Carvana : Q1 2024 Letter to Shareholders

Dear Shareholders,

In the first quarter, we delivered our best financial results in company history; for that reason, it is a quarter worthy of reflection.

In Q1, we achieved a net income margin of 1.6% and a company-record Adjusted EBITDA margin of 7.7%. By the latter measure, for the first time, we became the most profitable public automotive retailer in the U.S.

We returned to growth, growing 16% despite decreasing marketing dollars and constrained inventory.

We completed our third quarter of positive net income and our first quarter with Adjusted EBITDA exceeding capital expenditures and interest expense, clearing that hurdle by a significant margin.

We achieved all of this in a difficult environment that has challenged unit economics and volume for many across the industry.

While our path to where we are today has not been linear, we think the most important storylines can be found by looking at what has been consistent throughout our journey:

When we started Carvana, we believed that an entirely new retail model with a national inventory paired with a purpose-built,technology-enabled transaction platform, and connected by a completely new supply chain would allow us to efficiently and profitably provide exceptional, highly differentiated customer experiences.

Eleven years later, we believe the same thing.

When we shared our long-term financial model, we believed that the time-tested, structurally stable economics of our industry combined with the unique revenue and cost opportunities afforded by our business model would allow us to build the most profitable business in automotive retail while still offering our customers significant discounts vs. the competition.

Six years later, we believe the same thing.

When we began investing in our business of buying cars from customers, we believed that further vertical integration would enable us to serve even more customers, generate additional economic gains, and provide positive feedback to the retail business.

Five years later, we believe the same thing.

When we acquired ADESA, we believed that pairing our business with the second-largest wholesale auction platform in the country (with 6,500 acres of land and 500,000 parking spaces within 100 miles of 95% of the US population, all zoned for our use) would allow us to vertically integrate even further and efficiently scale to millions and millions of units per year.

Two years later, we believe the same thing.

When it felt like everything was breaking against us, we believed that we had a business and people who had the strength to be made better by the pressure we were under.

Eighteen months later, we believe the same thing.

Last quarter, we outlined five reasons why we believed we were better positioned to fulfill our goals than we had ever been.

Today, we believe the same thing.

Carvana is a company with a north star of delivering exceptional, ever-improving customer experiences. We are a

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company full of people with eyes locked on the target who don't know how to quit. We are a company that has proven our ability to move quickly over a sustained period of time. We are a company that has demonstrated our ability to adapt to challenges. And we are a company that, despite carrying significant excess capacity and having room for meaningful efficiency gains from here, just delivered $49 million of net income and approximately $1 billion in annualized Adjusted EBITDA with only 1% market share in one of the largest retail markets in the U.S.

Summary of Q1 Results

Q1 2024 Financial Results: All financial comparisons stated below are versus Q1 2023 unless otherwise noted. Complete financial tables appear at the end of this letter.

• Retail units sold totaled 91,878, an increase of 16%
• Revenue totaled $3.061 billion, an increase of 17%
• Total gross profit was $591 million, an increase of 73%
• Total gross profit per unit ("GPU") was $6,432, an increase of $2,129
• Non-GAAPTotal GPU was $6,802, an increase of $2,006
• Net income (loss) margin was 1.6%, an increase from (11.0)%

• • Net income totaled $49 million and included a ~$75 million gain in the fair value of our warrants to acquire Root common stock.
  • • This gain did not impact GPU or Adjusted EBITDA.
• Adjusted EBITDA margin was 7.7%, an increase from (0.9)%
• • Adjusted EBITDA totaled $235 million
• Basic and diluted net earnings per Class A share were $0.24 and $0.23, respectively, based on 116 million and 212 million shares of Class A common stock outstanding, respectively

Outlook

Our financial performance clearly demonstrates the significant power of our business model.

Looking toward the second quarter of 2024, we expect the following as long as the environment remains stable:

• A sequential increase in our year-over-year growth rate in retail units, and
• A sequential increase in Adjusted EBITDA1.

With our strong results in Q1 and outlook for Q2, we expect to comfortably deliver on our outlook of year-over-year growth in retail units sold and Adjusted EBITDA for FY 2024. Going forward, we do not plan to provide additional full year 2024 updates and will focus on quarterly commentary.

First Quarter Results

Q1 was a milestone quarter for proving the long-term earnings power of our online retail model. We set company records on Adjusted EBITDA, Adjusted EBITDA margin, and GAAP Operating Income, and generated Adjusted EBITDA that significantly exceeded capital expenditures and interest expense.

We entered Q1 squarely focused on our unit economics and profitability initiatives. Despite this focus, we saw strong customer demand in part due to fundamental gains in conversion and customer experience that we made over the preceding quarters.

• In order to clearly demonstrate our progress and highlight the most meaningful drivers within our business, we continue to use forecasted Non-GAAP financial measures, including forecasted Adjusted EBITDA. We have not provided a quantitative reconciliation of forecasted GAAP measures to forecasted Non-GAAP measures within this communication because we are unable, without making unreasonable efforts, to calculate one-time or restructuring expenses. These items could materially affect the computation of forward-looking Net Income (loss).

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Retail units sold increased by 16% year-over-year and 21% sequentially despite advertising spend decreasing by 8% sequentially and average days of immediately available inventory on our website falling to 13 days in March, nearing our all-time monthly low for this metric.

To respond to this demand, we have begun increasing production across the country. In the near term, we will continue to focus on growing production to match demand and returning selection to normalized levels.

Our strong profitability results in Q1 were driven by meaningful fundamental gains in GPU and SG&A expenses.

We set company records (on a normalized basis, after adjusting for excess loan sales in Q2 2023) for GAAP and Non-GAAP GPU of $6,432 and $6,802, respectively, driven by strength and sequential improvements across all GPU components. For the fourth consecutive quarter, we set company records for GAAP and Non-GAAP Retail GPU at $3,080 and $3,211, respectively. Our strength in Retail GPU continues to be driven by fundamental gains in several areas, including non-vehicle cost of sales, customer sourcing, inventory turn times, and revenues from additional services.

GAAP and Non-GAAP SG&A per unit were $4,963 and $4,245, respectively, down $806, and $697, sequentially. The Carvana Operations portion of SG&A expense was $1,850 per unit, down $174 sequentially. The Overhead portion of SG&A expense was approximately flat sequentially in dollars at $151 million, and down $328 per unit, proving our ability to lever into our fixed expense base with growth.

Net income totaled $49 million, and net income margin was 1.6%. We set company records for Adjusted EBITDA of $235 million and Adjusted EBITDA margin of 7.7%.

Our business model, our financial model, and our customer offering are stronger than ever, and we are now in the long-term phase of driving profitable growth in pursuit of our goal of becoming the largest and most profitable automotive retailer and buying and selling millions of cars per year.

A More Profitable Business Model

Our strong performance in Q1 delivered several powerful profitability milestones.

• Automotive retail industry-leadingAdjusted EBITDA margin. Our GAAP operating margin, net income margin, and Adjusted EBITDA margin in Q1 were 4.4%, 1.6%, and 7.7%, respectively. The latter led all U.S. publicly traded automotive retailers in Q1, which ranged from ~3% to ~7%. By this measure, in Q1, we achieved for the first time our goal of becoming the most profitable auto retailer.
• Significant GAAP Operating Income.We generated $134 million of GAAP operating income in the first quarter, a new company record. Notably, we achieved this result in an environment in which retail used vehicle sales were down over 10% since 2019, benchmark interest rates remain at levels not seen in nearly 20 years, and many other automotive retailers are seeing reduced profitability. Moreover, we achieved this result while carrying the costs associated with excess capacity for ~3x retail unit growth, further demonstrating the underlying strength of our online retail model.2

• Our record GAAP Operating Income in Q1 resulted in part because our Adjusted EBITDA is higher quality than that of many high-growth,technology-focused companies due to relatively low non-cash expenses. Our non-cash expense efficiency compared to other high-growth companies means we converted ~270% of Net Income and ~55% of Adjusted EBITDA into GAAP Operating Income. We see significant opportunity to lever non-cash expenses over time, given our current excess capacity. At ~3x retail unit volume, we believe leverage on fixed non-cash expenses can push our Operating Income to Adjusted EBITDA ratio above 90%.

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• Adjusted EBITDA now significantly exceeds CapEx and interest expense.Our strong Q1 results mean that our Adjusted EBITDA now significantly exceeds capital expenditures and interest expense. This milestone means that in Q1 we officially achieved the goal we set in May 2022 to drive Adjusted EBITDA that significantly exceeds capital expenditures and interest expense. Moreover, we achieved this goal at ~360k annual unit volume, in line with our expectations.
  The table below highlights this achievement for our actual Q1 2024 results and for an illustrative scenario that assumes our Q1 results but includes cash interest expense on all of our Senior Secured Notes after the conclusion of the cash or PIK election period.
  We currently plan to pay cash interest on our 2028 and 2030 Senior Secured Notes on both semiannual payment dates in 2025, which is incorporated into the scenario below.

Future Opportunities

In light of our success in Q1, a natural question to ask is how much opportunity remains for continued improvement. The simple answer is that we see significant opportunities for fundamental margin and efficiency gains over time and as we scale.

1. Overhead Expenses. Overhead expense in SG&A was 4.9% of revenue in Q1. We believe we currently have the infrastructure to sell ~3x our current retail unit sales volume3, leading to a ~3.3% of revenue overhead expense leverage opportunity and more opportunity beyond that over time. Our sequential growth in Q1 provides early visibility into this leverage opportunity. We grew units 21% in Q1 vs. Q4 with overhead expenses approximately flat in dollar terms, leading overhead expenses as a percent of revenue to decline from 6.2% to 4.9%, a reduction of 1.3% in a single quarter.
2. Advertising Expenses. Advertising expense was 1.8% of revenue in Q1. Notably, our four oldest cohorts of markets, those opened in 2013 through 2016, achieved an aggregate 1.0% advertising expense as a percent of revenue in Q1. This provides a clear path to reducing advertising by ~0.8% of revenue over time, not including any other gains in advertising efficiency.

• In our Q3 2023 Shareholder Letter we shared that different components of our infrastructure can accommodate between 2.9x to 5.6x annualized retail unit volume as of Q3 2023. For illustrative purposes in this section we will base our commentary on a ~3x multiple of unit volume.

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1. Operations Expenses. Carvana Operations Expense declined sequentially from 6.4% to 5.6% of revenue in Q1. We see opportunities for this to decrease over time through scale and continued efficiency gains, including those listed below.
2. 1. Network coverage and efficiency. As we add inventory pools at more locations, primarily by adding reconditioning at more ADESA sites, we expect lower average outbound miles per sale. In addition, we see opportunities to reduce cost per mile through additional efficiencies in the system.
   2. Scale. A portion of our operations expenses are semi-fixed, including operations management and logistics routes that are not fully utilized. This portion of operations expenses can lever with additional unit volume.
   3. AI / Automation. We are still in the early days of rolling out generative AI and other automation technologies into our customer care and document processing centers and see room for significant improvement from today's cost levels.
   4. Other Efficiency Gains. We continue to see opportunities in other operations expense areas not listed above, including technology and process improvements in limited warranty and title and registration.
3. Gross Margin Opportunities. We have made significant progress increasing gross margins over our company's history, and today our teams are still working to make additional fundamental gains across all gross profit line items.
4. 1. Retail cost of sales - reconditioning costs. We continue to see opportunities to drive down reconditioning costs through further development of our proprietary CARLI IRC software and efficiency gains in parts and third-partyvendor services.
   2. Retail cost of sales - inbound transport costs. We continue to see opportunities to decrease inbound transport costs as we add reconditioning capabilities at more ADESA locations, decreasing the average number of miles each vehicle travels to the nearest reconditioning location.
   3. Wholesale growth. We continue to see significant opportunities to grow our wholesale volume over time through increasing awareness for our offering of buying cars from customers, enhancements to our data, pricing, and processes, and further development of our new digital auction platform, ADESA Clear.
   4. Finance efficiency. We see significant opportunities to enhance and optimize our finance platform data, scoring, pricing, and servicing and to improve our securitization cost of funds to be in line with mature issuers.
   5. Ancillary products. We see opportunities to increase ancillary product attachment rates, optimize profit per attach, and add new products to our online checkout flow over time.
5. Non-CashCosts and Expenses. Our non-cash costs and expenses of depreciation and amortization and share-based compensation totaled 3.4% of revenue in Q1, of which approximately 1.3% is included in costs of sales and 2.1% is included in SG&A expenses. Similar to overhead expenses, we view these as primarily fixed in the near term given our excess capacity, and as a result believe we have a more than 2% of revenue non-cash expense leverage opportunity at ~3x current retail unit volume as we grow into our existing infrastructure.

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Capacity Utilization4

Margin Expansion Opportunities

Our Long Term Growth Opportunity

We have been focused on our goal of becoming the largest and most profitable automotive retailer and buying and selling millions of cars per year. Our confidence in our ability to achieve this goal comes from the combination of the factors detailed below:

• Large and fragmented U.S. used vehicle market. Last year there were approximately 36 million retail transactions in the U.S. used auto market according to industry data. Prior to COVID-era disruptions, used auto sales volume was closer to 40 million. This is a highly fragmented market with tens of thousands of dealers. The largest player has a ~2% share and the top 100 collectively have ~11%. We believe this market backdrop paired with our unique online retail model provides a differentiated opportunity for long-term compound growth.

• This table represents our infrastructure capacity utilization as previously disclosed in our Q3 2023 shareholder letter.

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• Strength of our customer offering. We continue to improve our fully integrated e-commerce customer experience through proprietary technology and efficiency initiatives. Over the last 18 months, these efforts have driven better customer experiences at each step in the transaction. Our NPS trends prove that customers love our offering and we expect to continue improving it, including through the benefits of scale and efficiency.
• Industry-leadingunit economics and differentiated financial model. The ability of our online retail model to deliver industry-leadingprofitability is now clear. Despite a profitability focus, we grew retail units sold 21% sequentially, levered into our fixed cost base, drove improvements in operations expense per unit, delivering net income margin of 1.6% and industry-leadingAdjusted EBITDA Margin of 7.7%.
• Unmatched, purpose-built automotive infrastructure. The physical infrastructure for multiples of growth is already built. We have the reconditioning facilities capable of producing 1.3 million cars a year. We have 56 ADESA locations that we believe once fully built out will increase our total production capacity to approximately 3 million cars a year.The sum of these locations comprises ~6,500 acres with over 500,000 parking spots around the country. Growing into our infrastructure will be enabled by the technology and operational efficiency gains our teams have been focused on to make the process of reconditioning vehicles more seamless and scalable.

Over time, we plan to continue to take market share by delivering seamless customer experiences, generating high-quality unit economics, and scaling into our purpose-built automotive infrastructure.

Management Objectives

Consistent with the priorities shared in the last several letters, our current focus remains centered on increasing efficiency and driving positive free cash flow. However, this letter maintains our historical format built around the three objectives, (1) Grow Retail Units and Revenue; (2) Increase Total Gross Profit Per Unit; and (3) Demonstrate Operating Leverage, to discuss our key results.

• Net Income margin in FY 2023 benefited from a one-time gain on debt extinguishment of ~$878 million.

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• Net income margin in Q1 2024 benefitted from ~$75 million associated with positive changes in the fair value of our warrants to acquire Root common stock.

• Adjusted EBITDA is defined as net income (loss) plus income tax provision, interest expense, other operating (income) expense, net, other (income) expense, net, depreciation and amortization expense in cost of sales and SG&A expenses, goodwill impairment, share-based compensation expense in cost of sales and SG&A expenses, and restructuring costs, minus revenue related to our Root warrants and gain on debt extinguishment. Adjusted EBITDA margin is Adjusted EBITDA as a percentage of total revenues. For additional information on Adjusted EBITDA and other Non-GAAP financial metrics referenced in this letter, please see the financial tables at the end of this letter and our Q1 2024 supplemental financial tables posted on our investor relations website.

• EBITDA Margin is calculated as net income (loss) plus income tax provision, interest expense, and depreciation and amortization expense, divided by revenues.

Objective #1: Grow Retail Units and Revenue

Retail units sold totaled 91,878 in Q1, a sequential increase of 21%. Revenue was $3.061 billion in Q1, a sequential increase of 26%. The strong demand we experienced in Q1 was driven in part by conversion improvements across customer care and logistics that deliver a more seamless, faster and improved customer experience.

Objective #2: Increase Total Gross Profit Per Unit

Year-over-year and sequential changes in Total GPU in Q1 2024 were driven by a variety of factors described below in more detail.

For Q1 2024

• Total

• • Total GPU was $6,432 vs. $4,303 in Q1 2023 and $5,283 in Q4 2023.
  • Non-GAAPTotal GPU was $6,802 vs. $4,796 in Q1 2023 and $5,730 in Q4 2023.5
• Retail
• • Retail GPU was $3,080 vs. $1,388 in Q1 2023 and $2,812 in Q4 2023.
  • Non-GAAPRetail GPU was $3,211 vs. $1,591 in Q1 2023 and $2,970 in Q4 2023.

• Consistent with the last three quarters of financial reporting, we are presenting two metrics for total GPU and for each GPU component: GAAP gross profit per unit and non-GAAP gross profit per unit, which excludes the impacts of depreciation and amortization expense, share-based compensation expense, Root warrant revenue, and restructuring costs. For additional information, please see our Q1 2024 supplemental financial tables.

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• • The sequential increase in Retail GPU was primarily driven by wider spreads between wholesale and retail market prices and lower seasonal retail depreciation rates.
  • Year-over-yearimprovement in Retail GPU was primarily driven by lower average days to sale, lower reconditioning and inbound transport costs, and wider spreads between wholesale and retail market prices, partially offset by a lower retail inventory allowance adjustment and higher retail depreciation rates.
• Wholesale
• • Wholesale GPU was $860 vs. $883 in Q1 20236 and $526 in Q4 2023.
  • Non-GAAPWholesale GPU was $1,153 vs. $1,236 in Q1 2023 and $881 in Q4 2023.
  • Wholesale Vehicle

• • • Wholesale Vehicle GPU was $501 vs. $555 in Q1 2023 and $368 in Q4 2023.
    • Non-GAAPWholesale Vehicle GPU was $522 vs. $580 in Q1 2023 and $394 in Q4 2023.
    • Sequential improvement in Wholesale Vehicle GPU was driven by lower wholesale depreciation rates and an increase in the ratio of wholesale units sold to retail units sold.
    • Year-over-yearreductions were primarily driven by higher wholesale depreciation rates and a lower wholesale inventory allowance adjustment, partially offset by a higher ratio of wholesale units sold to retail units sold.
  • Wholesale Marketplace
  • • Wholesale Marketplace GPU was $359 vs. $328 in Q1 2023 and $158 in Q4 2023.
    • Non-GAAPWholesale Marketplace GPU was $631 vs. $656 in Q1 2023 and $487 in Q4 2023.
    • Sequential improvements in Wholesale Marketplace GPU were primarily driven by higher seasonal volume in Q1, while the year-over-year changes were primarily driven by higher gross profit dollars offset by changes in the ratio of wholesale marketplace units sold to retail units sold.
• Other

• Other GPU was $2,492 vs. $2,032 in Q1 2023 and $1,945 in Q4 2023.
• Non-GAAPOther GPU was $2,438 vs. $1,969 in Q1 2023 and $1,879 in Q4 2023.
• The sequential increase in Other GPU was primarily driven by more normalized loan sale volume relative to originations, lower credit spreads on securitization transactions, and credit scoring and pricing optimizations, including credit tightening in Q4.
• Year-over-yearimprovements in Other GPU were primarily driven by lower credit spreads on securitization transactions and credit scoring and pricing optimizations.

• Wholesale gross profit and wholesale GPU includes gross profit from the sale of wholesale marketplace vehicles at our acquired ADESA locations.

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