competitiveness of our pricing, competition from other used car dealerships

and general economic conditions. On a quarterly basis, the number of retail vehicles we sell is also affected by seasonality, with demand for retail vehicles generally reaching a seasonal high point late in the first quarter of each year, commensurate with the timing of tax refunds, and diminishing through the rest of the year, with the lowest relative level of retail vehicle sales generally expected to occur in the fourth calendar quarter. In 2022, heightened inflation and rising interest rates resulted in lower demand for used vehicles. These trends continued into the first half of 2023, in which retail vehicles sales were also affected by a lower inventory size, lower advertising expense, and a focus on profitability initiatives. These trends may continue through the remainder of the year.

Our retail average selling price depends on the mix of vehicles we acquire, retail prices in our markets, our pricing strategy, and our average days to sale. We may choose to shift our inventory mix to higher or lower cost vehicles, or to raise or lower our prices relative to market to take advantage of supply or demand imbalances, which could temporarily lead to average selling prices increasing or decreasing. We also generally expect lower average days to sale to be associated with higher retail average selling prices due to decreased vehicle depreciation prior to sale, all other factors being equal.

Wholesale Sales and Revenues

Wholesale sales and revenues includes the aggregate proceeds we receive on vehicles we acquire and sell to wholesalers, and beginning in 2022, wholesale marketplace revenues. The vehicles we sell to wholesalers are primarily acquired from customers who sell a vehicle to us without purchasing a retail vehicle and from our customers who trade-in their existing vehicles when making a purchase from us. Factors affecting wholesale sales and revenues include the number of wholesale units sold and the average wholesale selling price of these vehicles. The average selling price of our wholesale units is primarily driven by the mix of vehicles we sell to wholesalers, as well as general supply and demand conditions in the applicable wholesale vehicle market. Wholesale sales and revenues includes aggregate proceeds we receive on vehicles sold to DriveTime through competitive online auctions that are managed by an unrelated third party and through the Company's wholesale marketplace platform. Wholesale marketplace revenues include revenue earned from the sale of wholesale marketplace units by third-party sellers through our wholesale marketplace platform, including auction fees and related services revenue.

Other Sales and Revenues

We generate other sales and revenues primarily through the sales of loans we originate and sell in securitization transactions or to financing partners, reported net of a reserve for expected repurchases, commissions we receive on VSCs, sales of GAP waiver coverage, and commissions and warrants we receive on sales of auto insurance.

We generally seek to sell the loans we originate to securitization trusts we sponsor and establish or to financing partners. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that we sell to the securitization trusts. We also sell the loans we originate under committed forward-flow arrangements, including a master purchase and sale agreement, and through fixed pool loan sales, with financing partners who generally acquire them at premium prices without recourse to us for their post-sale performance. Factors affecting revenue from these sales include the number of loans we originate, the average principal balance of the loans, the credit quality of the portfolio, and the price at which we are able to sell them in securitization transactions or to financing partners.

The number of loans we originate is driven by the number of retail vehicles sold and the percentage of our sales for which we provide financing, which is influenced by the financing terms we offer our customers relative to alternatives available to the customer. The average principal balance is driven primarily by the mix of vehicles we sell, since higher average selling prices typically mean higher average balances. The price at which we sell the loan is driven by the terms of our securitization transactions and forward-flow arrangement, applicable interest rates, and whether or not the loan includes GAP waiver coverage.

In 2016, we entered into a master dealer agreement with DriveTime, pursuant to which we receive a commission for selling VSCs that DriveTime administers. The commission revenue we recognize on VSCs depends on the number of retail units we sell, the conversion rate of VSCs on these sales, commission rates we receive, VSC early cancellation frequency and product features. The GAP waiver coverage revenue we recognize depends on the number of retail units we sell, the number of customers that choose to finance their purchases with us, the frequency of GAP waiver coverage early cancellation, and the conversion rate of GAP waiver coverage on those sales.

In September 2022, we completed our integrated auto insurance solution with Root, through which customers may conveniently access auto insurance directly from the Carvana e-commerce platform. We receive commissions and Warrants to purchase shares of Root's Class A common stock based on the Root insurance policies sold through the Integrated Platform.

The commission revenue we recognize depends on the number of retail units we sell, the conversion rate of auto policies on those sales, commission rates we receive, and forecasted attrition. The revenue we recognize from warrants as non-cash consideration depends on the probability of achieving certain auto policy sales thresholds within a specific timeline as well as our performance under the agreement.

Cost of Sales

Cost of sales includes the cost to acquire, recondition, and transport vehicles associated with preparing them for resale, and beginning in 2022, wholesale marketplace cost of sales. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the vehicle market. Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles, as well as indirect costs, such as IRC overhead. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition to the IRC or other site. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value. Wholesale marketplace cost of sales include costs related to the sale of wholesale marketplace units by third-party sellers through our wholesale marketplace platform, including labor, rent, depreciation and amortization.

Retail Vehicle Gross Profit

Retail vehicle gross profit is the vehicle sales price minus our costs of sales associated with vehicles that we list and sell on our website. Retail vehicle gross profit per unit is our aggregate retail vehicle gross profit in any measurement period divided by the number of retail units sold in that period.

Wholesale Gross Profit

Wholesale gross profit is the vehicle sales price minus our cost of sales associated with vehicles we sell to wholesalers, and beginning in 2022, wholesale marketplace revenues less wholesale marketplace cost of sales. Factors affecting wholesale gross profit include the number of wholesale units sold, the average wholesale selling price of these vehicles, the average acquisition price associated with these vehicles, and the number of wholesale marketplace units sold.

Other Gross Profit

Other sales and revenues consist of 100% gross margin products for which gross profit equals revenue. Therefore, changes in gross profit and the associated drivers are identical to changes in revenues from these products and the associated drivers.

Selling, General and Administrative Expenses

SG&A expenses include expenses associated with advertising and providing customer service to customers, operating our vending machines, hubs, physical auctions, logistics and fulfillment network and other corporate overhead expenses, including expenses associated with information technology, product development, engineering, legal, accounting, finance, and business development. SG&A expenses exclude the costs of inspecting and reconditioning vehicles and transporting vehicles from the point of acquisition to the IRC, which are included in cost of sales, and payroll costs for our employees related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

Interest Expense

Interest expense includes interest incurred on our various tranches of senior unsecured notes (collectively the "Senior Notes"), our Floor Plan Facility, and our Finance Receivable Facilities (each as defined in Note 10 — Debt Instruments of our financial statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q), as well as our notes payable, finance leases, and long-term debt, which are used to fund general working capital, our inventory, our transportation fleet, and certain of our property and equipment. Interest expense excludes the interest incurred during various construction projects to build, upgrade or remodel certain facilities, which is capitalized to property and equipment and depreciated over the estimated useful lives of the related assets.

Other (Income) Expense, net

Other (income) expense, net includes changes in fair value on our beneficial interests in securitizations, purchase price adjustment receivables, and fair value adjustments related to our Warrants to acquire Root's Class A common stock as discussed

in Note 18 — Fair Value of Financial Instruments of our financial statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q, along with other general expenses such as gains or losses from disposals of long-lived assets.

Income Tax (Benefit) Provision

Income taxes are recognized based upon our anticipated underlying annual blended federal and state income tax rates adjusted, as necessary, for any discrete tax matters occurring during the period. As the sole managing member of Carvana Group, LLC (“Carvana Group”), Carvana Co. consolidates the financial results of Carvana Group. Carvana Group is treated as a partnership and therefore not subject to U.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated by Carvana Group is passed through to and included in the taxable income or loss of its members, including Carvana Co., based on its economic interest held in Carvana Group. Carvana Co. is taxed as a corporation and is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of Carvana Group, as well as any stand-alone income or loss generated by Carvana Co. During the three and six months ended June 30, 2023, the Company generated an income tax benefit of less than $1 million and $2 million, respectively, compared to an income tax expense of $1 million during both the three and six months ended June 30, 2022.

Results of Operations


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022		Change	2023		2022		Change

	(in millions, except unit and per unit amounts)					(in millions, except unit and per unit amounts)
Net sales and operating revenues:
Retail vehicle sales, net	$	1,961	$	2,962	(33.8)%	$	3,788	$	5,694	(33.5)%
Wholesale sales and revenues (1)	777		704		10.4%	1,395		1,279		9.1%
Other sales and revenues (2)	230		218		5.5%	391		408		(4.2)%
Total net sales and operating revenues	$	2,968	$	3,884	(23.6)%	$	5,574	$	7,381	(24.5)%
Gross profit:
Retail vehicle gross profit (3)	$	204	$	133	53.4%	$	314	$	218	44.0%
Wholesale gross profit (1)	65		45		44.4%	135		68		98.5%
Other gross profit (2)	230		218		5.5%	391		408		(4.2)%
Total gross profit	$	499	$	396	26.0%	$	840	$	694	21.0%









Unit sales information:
Retail vehicle unit sales	76,530		117,564		(34.9)%	155,770		222,749		(30.1)%
Wholesale vehicle unit sales	46,453		55,299		(16.0)%	81,563		105,579		(22.7)%

Per unit selling prices:
Retail vehicles	$	25,624	$	25,195	1.7%	$	24,318	$	25,562	(4.9)%
Wholesale vehicles (4)	$	11,926	$	10,778	10.7%	$	11,782	$	11,091	6.2%

Per retail unit gross profit:
Retail vehicle gross profit (5)	$	2,666	$	1,131	135.7%	$	2,016	$	979	105.9%
Wholesale gross profit	849		383		121.7%	867		305		184.3%

Other gross profit	3,005		1,854		62.1%	2,510		1,832		37.0%
Total gross profit	$	6,520	$	3,368	93.6%	$	5,393	$	3,116	73.1%
Per wholesale unit gross profit:
Wholesale vehicle gross profit (6)	$	840	$	723	16.2%	$	1,018	$	597	70.5%

Wholesale marketplace: (7)
Wholesale marketplace units sold	227,698		111,883		NM	441,462		111,883		NM
Wholesale marketplace revenues	$	223	$	108	NM	$	434	$	108	NM
Wholesale marketplace gross profit (8)	$	26	$	5	NM	$	52	$	5	NM

(1) Includes $5, $7, $10 and $21, respectively, of wholesale sales and revenues from related parties.

(2) Includes $33, $50, $69 and $98, respectively, of other sales and revenues from related parties.

(3) Includes $0, $6, $0 and $14, respectively, of share-based compensation expense related to the CEO Milestone Gift.

(4) Excludes wholesale marketplace revenues and wholesale marketplace units sold.

(5) Includes $0, $51, $0 and $63, respectively, of share-based compensation expense related to the CEO Milestone Gift.

(6) Excludes wholesale marketplace gross profit and wholesale marketplace units sold.

(7) Represents results of ADESA and its subsidiaries, which the Company has designated as unrestricted subsidiaries. These amounts do not include units sold, revenues, or gross profit received from Company purchases and sales through the wholesale marketplace, which are eliminated in consolidation.

(8) Includes $26, $15, $52 and $15, respectively, of depreciation and amortization expense.

NM = Not Meaningful, for the three and six months ended June 30, 2022 only includes wholesale marketplace data from the date of the ADESA Acquisition of May 9, 2022.

Retail Vehicle Sales

Three months ended June 30, 2023 versus 2022. Retail vehicle sales decreased by $1.0 billion to $2.0 billion during the three months ended June 30, 2023, compared to $3.0 billion during the three months ended June 30, 2022. The decrease in revenue was primarily due to a decrease in the number of retail vehicles sold to 76,530 from 117,564 during the three months ended June 30, 2023 and 2022, respectively. The decrease in retail units sold was driven by various macroeconomic factors including continued increased interest rates and inflation, leading to decreased vehicle affordability, as well as our continued increased focus on profitability initiatives, which have led to lower advertising levels and inventory size. This was partially offset by an increase in the average selling price of our retail units sold to $25,624 in the three months ended June 30, 2023 from $25,195 in the prior year, due primarily to improvements in the mix of retail vehicles sold and their respective turn times, despite overall depreciation in the used vehicle market compared to the three months ended June 30, 2022.

Six months ended June 30, 2023 versus 2022. Retail vehicle sales decreased by $1.9 billion to $3.8 billion during the six months ended June 30, 2023 compared to $5.7 billion during the six months ended June 30, 2022. The decrease in revenue was primarily due to a decrease in the number of retail vehicles sold to 155,770 from 222,749 during the six months ended June 30, 2023 and 2022, respectively. The decrease in retail units sold was driven by various macroeconomic factors including increased interest rates and inflation, leading to decreased vehicle affordability, as well as our increased focus on profitability initiatives, which have led to lower advertising levels and inventory size. In addition, the average selling price of our retail units sold decreased to $24,318 from $25,562 during the six months ended June 30, 2023 and 2022, respectively, due primarily to overall depreciation in the used vehicle market compared to the six months ended June 30, 2022.

Wholesale Sales and Revenues

Three months ended June 30, 2023 versus 2022. Wholesale sales and revenues increased by $73 million to $777 million during the three months ended June 30, 2023, compared to $704 million during the three months ended June 30, 2022. Wholesale marketplace revenues, which were only included in our results from operations subsequent to the ADESA Acquisition, were.higher on a pro rata basis during the three months ended June 30, 2023 at $223 million, compared to $108 million during the three months ended June 30, 2022, primarily due to a pro rata increase in wholesale marketplace units sold to 227,698 during the three months ended June 30, 2023, compared to 111,883 during the three months ended June 30, 2022. This was partially offset by a decrease in wholesale units sold that were acquired from customers on our website to 46,453 from 55,299 during the three months ended June 30, 2023 and 2022, respectively.

Six months ended June 30, 2023 versus 2022. Wholesale sales and revenues increased by $116 million to $1.4 billion during the six months ended June 30, 2023, compared to $1.3 billion during the six months ended June 30, 2022. Wholesale marketplace revenues, which were only included in our results from operations subsequent to the ADESA Acquisition, were higher on a pro rata basis during the six months ended June 30, 2023 at $434 million, compared to $108 million during the six months ended June 30, 2022, primarily due to a pro rata increase in wholesale marketplace units sold to 441,462 during the six months ended June 30, 2023, compared to 111,883 during the six months ended June 30, 2022. This was partially offset by a decrease in wholesale units sold that were acquired from customers on our website to 81,563 from 105,579 during the six months ended June 30, 2023 and 2022, respectively.

Other Sales and Revenues

Three months ended June 30, 2023 versus 2022. Other sales and revenues increased by $12 million to $230 million during the three months ended June 30, 2023, compared to $218 million during the three months ended June 30, 2022. The increase was primarily due to an increase in gain on loan sales as a result of more loan sales during the three months ended June 30, 2023. This increase was partially offset by the decrease in retail units sold during the three months ended June 30, 2023.

Six months ended June 30, 2023 versus 2022. Other sales and revenues decreased by $17 million to $391 million during the six months ended June 30, 2023, compared to $408 million during the six months ended June 30, 2022. The decrease was primarily due to a decrease in gain on loan sales as a result of fewer loan sales during the six months ended June 30, 2023. In addition, other sales and revenues were negatively impacted by the decrease in retail units sold during the six months ended June 30, 2023.

Retail Vehicle Gross Profit

Three months ended June 30, 2023 versus 2022. Retail vehicle gross profit increased by $71 million to $204 million during the three months ended June 30, 2023, compared to $133 million during the three months ended June 30, 2022. This increase was driven primarily by an increase in retail vehicle gross profit per unit to $2,666 for the three months ended June 30, 2023,

compared to $1,131 for the three months ended June 30, 2022. The per unit increase was primarily driven by lower acquisition, reconditioning and inbound transport costs on retail vehicles sold during the three months ended June 30, 2023.

Six months ended June 30, 2023 versus 2022. Retail vehicle gross profit increased by $96 million to $314 million during the six months ended June 30, 2023, compared to $218 million during the six months ended June 30, 2022. This increase was driven primarily by an increase in retail vehicle gross profit per unit to $2,016 for the six months ended June 30, 2023 compared to $979 for the six months ended June 30, 2022. The per unit increase was primarily driven by lower acquisition, reconditioning and inbound transport costs on retail vehicles sold during the six months ended June 30, 2022.

Wholesale Gross Profit

Three months ended June 30, 2023 versus 2022. Wholesale gross profit increased by $20 million to $65 million during the three months ended June 30, 2023, compared to $45 million during the three months ended June 30, 2022. This increase was primarily driven by an increase in wholesale vehicle gross profit per wholesale unit to $840 from $723 for the three months ended June 30, 2023 and 2022, respectively, partially offset by a decrease in wholesale units sold to 46,453 from 55,299, respectively. The increase in wholesale vehicle gross profit per wholesale unit was primarily a result of lower acquisition costs of wholesale vehicles sold during the three months ended June 30, 2023. Wholesale gross profit includes $26 million of wholesale marketplace gross profit for the three months ended June 30, 2023, compared to $5 million for the three months ended June 30, 2022, which only included the results of ADESA subsequent to acquisition.

Six months ended June 30, 2023 versus 2022. Wholesale gross profit increased by $67 million to $135 million during the six months ended June 30, 2023, compared to $68 million during the six months ended June 30, 2022. This increase was primarily driven by an increase in wholesale vehicle gross profit per wholesale unit to $1,018 from $597 in the six months ended June 30, 2023, and 2022, respectively, partially offset by a decrease in wholesale units sold to 81,563 from 105,579, respectively. The increase in wholesale vehicle gross profit per wholesale unit was primarily a result of lower acquisition costs of wholesale vehicles sold during the six months ended June 30, 2023. Wholesale gross profit includes $52 million of wholesale marketplace gross profit for the six months ended June 30, 2023, compared to $5 million for the six months ended June 30, 2022 which only included the results of ADESA subsequent to acquisition.

Other Gross Profit

Other sales and revenues consist of 100% gross margin products for which gross profit equals revenue. Therefore, changes in other gross profit and the associated drivers are identical to changes in other sales and revenues and the associated drivers.

Components of SG&A


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions)
Compensation and benefits (1)	$	163	$	248	$	340	$	484
CEO Milestone Gift (2)	—		4		(1)		24
Advertising	57		131		113		286
Market occupancy (3)	18		24		39		47
Logistics (4)	29		71		64		127
Other (5)	185		243		369		480
Total	$	452	$	721	$	924	$	1,448

(1) Compensation and benefits includes all payroll and related costs, including benefits, payroll taxes, and equity-based compensation, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

(2) CEO Milestone Gift includes all equity-based compensation and payroll tax costs associated with the Gift, except those Gift costs related to preparing vehicles for sale, which are included in cost of sales.

(3) Market occupancy costs includes occupancy costs of our vending machine and hubs. It excludes occupancy costs related to reconditioning vehicles which are included in cost of sales and the portion related to corporate occupancy which are included in other costs.

(4) Logistics includes fuel, maintenance and depreciation related to operating our own transportation fleet, and third-party transportation fees, except the portion related to inbound transportation, which is included in cost of sales.

(5) Other costs include all other selling, general and administrative expenses such as IT expenses, corporate occupancy, professional services and insurance, limited warranty, and title and registration.

Selling, general and administrative expenses decreased by $269 million to $452 million during the three months ended June 30, 2023, compared to $721 million during the three months ended June 30, 2022, and by $524 million to $924 million during the six months ended June 30, 2023, compared to $1.4 billion during the six months ended June 30, 2022. During 2022, we implemented a number of profitability initiatives to reduce selling, general and administrative expenses including reducing our employee headcount, integrating real estate acquired as part of the ADESA Acquisition and reducing our corporate office footprint, improving the targeting of our advertising spend and reducing other selling, general and administrative expenses. In addition, the reduction in retail units sold contributed to reductions in several categories of selling, general and administrative expenses.

During the three and six months ended June 30, 2023, we realized a benefit of less than $1 million and $1 million, respectively, of compensation expense related to the CEO Milestone Gift within selling, general and administrative expense, which is presented separately above, as a result of more forfeitures than employees continuing to vest, compared to an expense of $4 million and $24 million, respectively, in the three and six months ended June 30, 2022.

Interest Expense

Interest expense increased by $39 million to $155 million during the three months ended June 30, 2023, compared to $116 million during the three months ended June 30, 2022, and increased by $134 million to $314 million during the six months ended June 30, 2023, compared to $180 million during the six months ended June 30, 2022. The increases are primarily due to increased interest incurred on additional senior unsecured notes issued by the Company in May 2022, along with increased interest expense incurred on working capital financing compared to June 30, 2022, primarily due to rising interest rates and higher working capital financing.

Other (Income) Expense, Net

Other (income) expense, net remained flat at income of $3 million during the three months ended June 30, 2023 and 2022, and changed by $15 million to income of $5 million during the six months ended June 30, 2023 compared to an expense of $10 million during the six months ended June 30, 2022. The change during the six months ended June 30, 2023 is primarily due to

fair value adjustments on our retained beneficial interests in securitizations and warrants to acquire Root's Class A common stock.

Non-GAAP Financial Measures

To supplement the unaudited condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we also present the following non-GAAP measures: Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A, non-GAAP; and Total SG&A per retail unit, non-GAAP.

Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A, non-GAAP; and Total SG&A per retail unit, non-GAAP

Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A, non-GAAP; and Total SG&A per retail unit, non-GAAP are supplemental measures of operating performance that do not represent and should not be considered an alternative to net loss, gross profit, or SG&A, as determined by U.S. GAAP.

Adjusted EBITDA is defined as net loss plus income tax expense, interest expense, other (income) expense, net, depreciation and amortization in cost of sales and SG&A, goodwill impairment, share-based compensation including the CEO Milestone Gift in cost of sales and SG&A, and restructuring costs, minus revenue related to our Root warrants. Following the ADESA Acquisition, we are also excluding depreciation and amortization in cost of sales, which was historically only a small component of cost of sales. Adjusted EBITDA margin is Adjusted EBITDA as a percentage of total revenues.

Gross profit, non-GAAP is defined as GAAP gross profit plus depreciation and amortization in cost of sales and share-based compensation including the CEO Milestone Gift in cost of sales, minus revenue related to our Root warrants. Total gross profit per retail unit, non-GAAP is Gross profit, non-GAAP divided by retail vehicle unit sales.

SG&A, non-GAAP is defined as GAAP SG&A minus depreciation and amortization in SG&A, share-based compensation including the CEO Milestone Gift in SG&A, and restructuring costs. Total SG&A per retail unit, non-GAAP is SG&A, non-GAAP divided by retail vehicle unit sales.

We use these non-GAAP measures to measure the operating performance of our business as a whole and relative to our total revenues and retail vehicle unit sales. We believe that these metrics are useful measures to us and to our investors because they exclude certain financial, capital structure, and non-cash items that we do not believe directly reflect our core operations and may not be indicative of our recurring operations, in part because they may vary widely across time and within our industry independent of the performance of our core operations. We believe that excluding these items enables us to more effectively evaluate our performance period-over-period and relative to our competitors. Adjusted EBITDA; Adjusted EBITDA margin; Gross profit, non-GAAP; Total gross profit per retail unit, non-GAAP; SG&A, non-GAAP; and Total SG&A per retail unit, non-GAAP may not be comparable to similarly titled measures provided by other companies due to potential differences in methods of calculations.

A reconciliation of Adjusted EBITDA to net loss, Gross profit, non-GAAP to gross profit, and SG&A, non-GAAP to SG&A, which are the most directly comparable U.S. GAAP measures, and calculations of Adjusted EBITDA margin, Total gross profit per retail unit, non-GAAP, and Total SG&A per retail unit, non-GAAP is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022

	(dollars in millions)
Net loss	$	(105)		$	(439)		$	(391)		$	(945)
Income tax (benefit) provision	—			1			(2)			1
Interest expense	155			116			314			180
Other (income) expense, net	(3)			(3)			(5)			10
Depreciation and amortization expense in cost of sales	44			27			88			35
Depreciation and amortization expense in SG&A	46			49			95			86

Share-based compensation expense in cost of sales	—			6			—			14
Share-based compensation expense in SG&A	20			13			35			41
Root warrant revenue	(5)			—			(10)			—
Restructuring	3			14			7			14
Adjusted EBITDA	$	155		$	(216)		$	131		$	(564)

Total revenues	$	2,968		$	3,884		$	5,574		$	7,381
Net loss margin	(3.5)		%	(11.3)		%	(7.0)		%	(12.8)		%
Adjusted EBITDA margin	5.2		%	(5.6)		%	2.4		%	(7.6)		%

Gross profit	$	499		$	396		$	840		$	694
Depreciation and amortization expense in cost of sales	44			27			88			35
Share-based compensation expense in cost of sales	—			6			—			14
Root warrant revenue	(5)			—			(10)			—
Restructuring	—			4			—			4
Gross profit, non-GAAP	$	538		$	433		$	918		$	747

Retail vehicle unit sales	76,530			117,564			155,770			222,749
Total gross profit per retail unit	$	6,520		$	3,368		$	5,393		$	3,116
Total gross profit per retail unit, non-GAAP	$	7,030		$	3,683		$	5,893		$	3,354

SG&A	$	452		$	721		$	924		$	1,448
Depreciation and amortization expense in SG&A	46			49			95			86
Share-based compensation expense in SG&A	20			13			35			41
Restructuring	3			10			7			10
SG&A, non-GAAP	$	383		$	649		$	787		$	1,311

Retail vehicle unit sales	76,530			117,564			155,770			222,749
Total SG&A per retail unit	$	5,906		$	6,133		$	5,932		$	6,501
Total SG&A per retail unit, non-GAAP	$	5,005		$	5,520		$	5,052		$	5,886

Liquidity and Capital Resources

General

We generate cash from the sale of retail vehicles, the sale of wholesale vehicles, and proceeds from the sale of finance receivables originated in connection with the sale of retail vehicles. We generate additional cash flows through our financing activities including our short-term revolving inventory and finance receivable facilities and real estate and equipment financing,

and historically, the issuance of long-term notes and new issuances of equity. Historically, cash generated from financing activities has funded growth and expansion into new markets and strategic initiatives and we expect this to continue in the future. In response to the current macroeconomic environment, we have increased focus on driving profitability through initiatives to better conform our expense structure to unit volume levels. We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months.

Our ability to service our debt and fund working capital, capital expenditures, and business development efforts in the long-term will depend on our ability to generate cash from operating and financing activities, which is subject to our future operating performance, as well as to general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our future capital requirements will depend on many factors, including our ability to refinance indebtedness, including through the launch and completion of the Exchange Offers and other transactions described below, our ability to obtain supplemental liquidity through additional debt, equity, including the issuance of New Equity described below, strategic relationships or other arrangements on terms available or acceptable to us, our rate of revenue growth, our construction of IRCs and vending machines, the timing and extent of our spending to support our technology and software development efforts, and increased population coverage. If we need to obtain supplemental liquidity, there can be no assurance that financing alternatives will be available in sufficient amounts or on terms acceptable to us in the future. In the first two quarters of 2023, the U.S. and global banking sector experienced increased volatility as a result of several distressed or closed banks and financial institutions in the first quarter of 2023. While we have not suffered any material effects as a result of the increased financial market volatility, we continue to monitor the situation and will take appropriate measures, as necessary, to minimize our potential risk exposure.

On July 17, 2023, to enhance our liquidity and reduce debt, we entered into a Transaction Support Agreement with the Ad Hoc Group representing over 90% of the aggregate principal amount of outstanding Senior Notes, Carvana Group, LLC, and the Garcia Parties.

Pursuant to the Transaction Support Agreement, subject to the terms and conditions set forth therein, the Ad Hoc Group has agreed to support, approve, implement and enter into definitive documents with respect to the following transactions: (i) the new issuance of New Equity, (ii) the Exchange Offers; (iii) concurrently with, but separate from the Exchange Offers, the commencement by the Company of a cash tender offer to purchase certain 2025 Notes; (iv) the Consent Solicitations and (v) with respect to the Garcia Parties only, the purchase of their pro rata portion of any offering on New Equity (such commitment not to exceed $126 million); provided that such commitment shall automatically terminate on the date the Company raises $700 million of gross proceeds from the issuance of New Equity.

The Transaction Support Agreement may be terminated under various circumstances.

In addition, on July 19, 2023, the Company entered into an agreement (the "Distribution Agreement") with Citigroup Global Markets Inc. and Moelis & Company LLC, pursuant to which the Company may offer and sell from time to time up to the greater of (i) shares of Class A common stock representing an aggregate offering price of $1.0 billion, or (ii) an aggregate number of 35 million shares of Class A common stock pursuant to one or more "at the market offerings," as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.

There can be no assurance that the transactions contemplated by the Transaction Support Agreement will be completed and that we will obtain the benefits we expect from such transactions. In addition, there can be no assurance that we will sell any shares of Class A common stock through the at-the-market program, or otherwise.

In addition, we or our affiliates may, at any time, and from time to time, repurchase portions of our Class A common stock, our senior unsecured notes or any other securities we may issue, from time to time, in open market transactions, privately negotiated transactions, in exchange for property or other securities or otherwise. Any repurchase decisions will be made after consideration of market conditions and liquidity needs and will be upon such terms and at such prices as we determine appropriate. However, there is no guarantee that a repurchase will take place.

Liquidity Resources

We had the following liquidity resources available as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022

	(in millions)
Cash and cash equivalents	$	541	$	434
Availability under short-term revolving facilities (1)	964		1,314

Committed liquidity resources available	$	1,505	$	1,748

Unpledged real estate not included above (2)	1,985		1,971
Unpledged beneficial interests in securitizations	70		69
Total liquidity resources	$	3,560	$	3,788

(1) Based on pledging all eligible vehicles and finance receivables under the available capacity in our floor plan and finance receivable facilities, excluding the impact to restricted cash requirements.

(2) Total unpledged gross real estate assets minus committed sale leasebacks. Includes $1.1 billion of ADESA unpledged real estate assets.

Our total liquidity resources are composed of cash and cash equivalents, availability under existing credit facilities, and additional unpledged assets, including vehicle inventory, finance receivables, real estate, and securities, on our balance sheet that can be financed using traditional asset-based financing sources.

Cash and cash equivalents includes cash deposits and highly liquid investment instruments with original maturities of three months or less, such as money market funds.

Availability under short-term revolving facilities is the available amount we can borrow under our existing vehicle inventory floor plan and finance receivable facilities based on the pledgeable value of vehicle inventory and finance receivables on our balance sheet on the period end date. Availability under short-term revolving facilities is distinct from the total commitment amount of these facilities because it represents the currently borrowable amount, rather than committed future amounts that could be borrowed to finance future additional assets.

As of June 30, 2023 and December 31, 2022, the short-term revolving facilities had a total commitment of $4.5 billion and $4.8 billion, an outstanding balance of $1.2 billion and $1.5 billion, and unused capacity of $3.3 billion and $3.2 billion, respectively.

Unpledged vehicle inventory and finance receivables is the value of vehicle inventory and finance receivables on our balance sheet on the period end date beyond that covered by committed financing agreements. On September 22, 2022, we entered into a vehicle inventory floor plan facility with a lender that has a $2.0 billion line of credit.

Unpledged real estate assets include real estate acquired as part of the ADESA Acquisition, and IRC, vending machine, and hub real estate assets that have not been sold and are not pledged on the period end date. Since our first sale-leaseback transaction in 2017, we have historically had flexible access to real estate financing and expect to continue to use various forms of real estate financing in the future.

Unpledged beneficial interests in securitizations includes retained beneficial interests in securitizations that have not been previously pledged or sold. We historically have financed the majority of our retained beneficial interests in securitizations and expect to continue to do so in the future.

Additionally, we amended our Master Purchase and Sale Agreement for the purchaser to purchase up to a maximum of $4.0 billion of our finance receivables through January 2024, and such facility had approximately $2.3 billion of unused capacity as of June 30, 2023.

To optimize our cost of capital, in any given period we may choose not to maximize borrowings on our short-term revolving facilities, maximize revolving commitment size, or immediately sale-leaseback or pledge real estate and retained

beneficial interests in securitizations. This has the benefit of reducing interest expense and debt issuance costs and providing flexibility to minimize financing costs over time.

We consider our total liquidity resources as an input into our planning. In general, changes in total liquidity resources fall into two broad categories: changes due to current business operations and changes due to investments in automotive retail assets.

Changes in liquidity due to current business operations include Adjusted EBITDA, non-real estate capital expenditures, including technology, furniture, fixtures, and equipment, and changes in traditional working capital, including accounts receivable, accounts payable, accrued expenses, and other miscellaneous assets and liabilities.

In the ordinary course of business, we sponsor and engage in securitization transactions to sell our finance receivables to a diverse pool of investors. These securitizations involve unconsolidated variable interest entities in which we retain at least 5% of the credit risk of the underlying finance receivable by holding at least 5% of the notes and certificates issued by these entities. We are exposed to market risk in the securitization market. See Note 9 — Securitizations and Variable Interest Entities, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, for further discussion regarding our transactions with unconsolidated variable interest entities.

In addition we also invest in and generate several types of assets, including vehicle inventory, finance receivables, retained beneficial interests in securitizations, and real estate. To maximize capital efficiency, we generally seek to finance these assets with matched sources of asset-based financing, including short-term revolving facilities for vehicle inventory and finance receivables, beneficial interests financing for retained beneficial interests in securitizations, and sale-leaseback or other real estate financing for IRCs and vending machines. We have historically used these sources of financing to finance our investment in these assets and expect to continue to do so in the future.

As of June 30, 2023 and December 31, 2022, our outstanding principal amount of indebtedness, including finance leases, was $8.0 billion and $8.4 billion, respectively, summarized in the table below. See Note 10 — Debt Instruments and Note 16 — Leases included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q for further information on our debt and finance leases.


	June 30, 2023		December 31, 2022

	(in millions)
Asset-Based Financing:
Inventory	$	557	$	569
Finance receivables and beneficial interests	882		1,233
Transportation fleet(1)	327		375
Real estate(2)	486		489
Total asset-based financing	2,252		2,666
Senior Notes	5,725		5,725
Total debt	7,977		8,391
Less: unamortized debt issuance costs(3)	(75)		(82)
Total debt, net	$	7,902	$	8,309

(1) Amount includes notes payable and finance leases.

(2) Amount includes real estate financing and notes payable.

(3) The unamortized debt issuance costs related to long-term debt are presented as a reduction of the carrying amount of the corresponding liabilities on our unaudited condensed consolidated balance sheets. Unamortized debt issuance costs related to revolving debt agreements are presented within other assets on our unaudited condensed consolidated balance sheets and not included here.

On April 26, 2022, we completed an equity offering of 15.625 million shares of Class A common stock for net proceeds of $1.2 billion. Also, on May 6, 2022, we issued $3.275 billion in senior unsecured notes due 2030. We are using the net proceeds from the Class A common stock offering for general corporate purposes and to pay any costs, fees and expenses incurred by us in connection with the offering. We used the net proceeds from the issuance and sale of the 2030 Notes to finance the

$2.2 billion ADESA Acquisition and other ancillary transactions in connection therewith, and to pay related fees and expenses in connection therewith and for working capital, capital expenditures and other general corporate purposes.

Cash Flows

The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
	2023		2022

	(in millions)
Net cash provided by (used in) operating activities	$	443	$	(487)
Net cash provided by (used in) investing activities	6		(2,525)
Net cash (used in) provided by financing activities	(400)		3,573
Net increase in cash, cash equivalents and restricted cash	49		561
Cash, cash equivalents and restricted cash at beginning of period	628		636
Cash, cash equivalents and restricted cash at end of period	$	677	$	1,197

Operating Activities

Our primary sources of operating cash flows result from the sales of retail vehicles, wholesale vehicles, loans we originate, and ancillary products. Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, and cash used to acquire customers. Cash provided by and used in operating activities was $443 million and $487 million during the six months ended June 30, 2023 and 2022, respectively, an increase of $930 million, primarily due to decreased vehicle inventory acquisitions, along with decreased selling, general and administrative expenses and reconditioning costs.

Investing Activities

Our primary use of cash for investing activities is purchases of property and equipment to expand our operations. Cash provided by and used in investing activities was $6 million and $2.5 billion during the six months ended June 30, 2023 and 2022, respectively, an increase of $2.5 billion, primarily driven by the $2.2 billion used for the ADESA Acquisition in May 2022 and decreased purchases of property and equipment as part of our effort to reduce our capital expenditures.

Financing Activities

Cash flows from financing activities primarily relate to our short and long-term debt activity, including paying down our short-term revolving facilities. Cash used in and provided by financing activities was $400 million and $3.6 billion during the six months ended June 30, 2023 and 2022, respectively, a decrease of $4.0 billion. In the six months ended June 30, 2022 we completed an equity offering for net proceeds of $1.2 billion and a notes offering of $3,275 billion as part of our financing for the ADESA Acquisition. The remaining change primarily relates to decreased net proceeds from short-term revolving facilities.

Contractual Obligations and Commitments

As of June 30, 2023, there have been no material changes to the contractual obligations or commitments previously disclosed in our most recent Annual Report on Form 10-K, filed February 23, 2023.

Fair Value Measurements

We report money market securities, certain receivables, Warrants to acquire Root's Class A common stock and beneficial interests in securitizations at fair value. See Note 18 — Fair Value of Financial Instruments, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our most recent Annual Report on Form 10-K, filed on February 23, 2023.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as "anticipate," "believe," "envision," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "ongoing," "contemplate," and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:

the transactions contemplated by the Transaction Support Agreement;
short-term and long-term liquidity;
expectations relating to the automotive market and our industry;
macroeconomic conditions, economic slowdowns or recessions;
future financial position;
business strategy;
budgets, projected costs, and plans;
future industry growth;
financing sources;
potential sales of our Class A common stock using the at-the-market program;
the impact of litigation, government inquiries, and investigations; and
all other statements regarding our intent, plans, beliefs, or expectations or those of our directors or officers.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause

actual results and events to differ materially from those indicated in the forward-looking statements include, among others, the following:

our inability to consummate the transactions contemplated by the Transaction Support Agreement as scheduled or at all;
the impact on our business from the larger automotive ecosystem and macroeconomic conditions, including consumer demand, global supply chain challenges, heightened inflation and rising interest rates;
our ability to raise additional capital, the quality of the financial markets, and our substantial indebtedness;
our history of losses and ability to achieve or maintain profitability in the future;
our ability to effectively manage our historical rapid growth;
our ability to maintain customer service quality and reputational integrity and enhance our brand;
the seasonal and other fluctuations in our quarterly operating results;
our relationship with DriveTime and its affiliates;
our management’s accounting judgments and estimates, as well as changes to accounting policies;
our ability to compete in the highly competitive industry in which we participate;
the changes in prices of new and used vehicles;
our ability to acquire desirable inventory;
our ability to sell our inventory expeditiously;
our access to structured finance, securitization, or derivative markets at competitive rates and in sufficient amounts;
our dependence on the sale of automotive finance receivables for a substantial portion of our gross profits;
our exposure to credit losses and prepayments on our interests in automotive finance receivables;
our reliance on credit data for the automotive finance receivables we sell;
our ability to successfully market and brand our business;
our reliance on internet searches to drive traffic to our website and mobile application;
the volatility of the trading price of our Class A common stock, which can increase as a result of the issuance of the New Equity and the use of the at-the-market program;
risks related to the actions of short sellers;
our ability to comply with the laws and regulations to which we are subject;
the changes in the laws and regulations to which we are subject;
our ability to comply with the Telephone Consumer Protection Act of 1991;
the evolution of regulation of the internet and e-commerce;
our ability to grow complementary product and service offerings;
the geographic concentration where we provide services and recondition and store vehicle inventory;
our ability to obtain affordable inventory insurance;
our ability to maintain adequate relationships with the lenders that finance our vehicle inventory purchases;
the representations we make with regard to our finance receivables we sell;
our reliance on our proprietary credit scoring model in the forecasting of loss rates;
our reliance on internal and external logistics to transport our vehicle inventory;
risks associated with the construction and operation of our IRCs, hubs and vending machines, including our dependence on one supplier for construction and maintenance for our vending machines;
our ability to finance IRCs and vending machines;
our ability to protect the personal information and other data that we collect, process, and store;
disruptions in availability and functionality of our website and mobile application;
our ability to protect our intellectual property, technology, and confidential information;
our ability to defend against claims that our employees, consultants or advisors have wrongfully used or disclosed trade secrets or intellectual property;
our ability to defend against intellectual property disputes;
our ability to comply with the terms of open source licenses;
conditions affecting automotive manufacturers, including manufacturer recalls;
our reliance on third party technology to complete critical business functions;
our dependence on key personnel to operate our business;
our ability to successfully integrate the operations of ADESA;
our minority equity investment in Root, Inc.;
the diversion of management's attention and other disruptions associated with potential future acquisitions;
the restrictions that could limit the flexibility in operating our business imposed by the covenants contained in the indentures governing our Senior Notes and indentures governing future debt securities;
the legal proceedings to which we may be subject in the ordinary course of business;
risks relating to our corporate structure and tax receivable agreements;
risks relating to our Section 382 Tax Asset Preservation Plan; and
other factors disclosed in the section titled "Risk Factors" in our most recent Annual Report on Form 10-K and other filings we make with the Securities and Exchange Commission.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.

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