UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549




FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2018 2019

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______





Commission File Number: 001-38073

CARVANA CO.
(Exact name of registrant as specified in its charter)



Delaware81-4549921
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1930 W. Rio Salado ParkwayTempeArizona85281
(Address of principal executive offices)(Zip Code)

(480) 719-8809
(Registrant's telephone number, including area code)


N/A
(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨
Accelerated filer

Accelerated filer  ¨
Non-accelerated filer
ý (Do not check if a smaller reporting company)
Smaller reporting company
¨
Emerging growth company
ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes  ☒No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
¨ Yes  ý No
As of August 3, 2018,2, 2019, the registrant had 34,256,76549,772,795 shares of Class A common stock outstanding and 105,816,629101,380,607 shares of Class B common stock outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, Par Value $0.001 Per ShareCVNANew York Stock Exchange








INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Page
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 20182019 and December 31, 20172018
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 20182019 and 20172018
Unaudited Condensed Consolidated Statements of Stockholders' Equity / Members' Deficit for the Six Months Ended June 30, 20182019 and 20172018
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 20182019 and 20172018
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Item 4.Controls and Procedures
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits







PART I. FINANCIAL INFORMATION

ITEM 1.I. FINANCIAL STATEMENTS

CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)

June 30, 2018December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents$199,192 $172,680 
Restricted cash18,356 14,443 
Accounts receivable, net23,573 14,105 
Finance receivables held for sale, net77,128 45,564 
Vehicle inventory302,989 227,446 
Other current assets22,255 15,480 
Total current assets643,493 489,718 
Property and equipment, net217,414 148,681 
Intangible assets, net9,616 — 
Goodwill6,868 — 
Other assets4,372 2,738 
Total assets$881,763 $641,137 
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities$81,880 $50,306 
Accounts payable due to related party3,193 1,802 
Floor plan facility347,087 248,792 
Current portion of long-term debt6,664 5,131 
Total current liabilities438,824 306,031 
Long-term debt, excluding current portion76,873 48,469 
Other liabilities6,957 7,093 
Total liabilities522,654 361,593 
Commitments and contingencies (Note 14)
Stockholders' equity:
Class A Convertible Preferred Stock, $0.01 par value, $1,000 liquidation value per share - 100 shares authorized, issued and outstanding as of June 30, 2018 and December 31, 201798,507 97,127 
Preferred stock, $0.01 par value - 50,000 shares authorized; none issued and outstanding as of June 30, 2018 and December 31, 2017— — 
Class A common stock, $0.001 par value - 500,000 shares authorized; 34,242 and 18,096 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively34 18 
Class B common stock, $0.001 par value - 125,000 shares authorized; 105,817 and 114,664 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively106 115 
Additional paid in capital95,008 41,375 
Accumulated deficit(29,907)(12,899)
Total stockholders' equity attributable to Carvana Co.163,748 125,736 
Non-controlling interests195,361 153,808 
Total stockholders' equity359,109 279,544 
Total liabilities & stockholders' equity$881,763 $641,137 

June 30, 2019December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents$40,200 $78,861 
Restricted cash2,196 9,848 
Accounts receivable, net42,128 33,120 
Finance receivables held for sale, net177,705 105,200 
Vehicle inventory606,534 412,243 
Beneficial interests in securitizations45,192 — 
Other current assets43,587 23,582 
Total current assets957,542 662,854 
Property and equipment, net392,240 296,839 
Operating lease right-of-use assets, including $42,019 and $0, respectively, from leases with related parties91,607 — 
Intangible assets, net8,096 8,869 
Goodwill9,353 9,353 
Other assets, including $3,470 and $1,895, respectively, due from related parties15,566 13,098 
Total assets$1,474,404 $991,013 
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities including $5,665 and $3,891, respectively, due to related parties$178,032 $121,415 
Short-term revolving facilities39,697 196,963 
Current portion of long-term debt20,716 11,133 
Other current liabilities, including $4,416 and $0, respectively, from leases with related parties11,390 — 
Total current liabilities249,835 329,511 
Long-term debt, excluding current portion, including $15,000 held by a related party743,132 425,349 
Operating lease liabilities, including $39,916 and $0, respectively, from leases with related parties, excluding current portion85,776 — 
Other liabilities1,844 8,725 
Total liabilities1,080,587 763,585 
Commitments and contingencies (Note 16)
Stockholders' equity:
Preferred stock, $0.01 par value - 50,000 shares authorized; none issued and outstanding as of June 30, 2019 and December 31, 2018, respectively— — 
Class A common stock, $0.001 par value - 500,000 shares authorized; 49,732 and 41,208 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively50 41 
Class B common stock, $0.001 par value - 125,000 shares authorized; 101,381 and 104,336 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively101 104 
Additional paid-in capital263,409 147,916 
Accumulated deficit(129,812)(74,653)
Total stockholders' equity attributable to Carvana Co.133,748 73,408 
Non-controlling interests260,069 154,020 
Total stockholders' equity393,817 227,428 
Total liabilities & stockholders' equity$1,474,404 $991,013 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
31



CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2018201720182017
Sales and operating revenues:
Used vehicle sales, net$437,922 $193,947 $771,978 $342,329 
Wholesale vehicle sales16,622 7,818 26,755 13,544 
Other sales and revenues, including $5,544, $1,898, $9,655 and $3,656, respectively, from related parties20,742 7,600 36,975 12,565 
Net sales and operating revenues475,286 209,365 835,708 368,438 
Cost of sales426,251 193,326 752,439 342,653 
Gross profit49,035 16,039 83,269 25,785 
Selling, general and administrative expenses95,652 52,011 178,838 97,919 
Interest expense, including $0, $1,241, $0 and $1,382, respectively, to related parties4,165 2,507 7,706 4,566 
Other expense, net468 391 647 609 
Net loss before income taxes(51,250)(38,870)(103,922)(77,309)
Income tax provision— — — — 
Net loss(51,250)(38,870)(103,922)(77,309)
Net loss attributable to non-controlling interests(41,285)(24,328)(86,914)(24,328)
Net loss attributable to Carvana Co.$(9,965)$(14,542)$(17,008)$(52,981)
Dividends on Class A convertible preferred stock(1,375)— (2,720)— 
Accretion of beneficial conversion feature on Class A convertible preferred stock— — (1,380)— 
Net loss attributable to Class A common stockholders$(11,340)$(14,542)$(21,108)$(52,981)
Net loss per share of Class A common stock, basic and diluted (1)
$(0.41)$(0.28)$(0.92)$(0.56)
Weighted-average shares of Class A common stock, basic and diluted (1)(2)
27,780 15,026 23,063 15,013 


Three Months Ended June 30,Six Months Ended June 30,
2019 2018 2019 2018 
Sales and operating revenues:
Used vehicle sales, net$855,785 $437,922 $1,539,614 $771,978 
Wholesale vehicle sales63,014 16,622 96,044 26,755 
Other sales and revenues, including $13,989, $5,544, $24,562, and $9,655, respectively, from related parties67,422 20,742 105,797 36,975 
Net sales and operating revenues986,221 475,286 1,741,455 835,708 
Cost of sales, including $1,217 and $1,210, $2,490 and $2,257 respectively, to related parties848,428 426,251 1,515,130 752,439 
Gross profit137,793 49,035 226,325 83,269 
Selling, general and administrative expenses, including $2,885, $2,115, $5,620 and $3,934 respectively, to related parties181,843 95,652 337,084 178,838 
Interest expense, including $333, $0, $666 and $0, respectively, to related parties19,315 4,165 34,963 7,706 
Other expense, net694 468 933 647 
Net loss before income taxes(64,059)(51,250)(146,655)(103,922)
Income tax provision— — — — 
Net loss(64,059)(51,250)(146,655)(103,922)
Net loss attributable to non-controlling interests(37,449)(41,285)(91,496)(86,914)
Net loss attributable to Carvana Co.(26,610)(9,965)(55,159)(17,008)
Dividends on Class A convertible preferred stock— (1,375)— (2,720)
Accretion of beneficial conversion feature on Class A convertible preferred stock— — — (1,380)
Net loss attributable to Class A common stockholders$(26,610)$(11,340)$(55,159)$(21,108)
Net loss per share of Class A common stock, basic and diluted$(0.58)$(0.41)$(1.26)$(0.92)
Weighted-average shares of Class A common stock, basic and diluted(1)
46,038 27,780 43,695 23,063 
(1) Amounts for periods prior to the initial public offering have been retrospectively adjusted to give effect to 15.0 million shares of Class A common stock issued in the initial public offering and the Organizational Transactions described in Note 1.
(2) Weighted-average shares of Class A common stock outstanding have been adjusted for unvested restricted stock awards.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

42



CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / MEMBERS' DEFICIT
(Unaudited)
(In thousands)

Class A Convertible Preferred StockClass A Common StockClass B Common Stock
Members' DeficitSharesAmountSharesAmountSharesAmountAdditional Paid-in CapitalAccumulated DeficitNon-controlling InterestsTotal Stockholders' Equity
Balance, December 31, 2016$(115,961)— $— — $— — $— $— $— $— $— 
Equity-based compensation expense prior to Organizational Transactions158 — — — — — — — — — — 
Accrued return on Class C Redeemable Preferred Units(9,439)— — — — — — — — — — 
Net loss prior to Organizational Transactions(49,942)— — — — — — — — — — 
Conversion of Class C Redeemable Preferred Units for Class A Units260,411 — — — — — — — — — — 
Effect of Organizational Transactions(85,227)— — — — 117,236 117 (174,255)— 259,365 85,227 
Issuance of Class A common stock sold in initial public offering, net of underwriters' discounts and commissions and offering expenses— — — 15,000 15 — — 205,910 — — 205,925 
Net loss subsequent to Organizational Transactions — — — — — — — — (3,039)(24,328)(27,367)
Adjustments to the non-controlling interests— — — — — — — 846 — (846)— 
Issuance of restricted stock awards, net of forfeitures — — — 544 — — (1)— — — 
Restricted stock surrendered in lieu of withholding taxes — — — (21)— — — (299)— — (299)
Equity-based compensation expense subsequent to Organizational Transactions— — — — — — — 1,944 — — 1,944 
Balance, June 30, 2017$— — $— 15,523 $16 117,236 $117 $34,145 $(3,039)$234,191 $265,430 
Class A Convertible Preferred StockClass A Common StockClass B Common Stock
SharesAmountSharesAmountSharesAmountAdditional Paid-in CapitalAccumulated DeficitNon-controlling InterestsTotal Stockholders' Equity
Balance, December 31, 2017100 $97,127 18,096 $18 114,664 $115 $41,375 $(12,899)$153,808 $279,544 
Net loss— — — — — — — (7,043)(45,629)(52,672)
Accretion of beneficial conversion feature on Class A convertible Preferred Stock— 1,380 — — — — (1,380)— — — 
Dividends on Class A Convertible Preferred Stock— — — — — — (1,345)— — (1,345)
Exchanges of LLC Units— — 1,436 (1,341)(2)1,540 — (1,540)— 
Establishment of deferred tax assets related to increases in tax basis in Carvana Group— — — — — — 7,484 — — 7,484 
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group— — — — — — (7,484)— — (7,484)
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes— — (20)— — — (160)— — (160)
Options exercised— — — — — 63 — — 63 
Equity-based compensation— — — — — — 1,510 — — 1,510 
Balance, March 31, 2018100 98,507 19,516 20 113,323 113 41,603 (19,942)106,639 226,940 
Net Loss— — — — — — — (9,965)(41,285)(51,250)
Issuance of Class A common stock sold in follow-on offering, net of underwriters' discounts and commissions and offering expenses— — 6,600 — — 172,280 — — 172,287 
Adjustments to non-controlling interests related to follow-on offering— — — — — — (132,375)— 132,375 — 
Issuance of LLC Units related to business acquisitions— — — — — — — — 9,981 9,981 
Adjustments to the non-controlling interests related to business acquisitions— — — — — — 1,297 — (1,297)— 
Dividends on Class A Convertible Preferred Stock— — — — — — (1,375)— — (1,375)
Exchanges of LLC Units— — 8,133 (7,506)(7)11,052 — (11,052)— 
Establishment of deferred tax assets related to increases in tax basis in Carvana Group— — — — — — 63,748 — — 63,748 
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group— — — — — — (63,748)— — (63,748)
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes— — (16)— — — (163)— — (163)
Options exercised— — — — — 106 — — 106 
Equity-based compensation— — — — — — 2,583 — — 2,583 
Balance, June 30, 2018100 $98,507 34,242 $34 105,817 $106 $95,008 $(29,907)$195,361 $359,109 

3









5


CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / MEMBERS' DEFICIT - (Continued)
(Unaudited)
(In thousands)

Class A Convertible Preferred StockClass A Common StockClass B Common Stock
Members' DeficitSharesAmountSharesAmountSharesAmountAdditional Paid-in CapitalAccumulated DeficitNon-controlling InterestsTotal Stockholders' Equity
Balance, December 31, 2017$— 100,000 $97,127 18,096 $18 114,664 $115 $41,375 $(12,899)$153,808 $279,544 
Net loss— — — — — — — — (17,008)(86,914)(103,922)
Issuance of Class A common stock sold in follow-on offering, net of underwriters' discounts and commissions and offering expenses— — — 6,600 — — 172,280 — — 172,287 
Adjustment to non-controlling interests related to follow-on offering— — — — — — — (132,375)— 132,375 — 
Issuance of LLC Units related to business acquisitions— — — — — — — — — 9,981 9,981 
Adjustment to non-controlling interests related to business acquisitions— — — — — — — 1,297 — (1,297)— 
Accretion of beneficial conversion feature on Class A Convertible Preferred Stock— — 1,380 — — — — (1,380)— — — 
Dividends on Class A Convertible Preferred Stock— — — — — — — (2,720)— — (2,720)
Exchanges of LLC Units— — — 9,569 (8,847)(9)12,592 — (12,592)— 
Establishment of deferred tax assets related to increases in tax basis in Carvana Group— — — — — — — 71,232 — — 71,232 
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group— — — — — — — (71,232)— — (71,232)
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes— — — (36)— — — (323)— — (323)
Options exercised— — — 13 — — — 169 169 
Equity-based compensation expense— — — — — — — 4,093 — — 4,093 
Balance, June 30, 2018$— 100,000 $98,507 34,242 $34 105,817 $106 $95,008 $(29,907)$195,361 $359,109 
Class A Convertible Preferred StockClass A Common StockClass B Common Stock
SharesAmountSharesAmountSharesAmountAdditional Paid-in CapitalAccumulated DeficitNon-controlling InterestsTotal Stockholders' Equity
Balance, December 31, 2018— $— 41,208 $41 104,336 $104 $147,916 $(74,653)$154,020 $227,428 
Net loss— — — — — — — (28,549)(54,047)(82,596)
Exchanges of LLC Units— — 2,020 (1,984)(2)1,899 — (1,899)— 
Establishment of deferred tax assets related to increases in tax basis in Carvana Group— — — — — — 25,582 — — 25,582 
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group— — — — — — (25,582)— — (25,582)
Contribution of Class A common stock from related party— — (72)— — — — — — — 
Issuance of Class A common stock to settle vested restricted stock units— — 74 — — — — — — — 
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes— — (14)— — — (433)— — (433)
Options exercised— — 27 — — — 426 — — 426 
Equity-based compensation— — — — — — 8,022 — — 8,022 
Balance, March 31, 2019— — 43,243 43 102,352 102 157,830 (103,202)98,074 152,847 
Net Loss— — — — — — — (26,610)(37,449)(64,059)
Issuance of Class A common stock, net of underwriters' discounts and commissions and offering expenses— — 4,830 — — 297,606 — — 297,611 
Adjustment to non-controlling interests related to equity offering— — — — — — (201,015)— 201,015 — 
Exchanges of LLC Units— — 1,612 (971)(1)1,571 — (1,571)
Establishment of deferred tax assets related to increases in tax basis in Carvana Group— — — — — — 33,573 — — 33,573 
Establishment of valuation allowance related to deferred tax assets associated with increases in tax basis in Carvana Group— — — — — — (33,573)— — (33,573)
Contribution of Class A common stock from related party— — (43)— — — — — — — 
Issuance of Class A common stock to settle vested restricted stock units— — 78 — — — — — — — 
Forfeitures of restricted stock and restricted stock surrendered in lieu of withholding taxes— — (13)— — — (1,557)— — (1,557)
Options exercised— — 25 — — — 372 372 
Equity-based compensation— — — — — — 8,602 — — 8,602 
Balance, June 30, 2019— $— 49,732 $50 101,381 $101 $263,409 $(129,812)$260,069 $393,817 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
64



CARVANA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
2018 2017 
Cash Flows from Operating Activities:
Net loss$(103,922)$(77,309)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense9,862 4,645 
Loss on disposal of property and equipment267 565 
Provision for bad debt and finance receivable allowance1,131 494 
Gain on loan sales(22,313)(8,390)
Equity-based compensation expense4,093 2,102 
Amortization and write-off of debt issuance costs649 1,250 
Originations of finance receivables(525,885)(223,843)
Proceeds from sale of finance receivables513,820 231,942 
Changes in assets and liabilities:
Accounts receivable(9,500)(8,293)
Vehicle inventory(74,817)11,668 
Other current assets(7,397)(1,538)
Other assets270 (1,148)
Accounts payable and accrued liabilities33,002 942 
Accounts payable to related party1,391 285 
Other liabilities(136)5,337 
Net cash used in operating activities(179,485)(61,291)
Cash Flows from Investing Activities:
Purchases of property and equipment(73,425)(42,576)
Business acquisitions, net of cash acquired(6,670)— 
Net cash used in investing activities(80,095)(42,576)
Cash Flows from Financing Activities:
Proceeds from floor plan facility837,673 397,082 
Payments on floor plan facility(739,378)(395,555)
Proceeds from Verde Credit Facility— 35,000 
Payments on Verde Credit Facility— (35,000)
Proceeds from long-term debt25,670 2,980 
Payments on long-term debt(2,852)(641)
Payments of debt issuance costs, including $0 and $1,000 to related parties, respectively(325)(1,000)
Net proceeds from issuance of Class A common stock172,287 206,323 
Proceeds from exercise of stock options169 — 
Tax withholdings related to restricted stock awards(323)— 
Dividends paid on Class A Convertible Preferred Stock(2,904)— 
Payments of costs related to issuance of Class A Convertible Preferred Stock(12)— 
Net cash provided by financing activities290,005 209,189 
Net increase in cash, cash equivalents and restricted cash30,425 105,322 
Cash, cash equivalents and restricted cash at beginning of period187,123 49,450 
Cash, cash equivalents and restricted cash at end of period$217,548 $154,772 

Six Months Ended June 30,
2019 2018 
Cash Flows from Operating Activities:
Net loss$(146,655)$(103,922)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense16,830 9,862 
Equity-based compensation expense15,745 4,093 
Loss on disposal of property and equipment653 267 
Provision for bad debt and valuation allowance3,291 1,131 
Amortization and write-off of debt issuance costs2,172 649 
Gain on loan sales(59,573)(22,313)
Originations of finance receivables(1,181,807)(525,885)
Proceeds from sale of finance receivables, net1,356,345 513,820 
Purchase of finance receivables(161,781)— 
Principal payments received on finance receivables held for sale30,846 — 
Unrealized gain on beneficial interest in securitization(177)— 
Changes in assets and liabilities:
Accounts receivable(9,747)(9,500)
Vehicle inventory(191,991)(74,817)
Other current assets(22,050)(7,397)
Other assets(2,024)270 
Operating lease right-of-use assets(15,115)— 
Accounts payable and accrued liabilities55,378 33,002 
Accounts payable to related party1,774 1,391 
Operating lease liabilities13,434 — 
Other liabilities(382)(136)
Net cash used in operating activities(294,834)(179,485)
Cash Flows from Investing Activities:
Purchases of property and equipment, including $6,282 and $0, respectively, from related parties(88,137)(73,425)
Principal payments received on beneficial interest in securitization1,108 — 
Business acquisitions, net of cash acquired— (6,670)
Net cash used in investing activities(87,029)(80,095)
Cash Flows from Financing Activities:
Proceeds from short-term revolving facilities1,901,607 837,673 
Payments on short-term revolving facilities(2,164,248)(739,378)
Proceeds from issuance of long-term debt315,674 25,670 
Payments on long-term debt(6,868)(2,852)
Payments of debt issuance costs(7,034)(325)
Net proceeds from issuance of Class A common stock297,611 172,287 
Proceeds from exercise of stock options798 169 
Tax withholdings related to restricted stock awards(1,990)(323)
Dividends paid on Class A Convertible Preferred Stock— (2,904)
Payments of costs related to issuance of Class A Convertible Preferred Stock— (12)
Net cash provided by financing activities335,550 290,005 
Net increase (decrease) in cash, cash equivalents and restricted cash(46,313)30,425 
Cash, cash equivalents and restricted cash at beginning of period88,709 187,123 
Cash, cash equivalents and restricted cash at end of period$42,396 $217,548 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BUSINESS ORGANIZATION

Description of Business

Carvana Co. and its wholly-owned subsidiary Carvana Co. Sub (collectively, "Carvana Co.") together with its consolidated subsidiaries (the “Company”) is a leading e-commerce platform for buying and selling used cars. The Company is transforming the used car buyingsales experience by giving consumers what they want — a wide selection, great value and quality, transparent pricing and a simple, no pressure transaction. Using the website, customers can complete all phases of a used vehicle purchase transaction including financing their purchase, trading in their current vehicle and purchasing complementary products such as vehicle service contracts ("VSC") and GAP waiver coverage. Each element of the Company's business, from inventory procurement to fulfillment and overall ease of the online transaction, has been built for this singular purpose.

Organization and Initial Public Offering

Carvana Co. is a holding company that was formed as a Delaware corporation on November 29, 2016 for the purpose of completing anits initial public offering ("IPO") and related transactions in order to operate the business of Carvana Group, LLC and its subsidiaries (collectively, "Carvana Group"). Substantially all of the Company’s assets and liabilities represent the assets and liabilities of Carvana Group. 

Carvana Group, was formed as a limited liability companyexcept the Company's senior unsecured notes which were issued by DriveTime Automotive Group, Inc. (together with its subsidiaries and affiliates “DriveTime”) and commenced operations in 2012. Prior to November 1, 2014, Carvana Group was a wholly-owned subsidiary of DriveTime. On November 1, 2014 (the “Distribution Date”), DriveTime distributed its member units in Carvana Group to the unit holders of DriveTime on a pro rata basis (the “Distribution”). Carvana Group accounted for the Distribution as a spinoff transaction in accordance with ASC 505-60, Equity — Spinoffs and Reverse Spinoffs and reflected assets and liabilities before and after the Distribution Date at their historical basis.

On May 3, 2017, Carvana Co. completedand guaranteed by its IPO of 15.0 million shares of Class A common stock at a public offering price of $15.00 per share.and Carvana Co. received approximately $205.8 million in proceeds, net of underwriting discounts and commissions and offering expenses, which it used to purchase approximately 18.8 million newly-issued membership interests of Carvana Group at a price per unit equal to 0.8 times the initial public offering price less underwriting discounts and commissions and offering expenses.

Also in connection with the IPO, the Company completed the following organizational transactions (the “Organizational Transactions”):

• Carvana Group amended and restated its limited liability company operating agreement (the "LLC Agreement") to, among other things, (i) eliminate a class of preferred membership interests, (ii) provide for two classes of common ownership interests in Carvana Group held by the then-existing holders of LLC units (the "Original LLC Unitholders" and together with any holders of LLC units issued subsequent to the IPO, the "LLC Unitholders") consisting of Class B common units (the “Class B Units”) and Class A common units (the “Class A Units”), and (iii) appoint Carvana Co. as the sole manager of Carvana Group;

• Carvana Co. amended and restated its certificate of incorporation to authorize (i) 50.0 million shares of Preferred Stock, par value $0.01 per share, (ii) 500.0 million shares of Class A common stock, par value $0.001 per share, and (iii) 125.0 million shares of Class B common stock, par value $0.001 per share. Each share of Class A common stock generally entitles its holder to one vote on all matters to be voted on by stockholders. Each share of Class B common stock held by Ernest Garcia, II, Ernie Garcia, III and entities controlled by one or both of them (collectively, the "Garcia Parties") generally entitles its holder to ten votes on all matters to be voted on by stockholders. All other shares of Class B common stock generally entitle their holders to one vote per share on all matters to be voted on by stockholders;

• Carvana Group converted its outstanding Class C Redeemable Preferred Units into approximately 43.1 million Class A Units;




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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
• Carvana Co. issued approximately 117.2 million shares of Class B common stock to holders of Class A Units, on a four-to-five basis with the number of Class A Units they owned, for nominal consideration; and,

• Carvana Co. transferred approximately 0.2 million Class A Units to Ernest Garcia, II in exchange for his 0.1% ownership interest in Carvana, LLC, a majority-owned subsidiary of Carvana Group.Group's existing domestic restricted subsidiaries. 

In accordance with the LLC Agreement,Carvana Group LLC's amended and restated limited liability company agreement (the "LLC Agreement"), Carvana Co. has all management powers overis the business and affairssole manager of Carvana Group, LLC and conducts, directs and exercises full control over the activities of Carvana Group. There are two classes of common ownership interests in Carvana Group, LLC, Class A common units (the "Class A Units") and Class B common units (the "Class B Units"). As further discussed in Note 10 — Stockholders' Equity, the Class A Units and Class B Units (the(collectively, the "LLC Units") do not hold voting rights, which results in Carvana Group, LLC being considered a variable interest entity ("VIE"). Due to Carvana Co.'s power to control and its significant economic interest in Carvana Group, it is considered the primary beneficiary of the VIE and the Company consolidates the financial results of Carvana Group. As of June 30, 2018,2019, Carvana Co. owned approximately 23.4%31.8% of Carvana Group and the LLC Unitholders owned the remaining 76.6%68.2%.

The Organizational Transactions described above are considered transactions between entities under common control. As a result, the financial statements for periods prior to the IPO and Organizational Transactions have been adjusted to combine the previously separate entities for presentation purposes.

Follow-On Public Offering

On April 30, 2018, the Company completed a follow-on offering of 6.6 million shares of its Class A common stock at a public offering price of $27.50 per share and received net proceeds from the offering of approximately $172.3 million after underwriting discounts and commissions and offering expenses. The Company used the net proceeds to purchase approximately 8.3 million newly-issued LLC Units in Carvana Group, which used the net proceeds primarily for general corporate purposes.

A holder of Class A common stock (the "Selling Stockholder") and certain LLC Unitholders (the "Selling LLC Unitholders") sold a total of approximately 6.1 million shares of Class A common stock as part of the offering. The Selling LLC Unitholders exchanged approximately 6.9 million LLC Units for approximately 5.6 million shares of Class A common stock to be sold in the offering, and to the extent such Selling LLC Unitholder held Class B common stock, the corresponding shares of Class B common stock were immediately retired by the Company. The Company did not receive any proceeds from the sale of the approximately 6.1 million shares of Class A common stock by the Selling Stockholder and the Selling LLC Unitholders.

Convertible Preferred Stock

On December 5, 2017, Carvana Co. amended and restated its certificate of incorporation to authorize 100,000 shares of Class A Convertible Preferred Stock, with an initial stated value of  $1,000 per share and a par value of $0.01 per share (the "Convertible Preferred Stock") and, effective December 5, 2017, Carvana Group amended its LLC Agreement to, among other things, create a class of convertible preferred units. On December 5, 2017, Carvana Co. sold 100,000 shares of Convertible Preferred Stock for net proceeds of approximately $98.5 million, which it used to purchase 100,000 newly-issued convertible preferred units of Carvana Group (the "Convertible Preferred Units") at a price per unit equal to the initial stated value of the Convertible Preferred Stock less issuance costs.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. All intercompany balances and transactions have been eliminated. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within ourthe Company's most recent Annual Report on Form 10-K.
 
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly the Company’s financial position as of June 30, 2018,2019, results of operations for the three and six months ended June 30, 20182019 and 2017,2018, and cash flows and changes in stockholders'stockholder's equity for
9

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
the six months ended June 30, 20182019 and 2017.2018. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

As discussed in Note 1 — Business Organization, Carvana Group is considered a VIE and Carvana Co. consolidates its financial results due to the determination that it is the primary beneficiary. The Company reviews subsidiaries and affiliates, as well as other entities, to determine if it should be considered variable interest entities, and whether it should change the consolidation determinations based on changes in its characteristics. The Company considers an entity a VIE if its equity investors own an interest therein that lacks the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or if the entity is structured with non-substantive voting interests. To determine whether or not the entity is consolidated with the Company’s results, the Company also evaluates which interests are variable interests in the VIE and which party is the primary beneficiary of the VIE. 

Liquidity

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company has incurred
6


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
losses from inception through June 30, 2018,2019, and expects to incur additional losses in the future. As the Company continues to fund growthgrow into new markets, fund construction ofbuild vending machines and inspection and reconditioning centers ("IRCs") and enhance technology and software development efforts, it needs access to substantial capital. From inception, the Company has primarily funded operations through the sale of Class A Units, the sale of Class C Redeemable Preferred Units, capital contributions from DriveTime, its IPO completed on May 3, 2017 for net proceeds of approximately $205.8 million, its follow-on offering completed on April 30, 2018 for net proceeds of approximately $172.3 million, its issuance of Class A Convertible Preferred Stock on December 5, 2017 for net proceedsequity instruments and the issuance of approximately $98.5 million, and short-term funding from the Company’s majority owner.senior unsecured notes. The Company has historically funded vehicle inventory purchases through its Floor Plan Facility, described in further detail in Note 8 — Debt Instruments, and as of June 30, 2019 had approximately $2.9$626.2 million available under theits $650.0 million Floor Plan Facility that matures in October 2020 to fund future vehicle inventory purchases, as described in further detail in Note 9 — Debt Instruments. As of June 30, 2018. The2019, the Company plans to increase the amount and extend the maturity date of financingalso has approximately $634.1 million available to purchase vehicle inventory by amending its existing Floor Plan Facility or by entering into afund finance receivables under new agreement prior to the maturity date of the Floor Plan Facility.revolving facilities, as further discussed in Note 9 — Debt Instruments. The Company has also funded certaina portion of its capital expenditures through long-term financing with third partieslenders and other investors as described in further detail in Note 89 — Debt Instruments.Instruments and Note 15 — Leases. The Company has historically entered into securitization transactions and various agreements under which it sells the finance receivables it originates to third parties. As of June 30, 2018,financing partners, subject to each party's rights under the Company sells finance receivables under multiplerespective agreements, all of which expireas further discussed in November 2018. The Company plans to extend or enter into new agreements to sell its finance receivables to third parties prior to the expiration of the agreements.Note 7 — Finance Receivable Sale Agreements and Note 8 — Securitizations and Variable Interest Entities. Management believes that its current working capital and expected continued inventory, and capital expenditure, and receivables financing are sufficient to fund operations for at least one year from the financial statement issuance date.

Use of Estimates

The preparation of these accompanying unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period, which management considers to be critical accounting estimates. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company’s assets and liabilities and the results of operations.

Comprehensive Loss

During the three and six months ended June 30, 2019 and 2018, the Company had no other components of comprehensive loss and, therefore, the net loss and comprehensive loss were the same for all periods presented.

Restricted Cash

As of June 30, 2019 and December 31, 2018, restricted cash includes the deposit required under the Company's Floor Plan Facility, which is 5% of the outstanding floor plan facility principal balance. As of June 30, 2019, the balance also includes the deposits required under the Company's Finance Receivable Facilities, which is 2% of the pledged outstanding finance receivable principal balance and any undistributed amounts collected on the pledged finance receivables. Refer to Note 9 — Debt Instruments for further explanation.

Leases

As discussed below, the Company adopted ASC 842 on January 1, 2019. Under ASC 842, the Company determines if an arrangement is a lease at inception by evaluating if the asset is explicitly or implicitly identified or distinct, if the Company will receive substantially all of the economic benefit or if the lessor has an economic benefit and the ability to substitute the asset. Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The Company assesses whether the lease is an operating or finance lease at its inception. Operating lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. To calculate the present value, the Company uses the implicit rate in the lease when readily determinable. However, most of the Company's leases do not provide an implicit rate and it uses its incremental borrowing rate. The incremental borrowing rate is based on collateralized borrowings of similar assets with terms that approximate the lease term when available and when collateralized rates are not available, it uses uncollateralized rates with similar terms adjusted for the fact that it is an unsecured rate. The operating lease ROU asset is the initial lease liability adjusted for any prepayments, initial indirect costs incurred by the Company, and lease incentives. The Company's operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities in its
7


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
accompanying unaudited condensed consolidated balance sheets. The Company's finance leases are included in property and equipment, and other debt in its accompanying unaudited condensed consolidated balance sheets.

Securitizations and Variable Interest Entities

The Company reviews subsidiaries and affiliates, as well as other entities, to determine if they should be considered variable interest entities, and whether it should change the consolidation determinations based on changes in their characteristics. The Company considers an entity a VIE if its equity investors own an interest therein that lacks the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or if the entity is structured with non-substantive voting interests. A VIE is consolidated by its primary beneficiary, the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company evaluates whether it has variable interests in the VIE and if so, if it is the primary beneficiary of the VIE on an ongoing basis. The Company consolidates VIEs when it is deemed to be the primary beneficiary.

The Company sponsors asset-backed securitization transactions. These transactions often result in the creation of securitization trusts, which are VIEs. To comply with Regulation RR of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Risk Retention Rules") the Company retains at least 5% interest in the credit risk of the underlying finance receivables, which it accomplishes by retaining at least a 5% interest in each security issued by the securitization trusts. Typically, this includes notes and certificates, which are presented as beneficial interests in securitizations in the accompanying unaudited condensed consolidated balance sheets.

Fair Value Measurements

The fair value of financial instruments is based on estimates using quoted market prices, discounted cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments, and those differences may be material. Accordingly, the aggregate fair value amounts presented may not represent the Company’s underlying institutional value.

The Company uses the three-tier hierarchy established by U.S. GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value to determine the fair value of its financial instruments. This hierarchy indicates to what extent the inputs used in the Company’s calculations are observable in the market. The different levels of the hierarchy are defined as follows:

Level 1:Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:Inputs are unobservable and reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

The Company has elected the fair value option for its beneficial interests in securitization trusts, which primarily include notes and certificates of the securitization trust. Electing the fair value option allows the Company to recognize changes in the fair value of these assets in the period the fair value changes. The changes in fair value are recorded within other expense, net and amounts attributable to interest income are reported in interest expense, net on the accompanying unaudited condensed consolidated statement of operations.

See Note 17 — Fair Value of Financial Instruments for additional information.

8


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Segments

Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Based on the way the Company manages its business, the Company has determined that it currently operates with one reportable segment. The chief operating decision maker focuses on consolidated results in assessing operating performance and allocating resources. Furthermore, the Company offers similar products and services and uses similar
10

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
processes to sell those products and services to similar classes of customers throughout the United States (“U.S.”). Substantially all revenue is generated and all assets are held in the U.S. for all periods presented.

Comprehensive Loss

During the three and six months ended June 30, 2018 and 2017, the Company had no other components of comprehensive loss and, therefore, the net loss and comprehensive loss were the same for all periods presented.

Restricted Cash

The restricted cash includes the deposit required under the Company's Floor Plan Facility, which is 5% of the outstanding floor plan facility principal balance, as explained in Note 8 — Debt Instruments and amounts held as restricted cash as required under letter of credit agreements, as explained in Note 14 — Commitments and Contingencies. 

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers ("ASC 606") on January 1, 2018 using the modified retrospective method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations are satisfied. Based on the manner in which the Company historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its revenue recognition and the Company recognized no cumulative effect adjustment upon adoption.

Used Vehicle Sales

The Company sells used vehicles directly to its customers through its website. The prices of used vehicles are set forth in the customer contracts at stand-alone selling prices which are agreed to prior to delivery. The Company satisfies its performance obligation for used vehicle sales upon delivery when the transfer of title, risks and rewards of ownership and control pass to the customer. The Company recognizes revenue at the agreed upon purchase price stated in the contract, including any delivery charges, less an estimate for returns. Estimates for returns are based on an analysis of historical experience, trends and sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified. The amount of consideration received for used vehicle sales includes noncash consideration representing the value of trade-in vehicles, if applicable, as stated in the contract. Prior to the delivery of the vehicle, the payment is received or financing has been arranged. Payments from customers that finance their purchases with third parties are typically due and collected within 30 days of delivery of the used vehicle. Revenue excludes any sales taxes that are collected from customers.

Wholesale Vehicle Sales

The Company sells vehicles to wholesalers. These vehicles sold to wholesalers are primarily acquired from customers
who trade-in their existing vehicles that do not meet the Company’s quality standards to list and sell through its website. The Company satisfies its performance obligation for wholesale vehicle sales when the wholesale purchaser obtains control of the underlying vehicle, which is upon delivery when the transfer of title, risks and rewards of ownership and control pass to the customer. The Company recognizes revenue at the amount it expects to receive for the used vehicle, which is the fixed price determined at the auction. The purchase price of the wholesale vehicle is typically due and collected within 30 days of delivery of the wholesale vehicle.

Other Sales and Revenues

Other sales and revenues include gains on the sales of finance receivables, commissions on vehicle service contracts (“VSCs”), GAP waiver coverage, and interest income received on finance receivables prior to selling them to investors. The Company accounts for the sale of finance receivables in accordance with ASC 860, Transfers and Servicing ofFinancial Assets as described in the footnotes to the Company's annual financial statements included in its Annual Report filed on Form 10-K with the SEC on March 6, 2018.

Customers purchasing used vehicles from the Company may enter into contracts for VSCs. The Company sells and receives a commission on VSCs under a master dealer agreement with DriveTime, pursuant to which the Company sells VSCs that DriveTime administers and is the obligor. The Company recognizes commission revenue at the time of sale, net of a reserve
11

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
for estimated contract cancellations. The reserve for cancellations is estimated based upon historical experience and recent trends and is reflected as a reduction of other sales and revenues. Changes in these estimates are reflected as an adjustment to revenue in the period identified.

Customers that finance their used vehicle purchases with the Company may enter into contracts to purchase GAP waiver coverage, which provides customers with the promise that whoever then holds the underlying finance receivable will not attempt collection of a loan balance that is in excess of the value of the financed vehicle in the event of a total loss. The price of GAP waiver coverage is set forth in each contract. GAP waiver coverage is recognized as the performance obligation is satisfied over the period of coverage, generally on a straight-line basis over the term of the related finance receivable, less a reserve for cancellations. The reserve for cancellations is estimated based upon historical experience and recent trends and is reflected as a reduction of other sales and revenues. Changes in these estimates are reflected as an adjustment to other sales and revenues in the period identified. Upon selling the finance receivable, the Company recognizes any remaining deferred revenue. DriveTime administers the GAP waiver coverage.

Adoption of New Accounting Standards

As discussed above, the Company adopted ASC 606 on January 1, 2018 using the modified retrospective method. ASC 606 requires the reserve for vehicle inventory returns to be presented separately from vehicle inventory, where the Company previously presented it. As of December 31, 2017, the reserve for estimated returns included within vehicle inventory was approximately $2.6 million. As of June 30, 2018, the reserve for estimated returns included within other current assets was approximately $4.6 million. Furthermore, based on the mannerBeginning in which the Company recognizes revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its revenue recognition and the Company recognized no cumulative effect adjustment upon adoption.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows — Classification of Certain Receipts and Payments (“ASU 2016-15”), which provides additional clarity on the classification of specific events on the statement of cash flows including debt prepayment and extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, distributions received from equity method investees and beneficial interests in securitization transactions. The Company adopted this ASU on January 1, 2018. The adoption of ASU 2016-15 did not have a material effect on its consolidated statements of cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows — Restricted Cash (“ASU 2016-18”), which requires the statement of cash flows to include restricted cash with its cash and cash equivalents balance and a reconciliation between all cash items on the balance sheet and the balance presented in the statement of cash flows. In addition, changes in restricted cash related to transfers between cash and cash equivalents and restricted cash will not be presented as cash flow activities in the statement of cash flows. The Company adopted ASU 2016-18 on January 1, 2018 on a retrospective basis. As a result, changes in restricted cash are no longer presented as investing cash flow activities and the restricted cash balance is included with cash and cash equivalents in the beginning and end of period balances on the Company's consolidated statements of cash flows for all periods presented. For the six months ended June 30, 2017, changes in restricted cash included within cash used in investing activities, as originally presented, was approximately $0.1 million.

Accounting Standards Issued But Not Yet Adopted

Since February 2016, the FASB has issued several accounting standards updates related to the new leasing model in ASC 842, Leases (“("ASC 842”842"). ASC 842 introducesintroduced a lessee model that requires a right-of-use asset and lease obligationleases to be presented on the balance sheet for certain leases, whether operating or financing. ASC 842and eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. Expense recognition under ASC 842 on the income statement remains similar to currentprevious lease accounting guidance.

The Company adopted ASC 842 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018 and should be appliedon January 1, 2019 using athe modified retrospective approach, the practical expedient package and the transition relief option, which allowed the Company to, among other things, avoid reassessing lease classification for existing leases, forego the balance sheet recognition requirements with the optionrespect to elect various practical expedients. The Company plans to adopt ASC 842 for its fiscal year beginning January 1, 2019.short-term leases and avoid restating comparative periods presented. The adoption of ASC 842 will require theresulted in initial recognition of a right-of-use asset and a lease obligation for the Company’s leases (see Note 14 — Commitments and Contingencies). While the Company is still evaluating the full effect this guidance will have on its consolidated financial statements and related disclosures, the Company anticipates recognizing right-of-useROU assets and operating lease liabilities which willof approximately $80.3 million and $86.8 million, respectively, as of January 1, 2019, and did not have a materialan impact upon adoption primarily on its consolidated balance sheets and related disclosures, and will increase total assets and liabilities.

12

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairmentbeginning equity balances as of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and earlier adoption is permitted beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact on its consolidated financial statements, and plans to adopt ASU 2016-13 for its fiscal year beginning January 1, 2020. Finance receivables originated in connection with the Company’s vehicle sales are held for sale and are sold to third parties. As a result, the Company doesimplementation date. Adopting ASC 842 did not presently hold any finance receivables until maturity. Therefore, the Company does not expect adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles — GoodwillCompany's sale-leaseback transactions, which have typically been accounted for as financing transactions in prior periods and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which is intended to simplify the goodwill impairment test by eliminating the second step of the goodwill impairment test, which requires performing a hypothetical purchase price allocation. Under ASU 2017-04, goodwill impairment should be recognized based on the amount by which a reporting unit's carrying amount exceeds its fair value, but shouldunder ASC 842. The standard did not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, may be early adopted after January 1, 2017, and should be applied on a prospective basis. The Company does not expect adoption of ASU 2017-04 to have a material impact on itsthe Company's consolidated financial statements.statements of operations or statements of cash flows.

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718) ("ASU 2018-07") related to the accounting for share-based payment transactions for acquiring goods and services from nonemployees. Under ASU 2018-07, the intent is to simplify and align most requirements for share-based payments to nonemployees with the requirements for share-based payments granted to employees under ASC 718, including measuring the equity instruments at the grant-date fair value. The Company adopted ASU 2018-07 on January 1, 2019 using the modified retrospective approach. The adoption of ASU 2018-07 did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018,2019, and will be applied on a modified retrospective basis through a cumulative-effect adjustment to accumulated deficit.earlier adoption is permitted beginning in the first quarter of fiscal 2019. Debt securities available for sale are excluded from the scope of ASU 2016-13. The Company plans to adopt ASU 2018-072016-13 for its fiscal year beginning January 1, 2020. Finance receivables originated in connection with the Company’s vehicle sales are held for sale and are subsequently sold. The Company does not presently hold any finance receivables until maturity. Therefore, the Company does not expect adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13") related to updated requirements over the disclosures of fair value measurements. Under ASU 2018-13, certain disclosure requirements for fair value measurements will be eliminated, modified or added to facilitate better communication around recurring and nonrecurring fair value measurements. ASU 2018-13 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with some amendments applied prospectively, some applied retrospectively and early adoption permitted. The Company plans to adopt ASU 2018-13 for its fiscal year beginning January 1, 2020 and is currently assessing the impact the guidance will have on its consolidated financial statements.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The intent of this pronouncement is to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software as defined in ASC 350-40. Under ASU 2018-15, the capitalized implementation costs related to a cloud computing arrangement will be amortized over the term of the arrangement and all capitalized implementation amounts will be required to be presented in the same line items of the financial statements as the related hosting fees. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company plans to adopt ASU 2018-15 for its fiscal year beginning January 1, 2020 and is currently assessing the impact, if any, the guidance will have on its consolidated financial statements.

In October 2018, the Company'sFASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether a decision-making fee is a variable interest. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company plans to adopt ASU 2018-15 for its fiscal year beginning January 1, 2020 and is currently assessing the impact, if any, the guidance will have on its consolidated financial statements.

NOTE 3 — PROPERTY AND EQUIPMENT, NET

The following table summarizes property and equipment, net as of June 30, 20182019 and December 31, 20172018 (in thousands):

June 30, 2018December 31, 2017June 30, 2019December 31, 2018
Land and site improvements$40,705 $11,656 
Buildings and improvementsBuildings and improvements91,775 60,804 Buildings and improvements$165,330 $123,705 
Transportation fleetTransportation fleet46,846 39,153 Transportation fleet90,601 65,760 
Land and site improvementsLand and site improvements60,545 45,702 
SoftwareSoftware28,006 21,009 Software47,276 36,452 
Furniture, fixtures and equipmentFurniture, fixtures and equipment15,451 12,239 Furniture, fixtures and equipment27,887 20,675 
Total property and equipment excluding construction in progressTotal property and equipment excluding construction in progress222,783 144,861 Total property and equipment excluding construction in progress391,639 292,294 
Less: accumulated depreciation and amortization on property and equipmentLess: accumulated depreciation and amortization on property and equipment(30,539)(20,453)Less: accumulated depreciation and amortization on property and equipment(62,278)(44,050)
Property and equipment excluding construction in progress, netProperty and equipment excluding construction in progress, net192,244 124,408 Property and equipment excluding construction in progress, net329,361 248,244 
Construction in progressConstruction in progress25,170 24,273 Construction in progress62,879 48,595 
Property and equipment, netProperty and equipment, net$217,414 $148,681 Property and equipment, net$392,240 $296,839 

Depreciation and amortization expense on property and equipment was approximately $4.9$8.4 million and $2.6$4.9 million for the three months ended June 30, 20182019 and 2017,2018, respectively, and approximately $9.5$16.1 million and $4.6$9.5 million for the six months ended June 30, 20182019 and 2017,2018, respectively. These amounts primarily relate to selling, general and administrative activities and are included as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 4 — GOODWILL AND INTANGIBLE ASSETS, NET

On April 12, 2018, the Company acquired Car360, Inc. ("Car360"), a providerprovider of app-based photo capture technology, for approximately $16.7 million, net of cash acquired of approximately $0.4 million. The purchase price was comprised of approximately $6.7 million cash, net of cash acquired, and approximately 0.5 million Class A Units of Carvana Group, with a fair value of approximately $10.0 million.

The purchase price was allocated to net tangible assets of approximately $0.2 million and intangible assets of approximately $9.9 million based on their fair values on the acquisition date.date and a related deferred tax liability of
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
approximately $2.5 million. The deferred tax liability will amortize over 3 years to 7 years, and approximately $0.0 million and $0.4 million was amortized during the three and six months ended June 30, 2019, respectively, and $0.0 million was amortized during the three and six months ended June 30, 2018. The excess of the purchase price over the amounts allocated to assets acquired, and liabilities assumed and the deferred tax liability was $6.9approximately $9.4 million, which has been recorded as goodwill.

The historical results of operations for Car360 were not significant to the Company's consolidated results of operations for the periods presented. Certain estimated values for the acquisition, including goodwill and intangible assets, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.

The following table summarizes intangible assets and goodwill related to the Car360 acquisition as of June 30, 2019 and December 31, 2018 (in thousands):

Useful LifeJune 30, 2018
Intangible assets:
Developed technology7 years$8,642 
Customer relationships5 years523 
Non-compete agreements5 years774 
Intangible assets, acquired cost9,939 
Less: accumulated amortization on intangible assets(323)
Intangible assets, net$9,616 
GoodwillN/A$6,868 
Useful LifeJune 30, 2019December 31, 2018
Intangible assets:
Developed technology7 years$8,642 $8,642 
Customer relationships3 years523 523 
Non-compete agreements5 years774 774 
Intangible assets, acquired cost9,939 9,939 
Less: accumulated amortization(1,843)(1,070)
Intangible assets, net$8,096 $8,869 
GoodwillN/A$9,353 $9,353 

Amortization expense was approximately $0.4 million and $0.8 million during the three and six months ended June 30, 2018 was2019, respectively, and approximately $0.3 million.million during both the three and six months ended June 30, 2018. As of June 30, 2018,2019, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 6.55.4 years. The anticipated annual amortization expense to be recognized in future years as of June 30, 20182019 is as follows (in thousands):

Expected Future Amortization Expected Future Amortization
Remainder of 2018 $747 
20191,494 
Remainder of 2019Remainder of 2019$800 
202020201,494 20201,600 
202120211,494 20211,442 
202220221,494 20221,389 
202320231,279 
ThereafterThereafter2,893 Thereafter1,586 
TotalTotal$9,616 Total$8,096 


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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 5 — ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

The following table summarizes accounts payable and other accrued liabilities as of June 30, 20182019 and December 31, 20172018 (in thousands):

June 30, 2018December 31, 2017June 30, 2019December 31, 2018
Accounts payable$23,996 $10,546 
Accounts payable, including $5,665 and $3,891, respectively, due to related partiesAccounts payable, including $5,665 and $3,891, respectively, due to related parties$55,849 $33,032 
Sales taxes and vehicle licenses and feesSales taxes and vehicle licenses and fees18,539 9,034 Sales taxes and vehicle licenses and fees38,764 27,651 
Reserve for returns and cancellationsReserve for returns and cancellations18,249 11,284 
Accrued compensation and benefitsAccrued compensation and benefits9,141 5,054 Accrued compensation and benefits14,036 13,477 
Accrued interest expenseAccrued interest expense13,193 9,206 
Accrued advertising costsAccrued advertising costs9,564 4,398 
Accrued property and equipmentAccrued property and equipment6,374 8,325 Accrued property and equipment6,265 7,414 
Customer depositsCustomer deposits4,476 2,890 
Other accrued liabilitiesOther accrued liabilities17,636 12,063 
Total accounts payable and accrued liabilitiesTotal accounts payable and accrued liabilities$178,032 $121,415 
Accrued advertising costs3,752 4,265 
Other accrued liabilities20,078 13,082 
Total accounts payable and other accrued liabilities$81,880 $50,306 


NOTE 6 — RELATED PARTY TRANSACTIONS

Lease Agreements

In November 2014, the Company and DriveTime Automotive Group ("DriveTime") entered into a lease agreement that governs the Company’s access to and utilization of temporary storage, reconditioning, offices and parking space at various DriveTime inspection and reconditioning centers ("IRCs") and retail facilities (the "DriveTime Lease Agreement"). The DriveTime Lease Agreement was most recently amended in MarchDecember 2018. Lease duration varies by location, with initialcancellable terms, provided 60 days' prior written notice is given, expiring between 20182021 and 2024. Most of the retail facilities have two-year terms andallow the Company is entitled to exercise up to two consecutive one-yearone-year renewal options at up to ten of these locations.locations, less the number of locations renewed under the DriveTime Hub Lease Agreement described below.

UnderIn March 2017, the Company and DriveTime entered into a lease agreement that governs the Company's access to and utilization of office and parking space at various DriveTime retail facilities (the "DriveTime Hub Lease Agreement"). The DriveTime Hub Lease Agreement was most recently amended in December 2018. Lease expiration varies by location with most having cancellable terms, provided 60 days' prior written notice is given, expiring in 2021 and the Company having the right to exercise up to two consecutive one-year renewal options at up to ten of these locations, less the number of locations renewed under the DriveTime Lease Agreement described above.

The DriveTime Lease Agreement and the DriveTime Hub Lease Agreement both have non-cancellable lease terms of less than twelve months with rights to terminate at the Company's election with 60 days prior written notice and extension options as described above. It is not reasonably certain that the Company payswill exercise its options to extend the leases or abstain from exercising its termination rights at the hub locations within these lease agreements to create a lease term greater than one year and therefore the Company accounts for them as short-term leases. The Company expects to extend the lease terms of the locations where it reconditions vehicles beyond twelve months, therefore those locations are not considered short-term leases. Under these lease agreements the Company makes variable monthly rental fee related tolease payments based on its pro rata utilization of space at each facility plus a pro rata share of each facility’s actual insurance costs and real estate taxes. The Company pays actual insurance costs and real estate taxes directly at locations where it occupies all of the space, including the Blue Mound and Delanco inspection and reconditioning centers. The Company is additionally responsible for paying for any tenant improvements it requires to conduct its operations and its share of estimated costs incurred by DriveTime related to preparing these sites for use. As it relates to locations where the Company reconditions vehicles, the Company’s share of facility and shared reconditioning supplies expenses are calculated based onrelated to the actual costs for operating the inspection and reconditioning centers and the Company’s pro rata share of total reconditioned vehicles and parking spaces at such inspection and reconditioning
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
centers in a given month. Management has determined that the costs allocated to the Company are based on a reasonable methodology.

Separate from the DriveTime Lease Agreement, inIn December 2016, the Company entered into a lease agreement related to a vehicle inspection and reconditioning center in Tolleson, Arizona, with Verde Investments, Inc., an affiliate of DriveTime ("Verde"), with an initial term of approximately 15 years. In August 2018, the Company entered into an additional lease agreement with a coterminous initial term with Verde for contiguous space to that inspection and reconditioning center. The lease agreement requiresagreements require monthly rental payments and can each be extended for four additional five-yearfive-year periods.

In February 2017, the Company also entered into a lease agreement with DriveTime for sole occupancy of a fully-operationalfully operational inspection and reconditioning center in Winder, Georgia, where the Company previously maintained partial occupancy. The lease has an initial term of eight years, subject to the Company's ability to exercise three renewal options of five years each.

In November 2018, the Company entered into a lease agreement with DriveTime for access to and utilization of a fully operational inspection and reconditioning center near Cleveland, Ohio. DriveTime vacated the facility in February 2019, at which point the Company became the sole occupant and purchased certain leasehold improvements and equipment at the facility from DriveTime for DriveTime's net book value of approximately $4.3 million and began leasing the full facility from DriveTime. The lease has an initial term of three years, subject to the Company's ability to exercise three renewal options of five years each. Before DriveTime vacated the facility, the Company paid a monthly rental fee for facility and shared reconditioning costs, calculated based on the Company’s pro rata utilization of space at the inspection and reconditioning center in a given month, along with a pro rata share of the facility’s actual insurance costs and real estate taxes. Management has determined that the costs allocated to the Company are based on a reasonable methodology.

Expenses related to these operating lease agreements are allocated based on usage to inventory and selling, general and administrative expenses in the accompanying unaudited condensed consolidated balance sheets and statements of operations. Costs allocated to inventory are recognized as cost of sales when the inventory is sold. During the three months ended June 30, 2019, total costs related to these operating lease agreements, including those noted above, were approximately $2.0 million with approximately $0.9 million and $1.1 million allocated to inventory and selling, general and administrative expenses, respectively. During the six months ended June 30, 2019, total costs related to these lease agreements were approximately $4.0 million with approximately $1.7 million and $2.3 million allocated to inventory and selling, general and administrative expenses, respectively. During the three months ended June 30, 2018, total costs related to these lease agreements were approximately $2.3 million with approximately $1.1 million and $1.2 million allocated to inventory and selling, general and administrative expenses, respectively. During the six months ended June 30, 2018, total costs related to these lease agreements were approximately $4.5 million with approximately $2.1 million and $2.4 million allocated to inventory and selling, general and administrative expenses, respectively. During the three months ended June 30, 2017, total costs related to these lease agreements were approximately $1.8 million with approximately $0.6 million and $1.2 million allocated to inventory and selling, general and administrative expenses, respectively. During the six months ended June 30, 2017, total costs related to these lease agreements were approximately $3.4 million with approximately $1.2 million and $2.2 million allocated to inventory and selling, general and administrative expenses, respectively.

15

CARVANA CO. AND SUBSIDIARIESLease Assumption from DriveTime
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)In February 2019, the Company entered into an agreement to assume a lease of an inspection and reconditioning center near Nashville, Tennessee that DriveTime leased from an unrelated landlord. As part of the agreement, the Company purchased from DriveTime certain leasehold improvements and equipment at the facility for DriveTime's net book value of approximately $2.0 million when the Company became the sole occupant in April 2019. The lease expires in four years, subject to the ability to exercise three renewal options of five years each. DriveTime remained an occupant of the facility through April 1, 2019 but is not fully released from lease obligations by the landlord.

Corporate Office Leases

During the first quarter of 2017, the Company subleased additional office space at DriveTime’s corporate headquarters in Tempe, Arizona. Pursuant to this arrangement, the Company incurred rent expense of approximately $0.1 million during the three months ended March 31, 2017, after which this arrangement was terminated.

In September 2016, the Company entered into a lease with a third party for the second floor of its corporate headquarters in Tempe, Arizona. DriveTime guarantees up to $0.5 million of the Company's rent payments under that lease through September 2019. In connection with that lease, the Company entered into a sublease with DriveTime for the use of the first floor of the same building. The lease and sublease each have a term of 83 months, subject to the right to exercise three five-yearfive-year extension options. Pursuant to the sublease, which is co-terminus with DriveTime's master lease, the Company will pay DriveTime rent equal to the amounts due under DriveTime's master lease. During the three and six months ended June 30, 2019, the rent expense incurred related to this first floor sublease was approximately $0.3 million and $0.5 million, respectively. During the three and six months ended June 30, 2018, the rent expense incurred related to this first floor sublease was approximately $0.2 million and $0.4 million, respectively. During the three and six months ended June 30, 2017, the rent expense incurred related to this first floor sublease was approximately $0.2 million and $0.3 million, respectively.

13


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Master Dealer Agreement

In December 2016, the Company entered into a master dealer agreement with DriveTime (the "Master Dealer Agreement"), pursuant to which the Company may sell vehicle service contracts ("VSCs") and GAP waiver coverageVSCs to customers purchasing a vehicle from the Company. The Company earns a commission on each VSC sold to its customers and DriveTime is obligated by and subsequently administers the VSCs. The Company collects the retail purchase price of the VSCs from its customers and remits the purchase price net of commission to DriveTime. The Company recognized approximately $13.1 million and $23.2 million during the three and six months ended June 30, 2019, respectively, and approximately $5.5 million and $9.7 million during the three and six months ended June 30, 2018, respectively, and approximately $1.9 million and $3.7 million during the three and six months ended June 30, 2017, respectively, of commissions earned on VSCs sold to its customers and administered by DriveTime.DriveTime, net of a reserve for estimated contract cancellations. The commission earned on the sale of these VSCs is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations. In November 2018, the Company amended the Master Dealer Agreement to allow the Company to receive payments for excess reserves based on the performance of the VSCs versus the reserves held by the VSC administrator, once a required claims period for such VSCs has passed. The Company recognized approximately $0.9 million and $1.4 million, respectively, during the three and six months ended June 30, 2019, and $0.0 million during both the three and six months ended June 30, 2018 related to payments for excess reserves to which it expects to be entitled, which is included in other sales and revenues in the accompanying unaudited condensed consolidated statement of operations.

Beginning in 2017, DriveTime also administers a portion of the Company's GAP waiver coverage and the limited warranty provided to all customers under the Master Dealer Agreement. The Company pays a per-contract fee to DriveTime to administer a portion of the GAP waiver coverage it sells to its customers.customers and a per-vehicle fee to DriveTime to administer the limited warranty included with every purchase. The Company incurred approximately $0.0$1.1 million and $0.1$1.9 million during the three and six months ended June 30, 2019, respectively, and $0.5 million and $0.8 million during the three and six months ended June 30, 2018, respectively, related to the administration of GAP waiver coverage and $0.0limited warranty.

GAP Waiver Insurance Policy

In March 2019 and June 2019, the Company purchased insurance policies from BlueShore Insurance Company ("BlueShore"), an affiliate of DriveTime, for approximately $1.0 million and $0.6 million, respectively, that reimburses the lienholder of finance receivables with GAP waiver coverage for any GAP waiver claims on a defined set of finance receivables that the Company sold in its securitization transactions. This insurance is transferred with the underlying finance receivable. Simultaneously with the March 2019 policy, the Company entered into a retrospective profit sharing agreement with BlueShore under which the Company will share in the profits generated from the insurance policies by receiving a portion of the excess of the premium it paid to BlueShore, net of a fee, compared to the amount BlueShore pays out related to the GAP waiver claims. As of June 30, 2019, the Company held a receivable of approximately $0.2 million, which is included in other assets on the accompanying unaudited condensed consolidated balance sheets, related to this retrospective profit sharing agreement.

Servicing and Administrative Fees

DriveTime provides servicing and administrative functions associated with the Company's finance receivables. The Company incurred expenses of approximately $0.5 million and $1.0 million during the both the three and six months ended June 30, 20172019, respectively, and $0.2 million and $0.4 million during the three and six months ended June 30, 2018, respectively, related to the administration of GAP waiver coverage.these services.

Aircraft Time Sharing Agreement

The Company entered into an agreement to share usage of two aircraft owned by Verde and operated by DriveTime on October 22, 2015, and the agreement was subsequently amended on May 15, 2017. Pursuant to the agreement, the Company agreed to reimburse DriveTime for actual expenses for each of the flights in which the Company uses the aircrafts.its flights. The original agreement was for 12 months, with perpetual 12-month automatic renewals. Either the Company or DriveTime can terminate the agreement with 30 days’ prior written notice. The Company reimbursed DriveTime approximately $0.2 million and $0.3 million, respectively, under this agreement during each of the three months ended June 30, 2019 and 2018, and 2017, respectively, and approximately $0.2$0.3 million and $0.4$0.2 million under this agreement during the six months ended June 30, 20182019 and 2017,2018, respectively.

Credit Facility with
14


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Senior Unsecured Notes Held by Verde

As of both June 30, 2019 and December 31, 2018, Verde held $15.0 million of principal of the Company's outstanding senior unsecured notes, which are described further in Note 9 — Debt Instruments.

Accounts Payable Due to Related Party

As of June 30, 2019 and December 31, 2018, approximately $5.7 million and $3.9 million, respectively, was due to related parties primarily related to the agreements mentioned above, and is included in accounts payable to related party in the accompanying unaudited condensed consolidated balance sheets.

Contribution Agreements

On February 27, 2017,September 10, 2018, the Company announced a commitment by its Chief Executive Officer, Ernest Garcia III, to contribute shares of the Company's Class A common stock, for each then-current employee from his personal shareholdings to the Company at no charge (the “Share Contributions”). His contributions are intended to fund equity awards of 165 restricted stock units to each of the Company's then-current employees upon their satisfying certain employment tenure requirements (the "100k Milestone Gift"). The Company entered into certain contribution agreements related to his commitment in order to effect the transfer of shares from Mr. Garcia to the Company. The Company does not expect Mr. Garcia to incur any tax obligations related to the Share Contributions, but pursuant to a credit facility with Verdeseries of contribution agreements, it has indemnified Mr. Garcia from any such obligations that may arise. See Note 10 — Stockholders' Equity and Note 12 — Equity-Based Compensation for an amount up to $50.0 million (the "Verde Credit Facility"). Amounts outstanding accrued interest at a rate of 12.0% per annum. Upon execution of the agreement, the Company paid Verde a commitment fee of $1.0 million. In connection with the IPO, the Company repaid the outstanding principal balance of $35.0 million and accrued interest of approximately $0.4 million in full and the Verde Credit Facility agreement terminated.further discussion.

IP License Agreement

In February 2017, the Company entered into a license agreement that governs the rights of certain intellectual property owned by the Company and the rights of certain intellectual property owned by DriveTime. The license agreement, which was amended and restated in April 2017, generally provides that each party grants to the other certain limited exclusive (other than with respect to the licensor party and its
16

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
affiliates) and non-exclusive licenses to use certain of its intellectual property, and each party agrees to certain covenants not to sue the other party, its affiliates and certain of its service providers in connection with various patent claims. The exclusive license to DriveTime is limited to the business that is primarily of subprime used car sales to retail customers. However, upon a change of control of either party, both parties’ license rights as to certain future improvements to licensed intellectual property and all limited exclusivity rights are terminated. The agreement does not provide a license to any of the Company's patents, trademarks, logos, customers’ personally identifiable information or any intellectual property related to the Company's vending machines, automated vehicle photography or certain other elements of the Company's brand.

Accounts Payable Due to Related Party

Amounts payable to DriveTime and Verde under the agreements explained above, as well as invoices DriveTime initially paid on behalf of the Company for vehicle reconditioning costs and general and administrative expenses, are included in accounts payable to related party in the accompanying unaudited condensed consolidated balance sheets. As of June 30, 2018 and December 31, 2017, approximately $3.2 million and $1.8 million, respectively, was due to related parties primarily related to lease agreements, shared service fees, net VSC fees collected from customers and repayments to DriveTime for invoices paid on behalf of the Company.

NOTE 7 — FINANCE RECEIVABLE SALE AGREEMENTS

In December 2016, the Company entered into a master purchase and sale agreement (the "Purchase"Master Purchase and Sale Agreement" or "MPSA") and a master transfer agreement (the "2016 Master Transfer Agreement") pursuant to which it sells finance receivables meeting certain underwriting criteria to certain third party purchasers,financing partners, including Ally Bank and Ally Financial (the "Ally Parties"). Through November 2017 under the Purchase and Sale AgreementMPSA and the 2016 Master Transfer Agreement, the Company could sell up to an aggregate of $375.0 million, and $292.2 million, respectively, in principal balances of finance receivables subject to adjustment as described in the respective agreements.

On November 3, 2017, the Company amended its Purchase and Sale AgreementMPSA to increase the aggregate amount of principal balances of finance receivables it can sell from $375.0 million to $1.5 billion. AlsoOn November 2, 2018, the Company amended the MPSA to, among other things and subject to the terms of the agreement, commit the purchaser to purchase up to a maximum of $1.25 billion of principal balances of finance receivables after the amendment date. Subsequently, on April 19, 2019, the Company amended the MPSA to, among other things and subject to the terms of the agreement, commit the purchaser to purchase up to a maximum of $1.0 billion of principal balances of finance receivables after the amendment date.

During the six months ended June 30, 2019 and 2018, the Company sold approximately $257.0 million and $308.8 million, respectively, in principal balances of finance receivables under the MPSA and had approximately $820.2 million of unused capacity as of June 30, 2019.

15


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
On November 3, 2017, the Company terminated the remaining capacity under the 2016 Master Transfer Agreement and replaced this facility by entering into a new master transfer agreement (the "2017 Master Transfer Agreement") with a third partypurchaser trust under which the third party hastrust committed to purchase up to an aggregate of approximately $357.1 million in principal balances of finance receivables. On November 2, 2018, the Company amended the 2017 Master Transfer Agreement to, among other things and subject to the terms of the agreement, increase and extend the trust's commitment to purchase finance receivables from the Company. The trust's available financing permits up to $454.5 million in principal balances of finance receivables to be purchased after the amendment date, and the trust's purchase commitment contemplates it securing up to three times the currently available financing in the aggregate.

On May 7, 2019, the Company purchased the certificate of the trust for $34.0 million, net of cash acquired. At the time of acquisition the trust assets included $139.7 million of finance receivables that the Company had previously sold to the trust under the 2017 Master Transfer Agreement, and its liabilities included $105.7 million in associated debt and other liabilities. In connection with the certificate purchase, the Company and Ally Bank entered into an Amended and Restated Loan and Security Agreement (the "A&R Loan and Security Agreement") pursuant to which Ally Bank agreed to provide a $350.0 million revolving credit facility (the "SART 2017-1 Credit Facility") to fund certain automotive finance receivables originated by the Company, as further described in Note 9 — Debt Instruments.

During the six months ended June 30, 2018,2019, prior to the acquisition of the certificate in the trust, the Company sold approximately $308.8$139.3 million in principal balances of finance receivables under the Purchase and Sale Agreement, and2017 Master Transfer Agreement. During the six months ended June 30, 2018, the Company sold approximately $184.4 million in principal balances of finance receivables under the 2017 Master Transfer Agreement. As of June 30, 2018, there was approximately $847.6 million and $140.5 million of unused capacity under the Purchase and Sale Agreement and the 2017 Master Transfer Agreement, respectively.

During the six months ended June 30, 2017,2019, prior to the certificate purchase, the Company sold approximately $157.7 million in principal balances ofalso purchased finance receivables that it previously sold to the purchaser trust under the Purchase2017 Master Transfer Agreement for a total price of approximately $127.7 million and Sale Agreement, and approximately $66.6 million in principal balances ofimmediately resold such finance receivables underinto a securitization transaction, which is described further in Note 8 — Securitizations and Variable Interest Entities. This transaction was entered into in connection with the 2016securitization transaction and was entered into independently from the terms of the 2017 Master Transfer Agreement.

The total gain on loan sales related to finance receivables sold to financing partners under these agreementsthe MPSA, the 2017 Master Transfer Agreement and to investors in securitization transactions discussed in Note 8 — Securitizations and Variable Interest Entities was approximately $40.4 million and $12.4 million during the three months ended June 30, 2019 and 2018, respectively, and $59.6 million and $22.3 million during the three and six months ended June 30, 2018, respectively,2019 and approximately $5.4 million and $8.4 million during the three and six months ended June 30, 2017,2018, respectively, which is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.

NOTE 8 — SECURITIZATIONS AND VARIABLE INTEREST ENTITIES

Beginning in 2019, the Company sponsors and establishes securitization trusts to purchase finance receivables from the Company. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that the Company sells to the securitization trusts. Upon transfer of the finance receivables to the securitization trusts, the Company recognizes a gain or loss on sales of finance receivables. The net proceeds from the sales are the fair value of the assets obtained as part of the transactions and typically include cash and at least 5% of the beneficial interests issued by the securitization trusts to comply with Risk Retention Rules. The beneficial interests retained by the Company include but are not limited to rated notes and certificates of the securitization trusts. The holders of the certificates issued by the securitization trusts have rights to cash flows only after the holders of the notes issued by the securitization trusts have received their contractual cash flows. The securitization trusts have no direct recourse to the Company’s assets, and holders of the securities issued by the securitization trusts can look only to the assets of the securitization trusts that issued their securities for payment. The beneficial interests held by the Company are subject principally to the credit and prepayment risk stemming from the underlying finance receivables.

As described in Note 2 — Summary of Significant Accounting Policies, the securitization trusts established in connection with asset-backed securitization transactions are VIEs. For each VIE that the Company establishes in its role as sponsor of securitization transactions, it performs an analysis to determine whether or not it is the primary beneficiary of the VIE. The .Company’s continuing involvement with the VIEs consists of retaining a portion of the securities issued by the VIEs and performing ministerial duties as the trust administrator. As of June 30, 2019, the Company is not the primary beneficiary of
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these securitization trusts because its retained interests in the VIEs do not have exposures to losses or benefits that could potentially be significant to the VIEs. The Company does not consolidate the securitization trusts.

The assets the Company retains in the unconsolidated VIEs are presented as beneficial interests in securitizations on the accompanying unaudited condensed consolidated balance sheets, which as of June 30, 2019 were approximately $45.2 million. The Company held no other assets or liabilities related to its involvement with unconsolidated VIEs as of June 30, 2019.

The following table summarizes the carrying value and total exposure to losses of its assets related to unconsolidated VIEs with which the Company has continuing involvement, but is not the primary beneficiary at June 30, 2019. Total exposure represents the estimated loss the Company would incur under severe, hypothetical circumstances, such as if the value of the interests in the securitization trusts and any associated collateral declined to zero. The Company believes the possibility of this is remote. As such, the total exposure presented below is not an indication of the Company's expected losses.

Carrying ValueTotal Exposure
(in thousands) 
Rated notes$38,893 $38,893 
Certificates and other assets6,299 6,299 
Total unconsolidated VIEs$45,192 $45,192 

The beneficial interests in securitizations are considered securities available for sale subject to restrictions on transfer pursuant to the Company’s obligations as a sponsor under Risk Retention Rules. These securities are interests in securitization trusts, thus there are no contractual maturities. The amortized cost and fair value of securities available for sale as of June 30, 2019 were as follows (in thousands):

Amortized CostFair Value
Rated notes$38,684 $38,893 
Certificates and other assets6,331 6,299 
Total securities available for sale$45,015 $45,192 

NOTE 9 — DEBT INSTRUMENTS

Short-Term Revolving Facilities

Floor Plan Facility

The Company has a floor plan facility with a third partylender to finance its used vehicle inventory, which is secured by substantially all of its assets, other than the Company's interests in real property (the "Floor Plan Facility"). The Company most recently amended the Floor Plan Facility in August 2017November 2018 to, among other things, extend the maturity date to DecemberOctober 31, 2018, and2020, increase the available creditcapacity to $275.0$650.0 million through December 31, 2017 and tofrom $350.0 million, from January 1, 2018 through December 31, 2018. The Company is required to make monthlyand lower the annual interest payments at a rate per annum equal to one-month LIBOR plus 3.65%3.40%, effective August 1, 2017.a decrease from the previous rate of one-month LIBOR plus 3.65%. The Floor Plan Facility requires monthly interest payments on borrowings under the Floor Plan Facility and that at least 5% of the total principal amount owed to the lender is held as restricted cash.

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Repayment in an amount equal to the amount of the advance or loan must be made within five business days of selling or otherwise disposing of the underlying vehicle inventory, unless customers financed the purchase by originating an automotive finance receivable. For used vehicle sales involving financing originated by the Company and sold under either the Purchase and Sale AgreementMPSA or the 2017 Master Transfer Agreement as mentioned in Note 7 — Finance Receivable Sale Agreements,Facilities (as defined below), the lender has extended repayment to the earlier of fifteen business days after the sale of the used vehicle or one day following the sale of the related finance receivable. In November 2017, the Company also entered into a letter agreementWith respect to extend repayment of amounts due under the Floor Plan Facility forsuch used vehicle sales involving financing that are not sold under either the Purchase and Sale AgreementMPSA or the 2017 Master Transfer Agreement. With respect to such vehicles,Finance Receivables Facilities, the lender agreed to extend repayment of the advance or the loan for such vehicles to the earlier of fifteen business days after the sale of the vehicle or two business days following the funding of the related finance receivable. Outstanding balances related to vehicles held in inventory for more than 180 days require monthly principal payments equal to 10% of the original principal
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amount of that vehicle until the remaining outstanding balance is the lesser of (i) 50% of the original principal amount or (ii) 50% of the wholesale value. Prepayments may be made without incurring a premium or penalty. Additionally, the Company is permitted to make prepayments to the lender to be held as principal payments under the Floor Plan Facility and subsequently re-borrowreborrow such amounts.

As of June 30, 2018,2019, the interest rate on the Floor Plan Facility was approximately 5.74%5.80%, the Company had an outstanding balance under this facility of approximately $347.1$23.8 million, borrowingunused capacity available of approximately $2.9$626.2 million, and held approximately $17.4$1.2 million in restricted cash related to this facility. As of December 31, 2017,2018, the interest rate on the Floor Plan Facility was approximately 5.90%, the Company had an outstanding balance of approximately $197.0 million and held approximately $12.4$9.8 million in restricted cash related to this facility.

Finance Receivable Facilities

In April 2019, the Company and Ally Bank entered in a Loan and Security Agreement pursuant to which Ally Bank agreed to provide a $300.0 million revolving credit facility (the "DART I Credit Facility") to fund certain automotive finance receivables originated by the Company. The Company can draw upon the DART I Credit Facility until April 17, 2020, and it has an annual interest rate of one-month LIBOR plus a spread ranging from 1.00% to 1.80%.

In May 2019, the Company and Ally Bank entered into the A&R Loan and Security Agreement in connection with the $350.0 million SART 2017-1 Credit Facility to fund certain automotive finance receivables originated by the Company. The Company can draw upon the SART 2017-1 Credit Facility until November 1, 2019, and it has an annual interest rate of one-month LIBOR plus 1.95%.

The DART I Credit Facility and the SART 2017-1 Credit Facility (collectively, the "Finance Receivable Facilities") each require that at least 2% of the outstanding pledged finance receivables principal balances, plus any undistributed amounts collected on the pledged finance receivables amount, is held as restricted cash.

Interest payments on the Finance Receivable Facilities are payable monthly on each draw date. Principal repayments will occur on the fifteenth day of each calendar month in an amount equal to the undistributed receivables collected. The lender will receive repayment in accordance with its respective commitment. Prepayment of the entire aggregate outstanding principal and any accrued unpaid interest through the next draw date is permitted twice per calendar quarter.

As of June 30, 2019, the DART I Credit Facility had an interest rate ranging between approximately 3.40% and 4.20%, and the SART 2017-1 Credit Facility had an interest rate of approximately 4.35%. The Company had an outstanding balance under the Finance Receivable Facilities of approximately $15.9 million, unused capacity of $634.1 million, and held approximately $1.0 million in restricted cash related to these facilities.

Long-Term Debt

Senior Unsecured Notes

On September 21, 2018, the Company issued an aggregate of $350.0 million in senior unsecured notes due 2023 (the "Existing Notes") under an indenture entered into by and among the Company, each of the guarantors party thereto and U.S. Bank National Association, as trustee (the “Indenture”). On May 24, 2019, the Company issued $250.0 million in aggregate principal amount of additional notes (the "New Notes") under the Indenture, at a 100.5% premium. The Existing Notes and New Notes (together the "Senior Notes") are treated as a single class for all purposes and have the same terms. The Senior Notes accrue interest at a rate of 8.875% per annum, which is payable semi-annually in arrears on April 1 and October 1 of each year beginning April 1, 2019. The Senior Notes mature on October 1, 2023, unless earlier repurchased or redeemed, and are guaranteed by the Company's existing domestic restricted subsidiaries (other than the subsidiaries formed solely for the purpose of facilitating the Company's sales of its finance receivables, if any). The Company may redeem some or all of the Senior Notes on or after October 1, 2020 at redemption prices set forth in the Indenture, plus any accrued and unpaid interest to the redemption date. Prior to October 1, 2020, the Company may redeem up to 35.0% of the aggregate principal amount of the Senior Notes at a redemption price equal to 108.875%, together with accrued and unpaid interest to, but not including, the date of redemption, with the net cash proceeds of certain equity offerings. In addition, the Company may, at its option, redeem some or all of the Senior Notes prior to October 1, 2020, by paying a make-whole premium plus any accrued and unpaid interest, to, but not including, the redemption date. If the Company experiences certain change of control events, it must make an offer to
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(Unaudited)
purchase all of the Senior Notes at 101.0% of the principal amount thereof, plus any accrued and unpaid interest, to the repurchase date.

The Indenture governing the Senior Notes contains restrictive covenants that limit the ability of the Company to, among other things, incur additional debt or issue preferred stock, create liens, create restrictions on the Company’s ability to make intercompany payments, pay dividends and make other distributions in respect of the Company's capital stock, redeem or repurchase the Company’s capital stock or prepay subordinated indebtedness, make certain investments or certain other restricted payments, guarantee indebtedness, designate unrestricted subsidiaries, sell certain kinds of assets, enter into certain types of transactions with affiliates, and effect mergers or consolidations. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating from any two of Moody’s Investors Service, Inc., Standard & Poor’s Rating Services, and Fitch Ratings, Inc., and there is no continuing default. As of June 30, 2019, the Company was in compliance with all covenants.

In connection with the issuance of these Senior Notes, Carvana Group amended its LLC agreement to create a class of non-convertible preferred units, which Carvana Co. purchased with its net proceeds from the issuance of these Senior Notes, as further discussed in Note 10 — Stockholders' Equity.

The outstanding principal of the Senior Notes, net of debt issuance costs and including the premium, was approximately $589.9 million and $342.9 million as of June 30, 2019 and December 31, 2018, respectively, of which $15.0 million of principal was held by Verde, and is included in long-term debt in the accompanying unaudited condensed consolidated balance sheets.

Notes Payable

The Company has entered into promissory note and disbursement agreements to finance certain equipment for its transportation fleet and building improvements. The assets financed with the proceeds from these notes serve as the collateral for each note and certain security agreements related to these assets have cross collateralization and cross default provisions with respect to one another. Each note has a fixed annual interest rate, a two to five-yearfive-year term and requires monthly payments. As of June 30, 2018,2019, the outstanding principal of these notes had a weighted-average interest rate of 5.6%6.1% and totaled approximately $31.3$30.7 million, of which approximately $6.7$8.2 million is due within the next twelve months and is included asin current portion of long-term debt in the accompanying unaudited condensed consolidated balance sheets.sheet.

Finance LeasesOther Real Estate Financing Transactions

Beginning in 2017, theThe Company has financedfinances certain purchases and construction of its property and equipment through various sale and leaseback transactions. As of June 30, 2018,2019, none of these transactions have qualified for sale accounting due to meeting the criteria for finance leases, or forms of continuing involvement, such as repurchase options or renewal periods that extend the lease for substantially all of the asset's remaining useful life, and are therefore accounted for as financing transactions. These arrangements require monthly payments and have initial terms that expire in fifteen to twenty years. Some of the agreements are subject to renewal options of up to twenty years and base rent increases throughout the term. As of June 30, 2018,2019, the outstanding liability associated with these sale and leaseback arrangements, net of unamortized debt issuance costs, is approximately $52.3$90.9 million and is included in long-term debt in the accompanying unaudited condensed consolidated balance sheet.

In November 2017, the Company entered into a master sale-leaseback agreement (the "Master Sale-Leaseback Agreement" or "MSLA"), which was amended in November 2018, pursuant to which it may sell and lease back certain of its owned or leased properties and construction improvements. A portion of the Company's finance leases described above is through the MSLA. A portion of the fixed rental payments set forth in the respective lease agreements is payable annually beginning in November 2019. Under the MSLA, at any time the Company may elect to, and beginning in November 20192020 or until a property owner of a leased site consents to the sale-leaseback, the purchaser has the right to demand that the Company repurchase one or more of the properties sold and leased back pursuant to the MSLA for an amount equal to the repurchase price. Repurchase prices are defined in each of the applicable leases and are generally the original purchase prices plus any accrued and unpaid rent. As of June 30, 2018, the repurchase prices for all properties under the MSLA excluding unpaid rent totaled approximately $28.8 million. Under the MSLA, the total sales price of properties the Company has sold and is leasing back at any point in time is limited to $75.0 million. By December 31, 2018, the Company repurchased all properties it had previously sold under the MSLA for a price of approximately $28.8 million. As of June 30, 2019 and December 31, 2018, the Company may sell and lease back an additional approximately $46.2$75.0 million of its property and equipment under the MSLA.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 9 — STOCKHOLDERS' EQUITY Financing of Beneficial Interests in Securitizations

Organizational TransactionsIn June 2019, the Company financed certain retained beneficial interests in securitizations through a secured borrowing facility whereby the Company sold such interests and agreed to repurchase them at the expiration of the facility for their fair value at that time. As discussed in Note 8 — Securitizations and Variable Interest Entities, the Company has retained certain Beneficial Interests in Securitizations pursuant to the Company’s obligations as a sponsor under Risk Retention Rules.

As of June 30, 2019, the Company has pledged $15.2 million of its beneficial interests in securitizations as collateral under the repurchase agreement with an expected repurchase in February 2026. Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transaction. In the event of a decline in the fair value of the pledged collateral, the repurchase price of the pledged collateral will be increased by the amount of the decline.

As of June 30, 2019, the Company has recorded approximately $10.7 million in long-term debt, net of a current portion of approximately $4.5 million, in the accompanying unaudited condensed consolidated balance sheet.

NOTE 10 — STOCKHOLDERS' EQUITY

Immediately prior to the IPO, Carvana Co. amended and restated its certificate of incorporation to, among other things authorize (i) 50.0 million shares of Preferred Stock, par value $0.01 per share, (ii) 500.0 million shares of Class A common stock, par value $0.001 per share, and (iii) 125.0 million shares of Class B common stock, par value $0.001 per share. On December 5, 2017, Carvana Co. amended and restated its certificate of incorporation to authorize 100,000 shares of Convertible Preferred Stock, with an initial stated value of $1,000 per share and a par value of $0.01 per share. Each share of Class A common stock generally entitles its holder to one vote on all matters to be voted on by stockholders. Each share of Class B common stock held by the Garcia Parties generally entitles its holder to ten votes on all matters to be voted on by stockholders, for so long as the Garcia Parties maintain direct or indirect beneficial ownership of at least 25% of the outstanding shares of Carvana Co.'s Class A common stock determined on an as-exchanged basis assuming that all of the Class A Units and Class B Units were exchanged for Class A common stock. All other shares of Class B common stock generally entitle their holders to one vote per share on all matters to be voted on by stockholders. Holders of Class B common stock are not entitled to receive dividends and would not be entitled to receive any distributions upon the liquidation, dissolution or winding down of the Company. Holders of Class A and Class B common stock vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by applicable law.

As described in Note 1 — Business Organization, Carvana GroupGroup's amended and restated its LLC Agreement to, among other things, provideprovides for two classes of common ownership interests in Carvana Group. Carvana Group’s two classes of common ownership interests are Class A Units and Class B Units.Units (the "LLC Units"). Carvana Co. is required to, at all times, maintain (i) a four-to-five ratio between the number of shares of Class A common stock issued and outstanding by Carvana Co. and the number of Class A Units owned by Carvana Co. (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities and subject to adjustment as set forth in the exchange agreement (the "Exchange Agreement") further discussed below, and taking into account Carvana Sub’s 0.1% ownership interest in Carvana, LLC) and (ii) a four-to-five ratio between the number of shares of Class B common stock owned by the Originaloriginal holders of LLC Unitholdersunits prior to the IPO (the "Original LLC Unitholders") and the number of Class A Units owned by the Original LLC Unitholders. The Company may issue shares of Class B common stock only to the extent necessary to maintain these ratios. Shares of Class B common stock are transferable only together with a correspondingan equal number of LLC Units if Carvana Co., at the election of an ExistingOriginal LLC Unitholder, exchanges LLC Units for shares of Class A common stock.

As of June 30, 2018,2019, there were approximately 175.6189.1 million and 6.05.7 million Class A Units and Class B Units (as adjusted for the participation thresholds), respectively, issued and outstanding. As discussed in Note 1112 — Equity-Based Compensation, Class B Units were issued under the Company’s LLC Equity Incentive Plan (the “LLC Equity Incentive Plan”) and are subject to a participation threshold and are earned over the requisite service period.

Initial Public Offering

As described in Note 1 — Business Organization, on May 3, 2017, Carvana Co. completed its IPO of 15.0 million shares of Class A common stock at a public offering price of $15.00 per share. Carvana Co. received approximately $205.8 million in proceeds, net of underwriting discounts and commissions and offering expenses. Carvana Co. used the proceeds to purchase approximately 18.8 million newly-issued LLC Units of Carvana Group at a price per unit equal to 0.8 times the initial public offering price less underwriting discounts and commissions. In connection with the IPO, Carvana Co. transferred approximately 0.2 million Class A Units to Ernest Garcia, II in exchange for his 0.1% ownership interest in Carvana, LLC, a majority-owned subsidiary of Carvana Group.

Follow-On Public OfferingEquity Offerings

On April 30, 2018, the Company completed a follow-on offering of 6.6 million shares of its Class A common stock at a public offering price of $27.50 per share and received net proceeds from the offering of approximately $172.3 million after
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
underwriting discounts and commissions and offering expenses. The Company used the net proceeds to purchase approximately 8.3 million newly-issued LLC Units in Carvana Group, which used the net proceeds primarily for general corporate purposes.Group.

The Selling StockholderA holder of Class A common stock (the "Selling Stockholder") and the Sellingcertain LLC Unitholders (the "Selling LLC Unitholders") sold a total of approximately 6.1 million shares of Class A common stock as part of the offering. The Selling LLC Unitholders exchanged approximately 6.9 million LLC Units for approximately 5.6 million shares of Class A common stock to be sold in the offering, and to the extent such Selling LLC
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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Unitholder held Class B common stock, the corresponding shares of Class B common stock were immediately retired by the Company. The Company did not receive any proceeds from the sale of the approximately 6.1 million shares of Class A common stock by the Selling Stockholder and the Selling LLC Unitholders.

On May 24, 2019, the Company completed a public equity offering of 4.2 million shares of the Company's Class A common stock at a public offering price of $65.00 per share and received net proceeds from the offering of approximately $258.8 million after underwriting discounts and commissions and offering expenses. As part of the offering, the Company granted the underwriters a 30-day option to purchase all or part of approximately 0.6 million additional shares of Class A common stock. On June 20, 2019, the underwriters exercised their option in full for an additional $38.9 million in proceeds after offering expenses. The Company used the net proceeds to purchase approximately 6.0 million newly-issued LLC Units in Carvana Group, and Carvana Group intends to use the proceeds primarily for general corporate purposes, including paying down the Floor Plan Facility.

Exchange Agreement

Carvana Co. and the LLC Unitholders entered into an Exchange Agreement under which each LLC Unitholder (and certain permitted transferees thereof) may receive shares of the Company's Class A common stock in exchange for their LLC Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to conversion ratio adjustments for stock splits, stock dividends, reclassifications and similar transactions and subject to vesting for certain Class A Units and subject to vesting and the respective participation threshold for Class B Units. To the extent such owners also hold Class B common stock, they will be required to deliver to Carvana Co. a number of shares of Class B common stock equal to the number of shares of Class A common stock being exchanged for. Any shares of Class B common stock so delivered will be canceled. The number of exchangeable Class B Units is determined based on the value of Carvana Co.'s Class A common stock and the applicable participation threshold.

During the six months ended June 30, 2018,2019, certain LLC Unitholders exchanged approximately 12.04.5 million LLC Units and approximately 8.83.0 million shares of Class B common stock for approximately 9.63.6 million newly-issued shares of Class A common stock. Simultaneously, and in connection with these exchanges, Carvana Co. received approximately 12.04.5 million LLC Units, increasing its total ownership interest in Carvana Group, and canceled the exchanged shares of Class B common stock.

Convertible Preferred Stock

On December 5, 2017, Carvana Co. sold 100,000 shares of Convertible Preferred Stock for a purchase price of $100.0 million and net proceeds of approximately $98.5 million, which it used to purchase 100,000 Convertible Preferred Units of Carvana Group at a price per unit equal to the initial stated value of the Convertible Preferred Stock less issuance costs. The Convertible Preferred Stock has a par value of $0.01 per share and a liquidation value of $1,000 per share.

At the holder's request beginning on January 29, 2018, any or all shares of the Convertible Preferred Stock arewere convertible into shares of Class A common stock at an initial conversion rate of 50.78 shares of Class A common stock per share of Convertible Preferred Stock. On or after December 5, 2018, the Company will havehad the option to cause all shares of Convertible Preferred Stock to be converted into shares of Class A common stock or cash, at the Company's election, if the 10-day volume-weighted average price equalsequaled or exceedsexceeded 150% of the conversion price as set forth in the agreement. In the event Carvana Co. issuesissued any shares of Class A common stock upon conversion of any shares of Convertible Preferred Stock or in connection with any change of control repurchase of shares of Convertible Preferred Stock, a corresponding number of Convertible Preferred Units shallwould be canceled and cease to be outstanding, and Carvana Group willwould issue Class A Units to Carvana Co. on a four-to-five ratio between the number of shares of Class A common stock issued by Carvana Co. to the holders of the Convertible Preferred Stock and the number of Class A Units issued. As of June 30, 2018, the holder has not converted any shares of Convertible Preferred Stock.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The initial conversion price was $19.6945, which was calculated based on a 20.0% premium to the volume weighted average price for Class A common stock during the 5 trading days immediately preceding December 4, 2017. Following announcement of the transaction, the share price of Class A common stock increased and exceeded the conversion price on the commitment date and resulted in a beneficial conversion feature ("BCF") of approximately $2.6 million. The BCF was originally recorded as a reduction of the Convertible Preferred Stock with an offset to additional paid-in capital. The BCF accreted as a deemed dividend through January 29, 2018, the first available conversion date, increasing the carrying value of the Convertible Preferred Stock with an offsetting charge to additional paid-in capital. During the six months ended June 30, 2018, the Company recorded the remaining approximately $1.4 million in accretion related to the BCF. The carrying value of the Convertible Preferred Stock was approximately $98.5 million and $97.1 million as of June 30, 2018 and December 31, 2017, respectively.

Upon a change of control, as defined in the agreement, any holder of Convertible Preferred Stock has the option to require the Company (or its successor) to purchase, any or all of its Convertible Preferred Stock at a purchase price per share, payable at the Company’s option in any combination of cash or shares of Class A common stock, of 101% of the liquidation preference, plus all accumulated dividends.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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Holders of the Convertible Preferred Stock have no voting rights. The Convertible Preferred Stock ranks senior, as to payment of dividends and distributions of assets upon the liquidation, dissolution or winding up of Company, to the Company’s common stock and any shares of capital stock of the Company not expressly ranking senior to or pari passu with the Convertible Preferred Stock, and junior to all shares of capital stock of the Company issued in the future, if the terms of which expressly provide that such shares will rank senior to the Convertible Preferred Stock.

The Convertible Preferred Stock accrues dividends at 5.5% of the liquidation preference of $1,000 per share. The dividends are payable in cash quarterly commencing March 15, 2018 so long as the Company has funds legally available and the Board declares a cash dividend payable. The Company may not declare dividends on shares of its common stock or purchase or redeem shares of its common stock, unless all accumulated and unpaid dividends on the Convertible Preferred Stock have been paid in full or a sum for such amounts has been set aside for payment. As the Company declares and pays dividends on the Convertible Preferred Stock, Carvana Group will make distributions to Carvana Co. with respect to the Convertible Preferred Units in an amount equal to the related Convertible Preferred Stock dividend amount and any corresponding tax payments. During the six months ended June 30, 2018, the Company paid approximately $2.9 million of dividends to the holders of the Convertible Preferred Stock and Carvana Group distributed approximately $2.9 million to Carvana Co. with respect to the Convertible Preferred Units.

During the year ended December 31, 2018, at the holder's request 75,000 shares of Convertible Preferred Stock, and at the Company's election 25,000 shares of Convertible Preferred Stock, were converted into a total of approximately 5.1 million shares of Class A common stock. Simultaneously with each conversion, an equal number of Convertible Preferred Units were canceled and Carvana Group issued approximately 6.3 million Class A Units to Carvana Co. As of June 30, 2019 and December 31, 2018, dividends accrued related to the Convertible Preferred Stockthere were approximately $0.2 million, or $2.29 per shareno outstanding shares of Convertible Preferred Stock outstanding.and no related accrued dividends.

Class C RedeemableA Non-Convertible Preferred Units

PriorOn October 2, 2018, Carvana Group amended its LLC Agreement to 2017, the Company authorized thecreate a class of non-convertible preferred units (the "Class A Non-Convertible Preferred Units"), effective September 21, 2018. The Class A Non-Convertible Preferred Units were created in connection with Carvana Co.'s issuance of the Senior Notes in September 2018 and sold approximately 43.1 million Class C Redeemable Preferred Units to various third parties and related parties forMay 2019, as discussed further in Note 9 — Debt Instruments. Carvana Co. used its net proceeds from the Senior Notes to purchase a total of approximately $226.9 million. The Company recorded600,000 Class A Non-Convertible Preferred Units. In the issuance and sale of Class C Redeemable Preferred Units at fair value, net of issuance costs. In accordance with the Company’s Operating Agreement, the Class C Redeemable Preferred Units accrued a return (the “Class C Return”) at a coupon rate of 12.5% compounding annuallyevent Carvana Co. makes payments on the aggregate amount of capital contributions made with respectSenior Notes, Carvana Group will make an equal cash distribution to the Class C RedeemableA Non-Convertible Preferred Units. On May 3, 2017,For each $1,000 principal amount of Senior Notes that Carvana Co. repays or otherwise retires one Class A Non-Convertible Preferred Unit shall be canceled and retired.

Contribution of Class A Common Shares From Ernest Garcia III

During the three and six months ended June 30, 2019, the Company closedand its IPO atChief Executive Officer, Ernest Garcia III, entered into a price such thatcontribution agreement (the "Contribution Agreement") in connection with the 100k Milestone Gift, as defined in Note 6 — Related Party Transactions, pursuant to which Mr. Garcia contributed approximately 0.0 million and 0.1 million shares, respectively, of the Company's Class A common stock to the Company, wasat no longer liablecharge. The Company subsequently granted approximately 0.0 million and 0.1 million restricted stock units during the three and six months ended June 30, 2019, respectively, to employees. Refer to Note 12 — Equity-Based Compensation for further discussion. Although the accrued Class C Return, andCompany does not expect Mr. Garcia to incur any tax obligations related to the outstanding Class C Redeemable Preferred Units converted to Class A Units on a one-to-one basis and the related balance became a component of permanent equity.share contribution, it has indemnified Mr. Garcia from any such obligations that may arise.

NOTE 1011 — NON-CONTROLLING INTERESTS

As discussed in Note 1 — Business Organization, Carvana Co. consolidates the financial results of Carvana Group and reports a non-controlling interest related to the portion of Carvana Group owned by the LLC Unitholders. Changes in the ownership interest in Carvana Group while Carvana Co. retains its controlling interest will be accounted for as equity transactions. Exchanges of LLC Units result in a change in ownership and reduce the amount recorded as non-controlling interests and increase additional paid-in capital.

Upon the issuance of shares of Class A common stock by Carvana Co. related to the Company’s equity compensation plans such as the exercise of options, issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock, Carvana Group is required to issue to Carvana Co. a number of Class A Units equal to 1.25 times the number of shares of Class A common stock being issued in connection with the exercise of such options or issuance of other types of equity compensation, subject to adjustment for stock splits, stock dividends, reclassifications and similar transactions. Activity related to the Company's equity compensation plans may result in a change in ownership which will impact the amount recorded as non-controlling interest and additional paid-in capital.

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The non-controlling interest related to the Class B Units is determined based on the respective participation thresholds and the share price of Class A common stock on an as-converted basis. To the extent that the number of as-converted Class B Units change or Class B Units are forfeited, the resulting difference in ownership will be accounted for as equity transactions adjusting the non-controlling interest and additional paid-in capital.

During the six months ended June 30, 2018,2019, the total adjustments related to exchanges of LLC Units waswere a decrease in non-controlling interests and a corresponding increase in additional paid-in capital of approximately $12.6$3.5 million, which has been included in exchanges of LLC Units in the accompanying unaudited condensed consolidated statement of stockholders' equity. During the six months ended June 30, 2018,2019, Carvana Co. utilized its net proceeds from its follow-onequity offering to purchase LLC Units, which together with the follow-on offering resulted in an adjustment to increase non-controlling interests and to decrease additional paid-in capital by approximately $132.4$201.0 million which has been included in adjustment to non-controlling interests related to follow-on offering in the accompanying unaudited condensed consolidated statement of stockholders' equity. During
21

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
the six months ended June 30, 2018, Carvana Group issued approximately 0.5 million Class A Units with a fair value of approximately $10.0 million as part of the purchase price consideration for Car360, which is reflected as an increase in non-controlling interests in the accompanying unaudited condensed consolidated statement of stockholders' equity. The adjustment related to the issuance of Class A Units to acquire Car360 was a decrease in non-controlling interests and a corresponding increase in additional paid-in capital of approximately $1.3 million, which has been included in adjustment to non-controlling interests related to business acquisitions in the accompanying unaudited condensed consolidated statement of stockholders' equity.

As of June 30, 2018,2019, Carvana Co. owned approximately 23.4%31.8% of Carvana Group with the LLC Unitholders owning the remaining 76.6%68.2%. The net loss attributable to the non-controlling interests on the accompanying unaudited condensed consolidated statements of operations represents the portion of the net loss attributable to the economic interest in Carvana Group held by the non-controlling LLC Unitholders calculated based on the weighted average non-controlling interests' ownership during the periods presented.

The following table summarizes the effects of the changes in ownership in Carvana Group on the Company's additional paid-in capital during the six months ended June 30, 2019 and 2018 (in thousands):

Six Months Ended
6/30/20186/30/2017
Transfers (to) from non-controlling interests:
Decrease as a result of issuances of Class A common stock$(132,375)$(174,255)
Increase as a result of Carvana Group's issuance of Class A Units in connection with business acquisitions1,297 — 
Increase as a result of exchanges of LLC Units12,592 — 
Increase as a result of adjustments to non-controlling interests— 846 
Total transfers to non-controlling interests$(118,486)$(173,409)

Six Months Ended
June 30, 2019June 30, 2018
Transfers (to) from non-controlling interests:
Decrease as a result of issuances of Class A common stock$(201,015)$(132,375)
Increase as a result of Carvana Group's issuance of Class A Units in connection with business acquisitions— 1,297 
Increase as a result of exchanges of LLC Units3,470 12,592 
Total transfers to non-controlling interests$(197,545)$(118,486)

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CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 1112 — EQUITY-BASED COMPENSATION

Equity-based compensation expense is recognized based on amortizing the grant-date fair value on a straight-line basis over the requisite service period, which is generally the vesting period of the award, less actual forfeitures. A summary of equity-based compensation expense recognized during the three and six months ended June 30, 20182019 and 20172018 is as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2018201720182017
Class B Units$605 $482 $1,040 $640 
Restricted Stock Units and Awards978 1,150 1,645 1,150 
Options425 368 833 368 
Class A Units575 — 575 — 
Total equity-based compensation expense$2,583 $2,000 $4,093 $2,158 

Three Months Ended June 30,Six Months Ended June 30,
2019 2018 2019 2018 
Class B Units$578 $605 $1,156 $1,040 
Restricted Stock Units and Awards excluding those granted in relation to Mr. Garcia's 100k Milestone Gift contributions3,214 978 5,681 1,645 
Restricted Stock Units granted in relation to Mr. Garcia's 100k Milestone Gift contributions2,809 — 5,933 — 
Options1,457 425 2,664 833 
Class A Units544 575 1,190 575 
Total equity-based compensation expense$8,602 $2,583 $16,624 $4,093 
Equity-based compensation capitalized to property and equipment(577)— (879)— 
Equity-based compensation capitalized to inventory(958)— (1,835)— 
Equity-based compensation, net of capitalized amounts$7,067 $2,583 $13,910 $4,093 

As of June 30, 2018,2019, the total unrecognized compensation expense related to outstanding equity awards was approximately $27.8$57.2 million, which the Company expects to recognize over a weighted-average period of approximately 3.03.1 years. Total unrecognized equity-based compensation expense will be adjusted for actual forfeitures.

22

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
2017 Omnibus Incentive Plan

In connection with the IPO, the Company adopted the 2017 Omnibus Incentive Plan (the "2017 Incentive Plan"). Under the 2017 Incentive Plan, 14.0 million shares of Class A common stock are available for issuance, which the Company may grant as stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs") and other stock-based awards to employees, directors, officers and consultants. As discussed in Note 10 — Stockholders' Equity, during the three and six months ended June 30, 2019, the Company granted approximately 42,240 and 113,850 RSUs, respectively, with a vesting period of one day following receipt of Class A common stock from its Chief Executive Officer, Ernest Garcia III, and recognized approximately $2.8 million and $5.9 million, respectively, of equity-based compensation, a portion of which related to the production of the Company's used vehicle inventory and was therefore capitalized to inventory. The majority of the Company's equity awards, other than those granted in relation to Mr. Garcia's 100k Milestone Gift, vest over two- to five- year periods based on continued employment with the Company. As of June 30, 2018,2019, approximately 12.510.9 million shares remain available for future equity award grants under this plan.

Class A Units

During the three and six months ended June 30, 2018, the Company granted certain employees approximately 0.4 million Class A Units with service-based vesting over two- to four- year periods and a grant-date fair value of $18.58 per Class A Unit. The grantees entered into the Exchange Agreement under which each LLC Unitholder (and certain permitted transferees thereof) may receive shares of the Company's Class A common stock in exchange for their LLC Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to conversion ratio adjustments for stock splits, stock dividends, reclassifications and similar transactions and subject to vesting.

24


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Class B Units

In March 2015, Carvana Group adopted the LLC Equity Incentive Plan. Under the LLC Equity Incentive Plan, Carvana Group could grant Class B Units to eligible employees, non-employee officers, consultants and directors with service vesting conditions. Following completion of the IPO, there are no B Units authorized forCarvana Group discontinued the Company to grant of new awards under the LLC Equity Incentive Plan.Plan, however the LLC Equity Incentive Plan will continue in connection with administration of existing awards that remain outstanding. There were no Class B Units issued during the three and six months ended June 30, 2018. During the three and six months ended2019 or June 30, 2017, the Company issued an aggregate of approximately 0.8 million Class B Units to executive officers and certain other employees. 2018.

NOTE 1213 — LOSS PER SHARE

Basic and diluted net loss per share is computed by dividing the net loss attributable to Class A common stockholders by the weighted-average shares of Class A common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive shares. For all periods presented, potentially dilutive shares are excluded from diluted net loss per share because they have an anti-dilutive impact. Therefore, basic and diluted net loss per share attributable to Class A common stockholders are the same for all periods presented.

As discussed in Note 1 — Business Organization, the Organizational Transactions are considered transactions between entities under common control and the financial statements for periods prior to the IPO and Organizational Transactions have been adjusted to combine the previously separate entities for presentation purposes. For purposes of calculating both the numerator and denominator of net loss per share for periods prior to the IPO, the Company has retroactively reflected the 15.0 million shares issued in the IPO and the LLC Units outstanding as of the Organizational Transactions as if they had been issued and outstanding as of the beginning of each period presented. These calculations for periods prior to the IPO do not consider the options or shares of Class A common stock issued on the IPO date under the 2017 Incentive Plan.
23

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table presents the calculation of basic and diluted net loss per share during the three and six months ended June 30, 2019 and 2018 (in thousands, except per share data):

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2018 2017 2018 2017 2019 2018 2019 2018 
Numerator:Numerator:Numerator:
Net lossNet loss$(51,250)$(38,870)$(103,922)$(77,309)Net loss$(64,059)$(51,250)$(146,655)$(103,922)
Net loss attributable to non-controlling interestsNet loss attributable to non-controlling interests41,285 34,594 86,914 68,843 Net loss attributable to non-controlling interests37,449 41,285 91,496 86,914 
Dividends on Class A convertible preferred stockDividends on Class A convertible preferred stock(1,375)— (2,720)— Dividends on Class A convertible preferred stock— (1,375)— (2,720)
Accretion of beneficial conversion feature on Class A convertible preferred stockAccretion of beneficial conversion feature on Class A convertible preferred stock— — (1,380)— Accretion of beneficial conversion feature on Class A convertible preferred stock— — — (1,380)
Net loss attributable to Carvana Co. Class A common stockholders, basic and dilutedNet loss attributable to Carvana Co. Class A common stockholders, basic and diluted$(11,340)$(4,276)$(21,108)$(8,466)Net loss attributable to Carvana Co. Class A common stockholders, basic and diluted$(26,610)$(11,340)$(55,159)$(21,108)
Denominator:Denominator:Denominator:
Weighted-average shares of Class A common stock outstandingWeighted-average shares of Class A common stock outstanding28,124 15,242 23,425 15,121 Weighted-average shares of Class A common stock outstanding46,284 28,124 43,958 23,425 
Nonvested weighted-average restricted stock awardsNonvested weighted-average restricted stock awards(344)(216)(362)(108)Nonvested weighted-average restricted stock awards(246)(344)(263)(362)
Weighted-average shares of Class A common stock to compute basic and diluted net loss per Class A common shareWeighted-average shares of Class A common stock to compute basic and diluted net loss per Class A common share27,780 15,026 23,063 15,013 Weighted-average shares of Class A common stock to compute basic and diluted net loss per Class A common share46,038 27,780 43,695 23,063 
Net loss per share of Class A common stock, basic and dilutedNet loss per share of Class A common stock, basic and diluted$(0.41)$(0.28)$(0.92)$(0.56)Net loss per share of Class A common stock, basic and diluted$(0.58)$(0.41)$(1.26)$(0.92)

Shares of Class B common stock do not share in the losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted net loss per share of Class B common stock under the two-class method has not been presented. LLC Units (adjusted for the Exchange Ratio and participation thresholds) are considered potentially dilutive shares of Class A common stock because they are exchangeable into shares of Class A common stock.

Weighted-average as-converted shares of Convertible Preferred Stock of approximately 5.1 million for each of the three and six months ended June 30, 2018, were evaluated under the if-converted method for potentially dilutive effects and were determined to be anti-dilutive. Weighted-average as-converted Class A Units together with the related Class B common stock of approximately 110.2101.9 million and 117.2110.2 million during the three months ended June 30, 20182019 and June 30, 2017,2018, respectively, and of approximately 112.1103.1 million and 117.2112.1 million during the six months ended June 30, 20182019 and June 30, 2017,2018, respectively, were evaluated under the if-converted method for potentially dilutive effects and were determined to be anti-dilutive. Outstanding Class B Units of approximately 6.65.7 million and 7.56.6 million at June 30, 20182019 and June 30, 2017,2018, respectively, were evaluated for potentially dilutive effects and were determined to be anti-dilutive. PotentiallyWeighted-average potentially dilutive restricted stock awards and units of approximately 0.6 million and 0.4 million and for each of the three months ended June 30, 2019 and 2018, respectively,
25


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
and approximately 0.7 million and 0.4 million for the six months ended June 30, 20182019 and of approximately 0.2 million and 0.1 million for the three and six months ended June 30, 2017,2018, respectively, were evaluated under the treasury stock method for potentially dilutive effects and were determined to be anti-dilutive. As of June 30, 2019 and 2018, 1.2 million and 0.8 million options, respectively, were outstanding and evaluated under the treasury stock method for potentially dilutive effects and were determined to be anti-dilutive. During the three and six months ended June 30, 2017, the exercise price of all outstanding options exceeded the average share price of Class A common stock, thus, options were not contemplated in diluted net loss per share computations.

24

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 1314 — INCOME TAXES

As described in Note 1 — Business Organization, as a result of the IPO, and Organizational Transactions, Carvana Co. began consolidating the financial results of Carvana Group. Carvana Group is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Carvana Group is not subject to U.S. federal and certain state and local income taxes. 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. was formed on November 29, 2016 and did not engage in any operations prior to the IPO. Carvana Co. is taxed as a corporation and is subject to U.S. federal, state and local income taxes with respect to theits allocable share of any taxable income or loss of Carvana Group, as well as any stand-alone income or loss generated by Carvana Co.

As described in Note 910 — Stockholders' Equity, the Company acquired approximately 12.0 million LLC Units during the three and six months ended June 30, 20182019, the Company acquired approximately 2.0 million and 4.5 million LLC Units, respectively, in connection with exchanges with Existing LLC Unitholders. During the three and six months ended June 30, 2018,2019, the Company recorded a gross deferred tax asset of approximately $68.7$26.1 million and $51.7 million associated with the basis difference in its investment in Carvana Group related to the acquisition of these LLC Units which is reflected as an increase to additional paid-in capital in the accompanying unaudited condensed consolidated statement of stockholders' equity.

As described in Note 1 — Business Organization and Note 910 — Stockholders' Equity, Carvana Co. purchased approximately 8.36.0 million newly-issued LLC Units of Carvana Group in connection with the follow-on offering.equity offering on May 24, 2019 and subsequent option exercised by the underwriters. The Company recognized a gross deferred tax asset of approximately $2.5$7.5 million associated with a portion of the basis difference resulting from this purchase of LLC Units which is reflected as an increase to additional paid-in capital in the accompanying unaudited condensed consolidated statements of stockholders' equity.

As described in Note 4 — Goodwill and Intangible Assets, Net, Carvana Group acquired Car360 on April 12, 2018. The acquisition included various intangible assets, and as a result the Company recognizesrecognized a deferred tax assetsliability of approximately $2.5 million which is reflected within other liabilities in the accompanying unaudited condensed consolidated balance sheet. The deferred tax liability will be amortized over three to seven years and approximately $0.4 million and $0.0 million was amortized during the extent it believes these assets are more-likely-than-not to be realized. six months ended June 30, 2019 and June 30, 2018.

During the six months ended June 30, 2018,2019, management performed an assessment of the recoverability of deferred tax assets. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Management determined, based on the accounting standards applicable to such assessment, that there was sufficient negative evidence as a result of the Company’s cumulative losses to conclude it was more likely than not that its deferred tax assets would not be realized and has recorded a full valuation allowance against its deferred tax assets. In the event that management was to determine that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be made which would reduce the provision for income taxes.

The Company recognizes uncertain income tax positions when it is more-likely-than-not the position will be sustained upon examination. As of June 30, 20182019 and December 31, 2017,2018, the Company has not identified any uncertain tax positions and has not recognized any related reserves.

Tax Receivable Agreement

Carvana Co. expects to obtain an increase in its share of the tax basis in the net assets of Carvana Group when LLC Units are exchanged by the OriginalExisting LLC Unitholders and other qualifying transactions. As described in Note 910 — Stockholders' Equity, each change in outstanding shares of Class A common stock results in a corresponding increase or decrease in Carvana Co.'s ownership of LLC Units. The Company intends to treat any exchanges of LLC Units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Carvana Co. would otherwise
26


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”). Under the TRA, the Company generally will be required to pay to the Original LLC Unitholders 85% of the amount of cash savings, if any, in U.S. federal, state or local tax that the Company actually realizes directly or indirectly (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes created as a result of any sales or exchanges (as determined for U.S. federal income tax purposes) to or with the Company of their interests in Carvana Group for shares of Carvana Co.'s Class A common stock or cash, including any basis adjustment relating to the assets of Carvana Group and (ii) tax benefits attributable to payments made under the TRA (including imputed interest). The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.

25

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
If the Internal Revenue Service or a state or local taxing authority challenges the tax basis adjustments that give rise to payments under the TRA and the tax basis adjustments are subsequently disallowed, the recipients of payments under the agreement will not reimburse the Company for any payments the Company previously made to them. Any such disallowance would be taken into account in determining future payments under the TRA and would, therefore, reduce the amount of any such future payments. Nevertheless, if the claimed tax benefits from the tax basis adjustments are disallowed, the Company’s payments under the TRA could exceed its actual tax savings, and the Company may not be able to recoup payments under the TRA that were calculated on the assumption that the disallowed tax savings were available.

The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, (ii) there is a material breach of any material obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any LLC Units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination.
As of June 30, 2018,2019, the Company has concluded based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized; therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such deferred tax assets. As of June 30, 2018,2019, the total unrecorded TRA liability is approximately $67.9$166.4 million. If utilization of the deferred tax assets subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations.

NOTE 1415COMMITMENTS AND CONTINGENCIES LEASES

Lease Commitments

As of June 30, 2018,The Company is party to various lease agreements for real estate and transportation equipment. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is a tenant under variousreasonably certain that it will exercise that option. The Company also assesses whether each lease is an operating or finance lease at the lease commencement date. Rent expense of operating leases with third parties related to certain of its market hubs, vending machines and offices. The initial terms expire at various dates between 2018 and 2027. Many of the leases include one or more renewal options ranging from two to twenty years. Rent is recognized on a straight-line basis over the lease term and includes scheduled rent increases as well as amortization of tenant improvement allowances.

Operating Leases

As of June 30, 2019, the Company is a tenant under various operating leases related to certain of its hubs, vending machines and corporate offices. The initial terms expire at various dates between 2019 and 2029. Many of the leases include one or more renewal options ranging from one to twenty years and some contain purchase options. The Company also had operating leases for certain of its transportation fleet. In March 2019, the Company reassessed the lease terms of the transportation equipment leases based on the likelihood of exercising its extension options and reclassified them to finance leases. Rent expense for thesethe Company's operating leases was approximately $1.3$1.7 million and $2.6$3.3 million for the three and six months ended June 30, 2018, respectively.

Refer to Note 6 — Related Party Transactions for further discussion of operating leases with related parties.

27


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Finance Leases

The Company has finance leases for certain equipment in its transportation fleet. The leases have initial terms of two to five years, some of which include extension options for up to four additional years, and $1.2require monthly payments. As of June 30, 2019, the outstanding amount of the finance leases is approximately $37.2 million, of which approximately $8.0 million is due within the next twelve months and $1.8 million foris included as current portion of long-term debt in the accompanying unaudited condensed consolidated balance sheet.

Lease Costs and Activity

The Company's lease costs and activity during the three and six months ended June 30, 2017, respectively.2019 were as follows (in thousands):

Beginning in December 2017, the Company has operating leases with third parties for certain
Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Lease costs:
Finance leases:
Amortization of finance lease assets$1,988 $3,255 
Interest on obligations under finance leases514 845 
Total finance lease costs$2,502 $4,100 
Operating leases:
Fixed lease costs$2,943 $5,271 
Fixed lease costs to related parties1,922 3,728 
Variable short-term lease costs to related parties333 787 
Total operating lease costs$5,198 $9,786 
Cash payments related to lease liabilities included in operating cash flows:
Operating lease liabilities to third parties$1,453 $3,270 
Operating lease liabilities to related parties$2,172 $4,309 
Interest payments on finance lease liabilities$514 $845 
Cash payments related to lease liabilities included in financing cash flows:
Principal payments on finance lease liabilities$2,067 $3,275 

28


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Maturity Analysis of its transportation fleet. Lease Liabilities

The initialfollowing table summarizes maturities of lease termsliabilities as of June 30, 2019 (in thousands):

Operating Leases (1)
Finance Leases
Related Party (2)
Non-Related PartyTotal OperatingTotal
Remainder of 2019$5,037 $4,047 $5,590 $9,637 $14,674 
20209,381 7,692 11,337 19,029 28,410 
20219,040 7,154 10,354 17,508 26,548 
20228,666 7,179 8,825 16,004 24,670 
20238,064 7,212 6,981 14,193 22,257 
Thereafter1,785 31,660 46,719 78,379 80,164 
Total minimum lease payments41,973 64,944 89,806 154,750 196,723 
Less: amount representing interest(4,809)(20,612)(36,972)(57,584)(62,393)
Total lease liabilities$37,164 $44,332 $52,834 $97,166 $134,330 
(1) Leases that are for two years from the delivery date of each individual vehicle to the Company, at which time each lease will extend on a month-to-month basis, short-term leases, and lease extensions that the Company does not expect to exercise are not included.
(2) Related party lease payments exclude rent payments due under the DriveTime Lease Agreement and the DriveTime Hub Lease Agreement for locations where the Company shares space with DriveTime, as those are variable lease payments contingent upon the Company's utilization of the leased assets.

As described in Note 2 — Summary of Significant Accounting Policies, the Company adopted ASC 842 using the modified retrospective approach and various practical expedients and relief packages, which permitted the Company to refrain from restating comparative periods. Therefore, the following future minimum lease payments as of December 31, 2018 prepared under previous lease accounting guidance has been included from the Company's 2018 Annual Report on Form 10-K filed on February 27, 2019 (in thousands):
Operating Leases (1)
Capital Leases
Other Real Estate Financing Transactions (3)
Related Party (2)
Non-Related PartyTotal
2019$3,779 $3,566 $6,461 $8,306 $14,767 
20203,779 3,575 6,716 8,202 14,918 
20213,779 3,583 6,869 7,387 14,256 
20223,779 3,609 7,020 6,580 13,600 
20233,275 3,837 7,140 5,330 12,470 
Thereafter— 62,081 36,770 38,402 75,172 
Total minimum lease payments$18,391 $80,251 $70,976 $74,207 $145,183 
Less amounts representing interest(2,237)
$16,154 
(1) Leases that are on a potential totalmonth-to-month basis and lease termextensions that the Company does not expect to take are not included.
(2) Related party lease payments exclude rent payments due under the DriveTime Lease Agreement and the DriveTime Hub Lease Agreement for locations where the Company shares space with DriveTime, as those are contingent upon the Company's utilization of six years unless both parties agree to earlier termination or replacement. Rent expensethe leased assets.
(3) These were previously presented as finance leases and represent the Company's sale and leaseback transactions that are accounted for these operating leases was approximately $0.4 million and $0.7 million for the three and six months endedas other real estate financing transactions, as further discussed in Note 9 — Debt Instruments.

29


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
As of June 30, 2018, respectively.2019, none of the Company's lease agreements contain material residual value guarantees or material restrictive covenants.

Lease Terms and Discount Rates

The weighted-average remaining lease terms and discount rates as of June 30, 2019 were as follows, excluding short-term operating leases:

Weighted-average remaining lease terms (years)
Operating leases10.9
Finance leases4.7
Weighted-average discount rate
Operating leases8.8 %
Finance leases5.6 %


NOTE 16 — COMMITMENTS AND CONTINGENCIES

Accrued Limited Warranty

As part of its retail strategy, the Company provides a 100-day or 4,189-mile limited warranty to customers to repair certain broken or defective components of each used vehicle sold. As such, the Company accrues for such repairs based on actual claims incurred to-date and repair reserves based on historical trends. The liability was approximately $1.0$2.0 million and $0.8$1.4 million as of June 30, 20182019 and December 31, 2017,2018, respectively, and is included in accounts payable and other accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.

Letters of Credit

In October 2016, the Company obtained an unconditional, irrevocable, stand-by letter of credit for $1.9 million to satisfy a condition of a new lease agreement. The Company was required to maintain a cash deposit of $1.9 million with the financial institution that issued the stand-by letter of credit until February 2018, at which point the cash deposit requirement was reduced by approximately $1.0 million until November 30, 2018, at which time the letter of credit shall expire. The Company has earned interest on this letter of credit, and as of June 30, 2018 and December 31, 2017, the balance with the financial institution
26

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
was approximately $1.0 million and $2.0 million, respectively. This balance is classified as restricted cash in the accompanying unaudited condensed consolidated balance sheets.

Legal Matters

InFrom time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business,business. Although the results of litigation and claims cannot be predicted with certainty, as of June 30, 2019 the Company may become subject to litigation or claims. The Company isdoes not awarebelieve that the ultimate resolution of any pending legal proceedings of whichactions, either individually or in the outcome is reasonably possible toaggregate, will have a material adverse effect on its financial position, results of operations, financial conditionliquidity and capital resources.

Future litigation may be necessary to defend the Company and its partners by determining the scope, enforceability and validity of third party proprietary rights or cash flows.to establish its own proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

NOTE 1517 — FAIR VALUE OF FINANCIAL INSTRUMENTS

Items Measured at Fair Value on a Recurring Basis

A description of the fair value hierarchy and the Company's methodologies are included in Note 2 — Summary of Significant Accounting Policies. As of June 30, 20182019 and December 31, 2017,2018, the Company held certain assets that were required to be measured at fair value on a recurring basis.basis and as of June 30, 2019, the Company held beneficial interests in
30


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
securitizations for which it elected the fair value option. The following istables are a summary of fair value measurements and hierarchy level at June 30, 20182019 and December 31, 20172018 (in thousands):

As of June 30, 2018:2019:
Carrying ValueLevel 1Level 2Level 3
Assets:
Money market funds (1)
$187,083 $187,083 $— $— 

Carrying ValueLevel 1Level 2Level 3
Assets:
Money market funds (1)
$46,927 $46,927 $— $— 
Beneficial interests in securitizations45,192 — 26,592 18,600 

As of December 31, 2017:2018:
Carrying ValueLevel 1Level 2Level 3Carrying ValueLevel 1Level 2Level 3
Assets:Assets:Assets:
Money market funds (1)
Money market funds (1)
$171,859 $171,859 $— $— 
Money market funds (1)
$63,713 $63,713 $— $— 
_________________________
(1) Consists of highly liquid investments with original maturities of three months or less and classified in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets.

Beneficial Interests in Securitizations

Beneficial interests in securitizations include notes and certificates of the securitization trusts, the same securities as issued to other investors as described in Note 8 — Securitizations and Variable Interest Entities. Level 2 assets include beneficial interests in the most recent securitization which was completed on June 27, 2019. Given both the proximity to the end of the reporting period and lack of observable changes in economic inputs, the Company concluded the fair value when the securitization was completed represented the fair value at June 30, 2019.

The Company's beneficial interests in securitizations which are classified as Level 3 are classified as such due to the lack of observable market data to corroborate either the non-binding market consensus prices or the non-binding broker quotes. The significant unobservable market data includes market yields. Significant increases or decreases in market yields would result in a significantly higher or lower fair value measurement.

For beneficial interests in securitizations measured at fair value on a recurring basis, the Company's transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period on a quarterly basis. During three months ended June 30, 2019, the Company transferred beneficial interests acquired as part of the March 29, 2019 securitization transaction from Level 2 to Level 3. The assets were initially classified as Level 2 due to the transaction's proximity to the end of the March 31, 2019 reporting period and the lack of observable changes in economic inputs. As noted above, the Company uses significant unobservable inputs to measure the fair value of these assets on a recurring basis, thus they will be classified as Level 3 in future periods. There were no transfers out of Level 3 during the three months ended June 30, 2019.

The following table presents additional information about Level 3 beneficial interests in securitizations measured at fair value on a recurring basis for the three and six months ended June 30, 2019 (in thousands).

Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Opening Balance$— $— 
Transfers into Level 319,531 19,531 
Cash receipts(1,108)(1,108)
Change in fair value177 177 
Ending Balance$18,600 $18,600 

The Company did not have any Level 3 beneficial interests in securitizations in the three or six months ended June 30, 2018.

31


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Fair Value of Financial Instruments

The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities and accounts payable to related partyparties approximate fair value because their respective maturities are less than three months. The carrying value of the Floor Plan Facility wasand Finance Receivables Facilities were determined to approximate fair value due to itstheir short-term duration and variable interest raterates that approximatesapproximate prevailing interest rates as of each reporting period. The carrying value of notes payable was determined to approximate fair value as each of the notes has prevailing interest rates, which have not materially changed as of June 30, 2018. The carrying value of finance leases wasand sale leasebacks were determined to approximate fair value as each of the transactions waswere entered into at prevailing interest rates during each respective period and they have not significantly fluctuated since inception. materially changed as of or during the periods ended June 30, 2019 and December 31, 2018.

The fair value of the Senior Notes, which are not carried at fair value on the accompanying unaudited condensed consolidated balance sheets, was determined using Level 2 inputs based on quoted market prices for the identical liability. The fair value of the Senior Notes as of June 30, 2019 and December 31, 2018 was as follows (in thousands):

June 30, 2019December 31, 2018
Carrying value, net of unamortized debt issuance costs$589,912 $342,869 
Fair value594,336 319,375 

The fair value of finance receivables, which are not carried at fair value on the accompanying unaudited condensed consolidated balance sheets, was determined utilizing the estimated sales price based on the historical experience of the Company. Such fair value measurement of the finance receivables, net is considered Level 2 under the fair value hierarchy. The carrying value and fair value of the finance receivables as of June 30, 20182019 and December 31, 20172018 were as follows (in thousands):

June 30, 2018December 31, 2017June 30, 2019December 31, 2018
Carrying valueCarrying value$77,128 $45,564 Carrying value$177,705 $105,200 
Fair valueFair value80,235 47,514 Fair value188,865 109,703 


27

CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 1618 — SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes supplemental cash flow information for the six months ended June 30, 20182019 and 20172018 (in thousands):
Six Months Ended June 30,
2019 2018 
Supplemental cash flow information:
Cash payments for interest, including $703 and $0, respectively, to related parties$31,610 $7,481 
Non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued liabilities$9,717 $6,970 
Property and equipment acquired under finance leases$16,552 $— 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities$20,767 $— 
Capital expenditures financed through long-term debt$— $7,489 
Equity-based compensation expense capitalized to property and equipment$879 $— 
Fair value of beneficial interests received in securitization transactions$46,123 $— 
Issuance of LLC Units related to business acquisitions$— $9,981 
Dividend accrued on Class A Convertible Preferred Stock included in accrued liabilities$— $229 

Six Months Ended June 30,
2018 2017 
Supplemental cash flow information:
Cash payments for interest to third parties$7,481 $3,839 
Cash payments for interest to related parties$— $382 
Non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued liabilities$6,970 $7,601 
Capital expenditures financed through long-term debt$7,489 $4,522 
Issuance of LLC Units related to business acquisitions$9,981 $— 
Dividend accrued on Class A Convertible Preferred Stock included in accrued liabilities$229 $— 
Tax withholdings related to equity awards included in accounts payable and accrued liabilities$— $299 
Accrual of return on Class C redeemable preferred units$— $9,439 
Conversion of Class C redeemable preferred units to Class A units$— $260,411 
32


CARVANA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the accompanying unaudited condensed consolidated statements of cash flows for all periods presented (in thousands):

June 30, 2018December 31, 2017June 30, 2017December 31, 2016
Cash and cash equivalents$199,192 $172,680 $144,433 $39,184 
Restricted cash (1)
18,356 14,443 10,339 10,266 
Total cash, cash equivalents and restricted cash$217,548 $187,123 $154,772 $49,450 

June 30, 2019December 31, 2018June 30, 2018December 31, 2017
Cash and cash equivalents$40,200 $78,861 $199,192 $172,680 
Restricted cash (1)
2,196 9,848 18,356 14,443 
Total cash, cash equivalents and restricted cash$42,396 $88,709 $217,548 $187,123 
(1) Amounts included in restricted cash represent the deposit required under the Company's Floor Plan Facility, which is 5% of the outstanding Floor Plan Facility principal balance and deposits required under the Company's Finance Receivable Facilities, which is 2% of the outstanding pledged finance receivable principal balance and any undistributed amounts collected on the pledged finance receivables. as explained in Note 89 — Debt Instruments, andalong with amounts held as restricted cash as required under letter of credit agreements, as explained in Note 14 — Commitments and Contingencies. Bothagreements. These amounts are classified as restricted cash in the accompanying unaudited condensed consolidated balance sheets.

NOTE 1719 — SUBSEQUENT EVENTS

On August 7, 2018,Contribution Agreement

In connection with an ongoing commitment from the Company's Chief Executive Officer, Ernest Garcia III, related to the previously announced 100k Milestone Gift program, the Company purchased finance receivablesand Mr. Garcia entered into a contribution agreement on August 6, 2019 under which Mr. Garcia will contribute to the Company 59,400 shares of Class A common stock that it previously soldhe individually owns, at no charge (the "Contribution Agreement"). The contribution will take place on August 9, 2019 and is intended to an unrelated party underfund restricted stock unit awards to certain employees of Carvana, LLC upon their satisfying applicable employment tenure requirements. Although the 2017 Master Transfer Agreement for a price of approximately $253.0 million and immediately resoldCompany does not expect Mr. Garcia to incur any tax obligations related to the contribution, the Company has indemnified Mr. Garcia from any such finance receivables to an unrelated party for the same price under a new transfer agreement. The Company received a fee of approximately $4.0 million for arranging and participating in the transaction.obligations that may arise.

2833


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 consolidated financial statements and the accompanying notes included in Item 1 of this Form 10-Q.

Overview

Carvana is a leading e-commerce platform for buying and selling used cars. We are transforming the used car buying 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-integratedvertically integrated supply chain that allows us to sell high qualityhigh-quality vehicles to our customers transparently and efficiently at a low price. Using our website, customers can complete all phases of a used vehicle purchase transaction. Specifically, our online sales experience allows customers to:

Purchase a used vehicle.    As of June 30, 2018,2019, we listed approximately 11,40018,800 vehicles for sale 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 used vehicles to retail customers is the primary driver of our business. Selling used 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 and trade-ins.

Finance their purchase.    Customers can pay for their Carvana vehicle using cash, our proprietary loan origination platform or financing from thirdother parties such as banks or credit unions. Customers who choose to apply for our in-house financing fill out a short applicationprequalification 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 automotive finance receivablesloans we originate to third party financing partners or pursuant to a securitization transaction and in each case earn a premium on eachupon sale.

Protect their purchase.    Customers have the option to protect their vehicle with a CarvanaCare-branded VSC as part of our online checkout process. VSCs provide customers with insurance against 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 and, prior to December 2016, third parties, who areis the obligorsobligor 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.states in which we operate. This product contractually obligates usthe owner of the loan to cancel the remaining principal outstanding after insurance proceeds in a total loss event.

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 complete a short appraisal form and receive ana firm offer for their vehicle nearly instantaneously. We generate vehicletrade-in offers using a proprietary valuation algorithm supported by extensive used vehicle market and customer behaviorcustomer-behavior data. When customers accept our offer, 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.

34


Vehicle sourcing and acquisition.    We acquire the majority of our used vehicle inventory from wholesale auctions. We also to a lesser extent, acquire vehicles from consumers and directly from used vehicle suppliers, including franchise and independent dealers, leasing companies and car rental companies. Using proprietary machine learning algorithms and data from a variety of internal and external sources, we evaluate tens of thousands of vehicles daily to determine their fit with consumer demand, internal profitability targets and our existing inventory mix.

29


Inspection and reconditioning.   After acquiring a vehicle, we transport it to one of our IRCs where it undergoes a 150-point inspection and is reconditioned to meet “Carvana Certified”"Carvana Certified" standards. This process is supported by a custom used vehicle inventory managementinventory-management system, which tracks vehicles through each stage of the process and is seamlessly integrated with auto partsauto-part suppliers to facilitate the procurement of required parts.

Photography and merchandising.    We photograph vehicles using our proprietarypatented photo booths located at each of our IRCs. This allows us to display interactive, 360-degree images of each vehicle on our website. We also annotate each vehicle image with a list of features and imperfections to assist our customers in their evaluation of each vehicle for purchase.purchase and integrate vehicle feature and option information from various vehicle-data providers. Our 360-degree photo and annotation processes are enabled by proprietarypatented imaging technology and integrations with various vehicle data providers for vehicle feature and option information.technology. In April 2018, we acquired Car360, Inc. ("Car360"), a provider of app-based photo capturephoto-capture technology, to enhance our industry-leading technology by improving our 3D computer vision and augmented reality capabilities.

Logistics and fulfillment.    We transport vehicles purchased by our customers to their local market for home delivery or pick-up. In markets where we have launched operations, delivery to the customer is completed by a Carvana employee in a branded delivery truck. In a subset of these markets, customers have the option of picking up their car at one of our vending machines. These vending machines are multi-story glass towers where our customers deposit a token into a coin slot and an automated platform delivers the purchased vehicle to a garage bay where the customer is waiting. Our vending machines provide an attractive and unique customer pick-up experience, developing brand awareness while lowering our variable vehicle deliveryvehicle-delivery expense. Our logistics and fulfillment operations are supported by our proprietary vehicle transportationvehicle-transportation management system, which optimizes the scheduling of transport routes and delivery slots.

On May 3, 2017, we completed our IPO of 15.0 million shares of Class A common stock at a public offering price of $15.00 per share. We received $205.8 million in proceeds, net of underwriting discounts and commissions and offering expenses. On December 5, 2017, we sold 100,000 shares of Class A Convertible Preferred Stock for net proceeds of approximately $98.5 million. On April 30, 2018, we completed a follow-on public offering of 6.6 million shares of our Class A common stock at a publicand received proceeds from the offering price of $27.50 per share and received approximately $172.3 million, in proceeds afternet of underwriting discounts and commissions and offering expenses. We used the net proceeds from this transaction to purchase Class A Units of Carvana Group, whichand Carvana Group used the net proceeds for working capital and general corporate purposes. On May 24, 2019, we completed a public equity offering of 4.2 million shares of Class A common stock at a public offering price of $65.00 per share and received net proceeds from the saleoffering of approximately $258.8 million after underwriting discounts and commissions and offering expenses. On June 20, 2019, the Class Aunderwriters exercised their option to purchase 0.6 million of additional shares resulting in $38.9 million in proceeds after offering expenses. We used the net proceeds to purchase approximately 6.0 million newly-issued LLC Units in Carvana Group, and Carvana Group will use the net proceeds primarily for general corporate purposes.

In September 2018 and May 2019, we issued Senior Notes (as defined in "Liquidity and Capital Resources") and received approximately $588.6 million in total proceeds, net of debt issuance costs. We used the net proceeds to purchase preferred units of Carvana Group, and Carvana Group intends to use the net proceeds for working capital and general corporate purposes. These general corporate purposes include funding working capital, capital expenditures, operating expenses and the selective pursuit of business development opportunities, including to expand our current business through acquisitions of, or investments in, other businesses, products or technologies.

Unit Sales

Since launching to customers in Atlanta, Georgia in January 2013, we have experienced rapid growth in sales through our website.website www.carvana.com. During the six months ended June 30, 2018,2019, the number of vehicles we sold to retail customers grew by 115.8%96.8% to 41,03480,766 compared to 19,01641,034 in the six months ended June 30, 2017.2018.

35


We view the number of vehicles we sell to retail customers as the most important measure of our growth, and we expect to continue to focus on building a scalable platform to 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 automotive finance receivables originated to finance the vehicle, the sale of VSCs, the sale of GAP waiver coverage and the sale of vehicles acquired from customers as trade-ins.

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 becomes a candidate tomay refer future customers and can become a repeat buyer in the future.

Retail units sold isare an important driver of the average number of days between when we acquire the vehicle acquisition by us and the sale to a customer.when we sell it. Reducing average days to sale impacts gross profit on our vehicles because used cars depreciate over time.

Retail unit salesunits 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.

We plan to invest in technology and infrastructure to support growth in retail unit sales. This includes continued investment in our acquisition, reconditioning and logistics network, as well as continued investment in product development and engineering to deliver customers a best-in-class experience.

Markets

30


Our growth in retail units sold is 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 offer free home delivery to customers with a Carvana employee andin a branded delivery truck. Opening a new market involves hiring a team of customer advocates, connecting the market to our existing logistics network and initiating local advertising. Each new market has typically required approximately $0.5 million in capital expenditures, primarily related to the acquisition of one to two branded delivery trucks, a multi-car hauler to connect the market to our logistics network and furniture, fixtures and equipment in a local office space. As a market scales, we may elect to build a vending machine in the market to further increase customer awareness and improve fulfillment. Each new vending machine has required on average approximately $5.5 million of capital expenditures, depending on the number of stories in the vending machine tower and local market conditions. We have funded certain of these vending machines through sale leaseback transactions with third parties.enhance our fulfillment operations.

Our capital- and headcount-light expansion model has enabled us to increase our rate of market openings in each of the past fivesix years. After opening Atlanta, Georgia in 2013, we opened two markets in 2014, six in 2015, 12 in 2016, 23 in 2017, 41 in 2018 and 2152 in the first six months of 2018,2019, bringing our total number of markets to 65137 as of June 30, 2018.2019. Over this period, we have continually improved our market expansion playbook, which we believe improves our abilityprovides us with the capability to efficiently execute our growth plan.

When we open a market, we commence local advertising using a blend of brand and direct advertising channels. Our local advertising spend in each market is approximately proportionate to each market’s population, subject to adjustments based on specific characteristics of the market, market age, 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. Beginning in the second quarter of 2017, we increasedWe also advertise on national television advertising spend.to increase brand awareness. With our growth into new markets, national television advertising has become more economically efficient compared to purchasing several local television advertising campaigns.

Revenue and Gross Profit

Our increased penetration in existing markets and expansion into new markets has led to growth in retail unit sales. We generate revenue on retail units sold from four primary sources: the sale of the vehicles, gains on the sales of loans originated to finance the vehicles, wholesale sales of vehicles we acquire from customers and sales of ancillary products such as VSCs and GAP waiver coverage.

Our largest source of revenue, used vehicle sales, totaled $855.8 million and $1.5 billion during the three and six months ended June 30, 2019, respectively, and $437.9 million and $772.0 million during the three and six months ended June 30, 2018, respectively, and $193.9 million and $342.3 million during the three and six months ended June 30, 2017, respectively. As we continue to increase penetration in existing markets and expand to new ones, we expect used vehicle sales to increase as we increase retail units sold. We generate gross profit on used 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 includes sales of trade-ins and other vehicles acquired from customers as well as sales of certain retail units listed on our website and totaled $63.0 million and $96.0 million during the three and six months ended June 30, 2019, respectively, and $16.6 million and $26.8 million during the three and six months ended June 30, 2018, respectively, and $7.8 million and $13.5 million during the three and six months ended June 30, 2017, respectively. We expect wholesale sales to increase with retail units sold and as we
36


expand our program of acquiring vehicles from customers and our suite of product offerings to customers who may wish to trade-in or to sell us a car independent of a retail sale. 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.

Other sales and revenues, which primarily includes gains on the sales of loansautomotive finance receivables we originate, sales commission on VSCs and sales of GAP waiver coverage totaled $67.4 million and sales commissions on VSCs totaled$105.8 million during the three and six months ended June 30, 2019, respectively, and $20.7 million and $37.0 million during the three and six months ended June 30, 2018, and $7.6 million and $12.6 million during the three and six months ended June 30, 2017, respectively. We expect other sales and revenues to increase 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. Other sales and revenues are 100% gross margin products for which gross profit equals revenue.

31


During our growth phase, our highest priority will continue to be providing exceptional customer experiences, increasing our brand awareness and building an infrastructure to support growth in retail units sold. Secondarily, we plan to pursue several strategies designed to increase our total gross profit per unit. These strategies include the following:

Reduce average days to sale. Our goal is to increase both our number of markets and our sales growth 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 IRC infrastructure. As we scale, we intend to more fully utilize the capacity in our fourseven existing IRCs, which collectively have capacity to inspect and recondition approximately 200,000more than 350,000 vehicles per year.year at full utilization.

Increase utilization on logistics network.As we scale, we intend to more fully utilize our in-house logistics network to transport cars to our IRCs after acquisition from wholesale auctions or customers.

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 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 expand our base of financial partners who purchase the finance receivables originated on our platform to reduce our effective cost of funds. We also plan to continue selling finance receivables in securitization transactions.
Increase the purchase of vehicles from customers. We plan to grow the number of vehicles that we purchase from our customers either as trade-ins or independent of a retail sale. This in turn will both grow our wholesale business and provide additional vehicles for our retail business, which are more profitable compared to the same vehicle acquired at auction.

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

Used vehicle sales 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. However, as the timing of income tax refunds is delayed, we believe that the second quarter is likely to show stronger seasonality than in the past. Due to our rapid growth, our overall sales patterns to date have not reflected the general seasonality of the used vehicle industry, but we expect this to change once our business and markets mature. 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.year, all other
37


factors being equal. We mayexpect to experience seasonal and other fluctuations in our quarterly operating results, which may not fully reflect the underlying performance of our business.

Investment in Growth

We have aggressively invested in the growth of our business and we expect this investment to continue. We anticipate that our operating expenses will increase substantially as we continue to open new markets, expand our logistics network and increase our advertising spending, including increases in television advertising expenditures.spending. There is no guarantee that we will be able to realize the return on our investments.

Relationship with Related Parties

For discussion about our relationship with related parties, refer to Note 6 — 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, opening new markets and enhancing the selection of vehicles we make available to our customers. Our key
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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,
2018 2017 2018 2017 
Retail units sold22,570 10,682 41,034 19,016 
Number of markets65 30 65 30 
Average monthly unique visitors (1)
2,286,400 945,034 2,036,276 821,924 
Inventory units available on website11,386 7,503 11,386 7,503 
Average days to sale66 105 67 100 
Total gross profit per unit$2,173 $1,501 $2,029 $1,356 

Three Months Ended June 30,Six Months Ended June 30,
2019 2018 2019 2018 
Retail units sold44,000 22,570 80,766 41,034 
Number of markets137 65 137 65 
Average monthly unique visitors4,763,911 2,286,400 4,276,981 2,036,276 
Inventory units available on website18,835 11,386 18,835 11,386 
Average days to sale61 66 62 67 
Total gross profit per unit (incl. Gift) (1)
$3,132 $2,173 $2,802 $2,029 
Total gross profit per unit ex-Gift (1)
$3,175 $2,173 $2,836 $2,029 
(1) We recently purchased access to improved Google Analytics data regarding individuals who visit our website. All periods shown above reflect Average Monthly Unique VisitorsSee below for such period calculated in accordance with the improved Google Analytics data.further discussion of total gross profit per unit (incl. Gift) and total gross profit per unit ex-Gift.

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 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.

Number of Markets

We define a market as a metropolitan area in which we have commenced local advertising and offer free home delivery to customers withby a Carvana employee andin a branded delivery truck. We view the number of markets we serve as a key driver of our growth. As we increase our number of markets, the population of consumers who have access to our fully-integratedfully integrated customer experience increases, which in turn helps to increase the number of vehicles we sell.

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
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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.
 
Inventory Units Available

We define inventory units available as the number of vehicles listed for sale on our website on the last day of a given reporting period. We view inventory units available as a key measure of our growth. Growth in inventory units available increases the selection of vehicles available to consumers in all of our markets simultaneously, which we believe will allow us to increase the number of vehicles we sell. Moreover, growth in inventory units available is an indicator ofindicates 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 inventory units available while continuing to grow sales, thereby improving other key operating metrics of the business.

Average Days to Sale

We define average days to sale as the average number of days between when we acquire the vehicle acquisition by us and deliverywhen we deliver it to a customer for all retail units sold in a period. However, this metric does not include any retail units that remain unsold at period end. We view average days to sale as a useful metric due to its impact on used vehicle average selling price.

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Total Gross Profit per Unit (incl. Gift)

We define total gross profit per unit as the aggregate gross profit in a given period, including Gift (as defined below), divided by retail units sold in that period. Totalperiod including gross profit per unit is driven by salesgenerated from the sale of the used vehicles, each of which generates additional revenue sources including: wholesale sales of vehicles we acquire from customers as trade-ins,vehicle, gains on the sales of loans originated to finance the vehicle, commissions on sales of VSCs, revenue from GAP waiver coverage and commissions ongross profit generated from wholesale sales of VSCs. vehicles.

Total Gross Profit per Unit ex-Gift

In the second half of 2018, we announced a commitment by our Chief Executive Officer, Ernest Garcia III ("Mr. Garcia"), to contribute 165 shares of Class A common stock to us from his personal shareholdings for every one of our then-existing employees upon their satisfying certain employment tenure requirements. In connection with such contributions, we have made corresponding grants of 165 restricted stock units under our 2017 Omnibus Incentive Plan to each employee who has satisfied the requirements and intend to make grants to the remaining then-existing employees as they satisfy the requirements (the "100k Milestone Gift" or "Gift"). Under U.S. GAAP, the 100k Milestone Gift is treated as compensation expense, a portion of which relates to the production of our used vehicle inventory and is therefore capitalized to inventory and subsequently recognized within costs of sales when the related inventory is sold.

We define total gross profit per unit ex-Gift as gross profit before compensation expense related to the 100k Milestone Gift included in cost of sales, divided by retail units sold in that period. It has the same components noted above for total gross profit per unit, including Gift. We expect the 100k Milestone Gift from Mr. Garcia's one-time announcement to impact total gross profit per unit through the first half of 2020 and therefore believe total gross profit per unit ex-Gift is a key measure of our growth and long-term profitability.profitability over time.

For more information regarding this and other non-GAAP financial measures, refer to reconciliations of our non-GAAP measurements to their most directly comparable GAAP-based financial measurements included herein under "Non-GAAP Financial Measures".

Components of Results of Operations

Used Vehicle Sales

Used vehicle sales represent the aggregate sales of used vehicles to customers through our website. Revenue from used vehicles sales is recognized upon delivery to the customer or pick-uppick up of the vehicle by the customer, and is reported net of a reserve for expected returns. Factors affecting used 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 used vehicles we sell depends on ourthe volume of traffic to our website, traffic in the markets we serve, theour number of these markets, our inventory selection, the effectiveness of our branding and marketing efforts, the quality of our customer salescustomer's purchase experience, our
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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 used vehicles we sell is also affected by seasonality, with demand for used vehicles reaching a seasonal high point late in the first halfquarter of each year, commensurate with the timing of tax refunds, and diminishing through the rest of the year, with the lowest relative level of used vehicle sales expected to occur in the fourth calendar quarter.

Our retail average selling price depends on the mix of vehicles we acquire, and hold in inventory, retail market prices in our markets, our average days to sale and our pricing strategy. We may choose to shift our inventory mix to on average 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 anticipate that ouralso generally expect lower average days to sale will decline over time as we continue to launch new markets, which we believe will increase ourbe associated with higher retail average selling price,prices due to decreased vehicle depreciation prior to sale, all other factors being equal.

Wholesale Vehicle Sales

Wholesale vehicle sales is equal to the aggregate proceeds we receive on vehicles sold to wholesalers. The vehicles we sell to wholesalers are primarily acquired from our customers who trade-in their existing vehicles when making a purchase from us and to a lesser extent, vehicles we acquire from customers who do not purchase anothersell a vehicle from us.to us without purchasing a retail vehicle. In addition, we occasionally sell certain used vehicles previously listed for sale to customers through our website to wholesalers. Factors affecting wholesale vehicle sales 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.

Other Sales and Revenues

We generate other sales and revenues primarily through the sales of automotive finance receivablesloans we originate and sell in securitization transactions or to financing partners, commissions we receive on VSCs and sales of GAP waiver coverage on vehicles customers buy and finance with us. Prior to December 9, 2016, the VSCs were sold and administered by third parties. On December 9,coverage. In 2016, we entered into a master dealer agreement with DriveTime, pursuant to which we sellreceive a commission for selling VSCs that DriveTime administers. The commission revenues 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.

We generally seek to sell the automotive finance receivablesloans we generateoriginate under committed forward flowforward-flow arrangements with third partiesfinancing partners who acquire these receivablesthem at premium prices without recourse to us for their post-sale performance. Factors affecting revenue from these sales include the number of automotive finance receivablesloans we originate, the average principal balance of these receivables,the loans, the credit quality of the portfolio and the price at which we are able to sell them to third parties.financing partners. Beginning in 2019, we also sponsor and establish securitization trusts to purchase finance receivables from us. The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that we sell to the securitization trusts.

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The number of receivablesloans we originate is driven by the number of used 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 receivable balances. The price at which we resell these automotive finance receivablessell the loan is driven by the terms of our forward flowforward-flow arrangements and securitization transactions, applicable interest rates and whether or not the finance receivableloan includes GAP waiver coverage.

Cost of Sales

Cost of sales includes the cost to acquire, vehiclesrecondition and the reconditioning and transportation coststransport vehicles associated with preparing the vehiclesthem for resale. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles and supply and demandsupply-and-demand dynamics in the wholesale vehicle market. Reconditioning costs consist of direct costs, including parts, labor and third partythird-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. Beginning in the second half of 2018, the labor portion of reconditioning costs and transportation costs includes the expense related to the 100k Milestone Gift, as described above. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

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Used Vehicle Gross Profit

Used vehicle gross profit equalsis the vehicle sales price minus our costs of sales associated with vehicles that we list and sell on our website. Used vehicle gross profit per unit equalsis our aggregate used vehicle gross profit in any measurement period divided by the number of retail units sold in suchthat period. Beginning in the second half of 2018, cost of sales includes the expense related to the 100k Milestone Gift, as described above.

Wholesale Vehicle Gross Profit

Wholesale vehicle gross profit equalsis the vehicle sales price minus our cost of sales associated with vehicles we sell to wholesalers. Factors affecting wholesale gross profit include the number of wholesale units sold, the average wholesale selling price of these vehicles, the acquisition price we offer to the customer and, in the case of vehicles formerly listed on our website, the total costs described above associated with that vehicle. Beginning in the second half of 2018, cost of sales includes the expense related to the 100k Milestone Gift, as described above.

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

Selling, general and administrative (“SG&A”) expenses include expenses associated with advertising and providing customer service to customers, operating our fulfillment centersvending machines and vending machines,hubs, operating our logistics and fulfillment network and other corporate overhead expenses, including expenses associated with information technology, product development, engineering, legal, accounting, finance and business development. We anticipate that these expenses will increase as we grow. SG&A expenses exclude the costs of inspecting and reconditioning vehicles and transporting vehicles from the point of acquisition to the IRC, and inspecting and reconditioning vehicles, which are included in cost of sales.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. Beginning in the second half of 2018, SG&A includes the portion of compensation expense related to the 100k Milestone Gift, as described above.

Interest Expense

Interest expense includes interest incurred on our Senior Notes, including amounts due to Verde, our Floor Plan Facility, (asand our Finance Receivable Facilities (all defined in "Liquidity and Capital Resources"), as well as our notes payable, finance leases and other long-term debt, which are used to fund general working capital, our inventory, our transportation fleet and certain of our property and equipment. During 2017, interest expense also includes interest incurred and the commitment fee related to the Verde Credit Facility (as defined in "Liquidity and Capital Resources"), which was used as needed to fund working capital prior to its termination in connection with our IPO. 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.


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Results of Operations

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2018 2017 Change2018 2017 Change2019 2018 Change2019 2018 Change
(dollars in thousands, except per unit amounts)(dollars in thousands, except per unit amounts)(dollars in thousands, except per unit amounts)
Net sales and operating revenues:Net sales and operating revenues:Net sales and operating revenues:
Used vehicle sales, netUsed vehicle sales, net$437,922 $193,947 125.8 %$771,978 $342,329 125.5 %Used vehicle sales, net$855,785 $437,922 95.4 %$1,539,614 $771,978 99.4 %
Wholesale vehicle salesWholesale vehicle sales16,622 7,818 112.6 %26,755 13,544 97.5 %Wholesale vehicle sales63,014 16,622 279.1 %96,044 26,755 259.0 %
Other sales and revenues (1)
Other sales and revenues (1)
20,742 7,600 172.9 %36,975 12,565 194.3 %
Other sales and revenues (1)
67,422 20,742 225.1 %105,797 36,975 186.1 %
Total net sales and operating revenuesTotal net sales and operating revenues$475,286 $209,365 127.0 %$835,708 $368,438 126.8 %Total net sales and operating revenues$986,221 $475,286 107.5 %$1,741,455 $835,708 108.4 %
Gross profit:
Gross profit (incl. Gift):Gross profit (incl. Gift):
Used vehicle gross profitUsed vehicle gross profit$26,641 $8,172 226.0 %$43,287 $12,798 238.2 %Used vehicle gross profit$63,378 $26,641 137.9 %$110,500 $43,287 155.3 %
Wholesale vehicle gross profitWholesale vehicle gross profit1,652 267 518.7 %3,007 422 612.6 %Wholesale vehicle gross profit6,993 1,652 323.3 %10,028 3,007 233.5 %
Other gross profit (1)
Other gross profit (1)
20,742 7,600 172.9 %36,975 12,565 194.3 %
Other gross profit (1)
67,422 20,742 225.1 %105,797 36,975 186.1 %
Total gross profitTotal gross profit$49,035 $16,039 205.7 %$83,269 $25,785 222.9 %Total gross profit$137,793 $49,035 181.0 %$226,325 $83,269 171.8 %
Gross profit ex-Gift:(3)
Gross profit ex-Gift:(3)
Used vehicle gross profit ex-GiftUsed vehicle gross profit ex-Gift$65,186 $26,641 144.7 %$113,072 $43,287 161.2 %
Wholesale vehicle gross profit ex-GiftWholesale vehicle gross profit ex-Gift7,096 1,652 329.5 %10,153 3,007 237.6 %
Other gross profit (1)
Other gross profit (1)
67,422 20,742 225.1 %105,797 36,975 186.1 %
Total gross profit ex-GiftTotal gross profit ex-Gift$139,704 $49,035 184.9 %$229,022 $83,269 175.0 %
Market information:Market information:Market information:
Markets, beginning of periodMarkets, beginning of period56 23 143.5 %44 21 109.5 %Markets, beginning of period109 56 94.6 %85 44 93.2 %
Market launchesMarket launches28.6 %21 133.3 %Market launches28 211.1 %52 21 147.6 %
Markets, end of periodMarkets, end of period65 30 116.7 %65 30 116.7 %Markets, end of period137 65 110.8 %137 65 110.8 %
Unit sales information:Unit sales information:Unit sales information:
Used vehicle unit salesUsed vehicle unit sales22,570 10,682 111.3 %41,034 19,016 115.8 %Used vehicle unit sales44,000 22,570 94.9 %80,766 41,034 96.8 %
Wholesale vehicle unit salesWholesale vehicle unit sales3,658 1,580 131.5 %6,000 2,868 109.2 %Wholesale vehicle unit sales10,756 3,658 194.0 %17,457 6,000 191.0 %
Per unit selling prices:Per unit selling prices:Per unit selling prices:
Used vehiclesUsed vehicles$19,403 $18,156 6.9 %$18,813 $18,002 4.5 %Used vehicles$19,450 $19,403 0.2 %$19,063 $18,813 1.3 %
Wholesale vehiclesWholesale vehicles$4,544 $4,948 (8.2)%$4,459 $4,722 (5.6)%Wholesale vehicles$5,858 $4,544 28.9 %$5,502 $4,459 23.4 %
Per unit gross profit: (2)
Per unit gross profit (incl. Gift): (2)
Per unit gross profit (incl. Gift): (2)
Used vehicle gross profitUsed vehicle gross profit$1,180 $765 54.2 %$1,055 $673 56.8 %Used vehicle gross profit$1,440 $1,180 22.0 %$1,368 $1,055 29.7 %
Wholesale vehicle gross profitWholesale vehicle gross profit$452 $169 167.5 %$501 $147 240.8 %Wholesale vehicle gross profit$650 $452 43.8 %$574 $501 14.6 %
Other gross profitOther gross profit$919 $711 29.3 %$901 $661 36.3 %Other gross profit$1,532 $919 66.7 %$1,310 $901 45.4 %
Total gross profitTotal gross profit$2,173 $1,501 44.8 %$2,029 $1,356 49.6 %Total gross profit$3,132 $2,173 44.1 %$2,802 $2,029 38.1 %
Per unit gross profit ex-Gift: (2)(3)
Per unit gross profit ex-Gift: (2)(3)
Used vehicle gross profit ex-GiftUsed vehicle gross profit ex-Gift$1,482 $1,180 25.6 %$1,400 $1,055 32.7 %
Wholesale vehicle gross profit ex-GiftWholesale vehicle gross profit ex-Gift$660 $452 46.0 %$582 $501 16.2 %
Other gross profitOther gross profit$1,532 $919 66.7 %$1,310 $901 45.4 %
Total gross profit ex-GiftTotal gross profit ex-Gift$3,175 $2,173 46.1 %$2,836 $2,029 39.8 %
(1) Includes $5,544$13,989 and $1,898$5,544 for the three months ended June 30, 20182019 and 2017,2018, respectively, and $9,655$24,562 and $3,656$9,655 for the six months ended June 30, 20182019 and 2017,2018, respectively, of other sales and revenues from related parties.
(2) All gross profit per unit amounts are per used vehicle sold, except wholesale vehicle gross profit, which is per wholesale vehicle sold.
(3) Ex-Gift amounts exclude the expense related to the 100k Milestone Gift. See "Non-GAAP Financial Metrics" for a reconciliation to the most directly comparable GAAP-based measure, when applicable.

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Used Vehicle Sales

Three months ended June 30, 20182019 Versus 2017.2018. Used vehicle sales increased by $244.0$417.9 million to $855.8 million during the three months ended June 30, 2019 compared to $437.9 million during the three months ended June 30, 2018 compared to $193.9 million during the three months ended June 30, 2017.2018. The increase in revenue was primarily due to an increase in the number of used vehicles sold to 22,57044,000 from 10,68222,570 during the three months ended June 30, 20182019 and 2017,2018, respectively. The increase in units sold was driven in part by growth in existing markets due to expanded inventory selection, enhanced marketing efforts, increased brand awareness and customer referrals. The increase in unit sales was also driven by growth to 137 markets as of June 30, 2019 from 65 markets as of June 30, 2018 from 30 markets as of June 30, 2017.2018. We anticipate that unit sales will continue to grow as we increase penetration in existing markets and launch new markets. In addition, the average selling price of our retail units sold increased to $19,450 during the three months ended June 30, 2019 from $19,403 during the three months ended June 30, 2018 from $18,156 during the three months ended June 30, 2017. We believe average selling prices increased primarily as result of a decrease in average days to sale to 66 days in the second quarter of 2018 from 105 days in the comparable prior year period. 2018.

Six months ended June 30, 20182019 Versus 2017.2018. Used vehicle sales increased by $429.6$767.6 million to $1.5 billion during the six months ended June 30, 2019 compared to $772.0 million during the six months ended June 30, 2018 compared to $342.3 million during the six months ended June 30, 2017.2018. The increase in
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revenue was primarily due to an increase in the number of used vehicles sold to 41,03480,766 from 19,01641,034 during the six months ended June 30, 20182019 and 2017,2018, respectively. The increase in units sold was driven in part by growth in existing markets due to expanded inventory selection, enhanced marketing efforts, increased brand awareness and customer referrals. The increase in unit sales was also driven by growth to 137 markets as of June 30, 2019 from 65 markets as of June 30, 2018 from 30 markets as of June 30, 2017.2018. We anticipate that unit sales will continue to grow as we increase penetration in existing markets and launch new markets. In addition, the average selling price of our retail units sold increased to $19,063 during the six months ended June 30, 2019 from $18,813 during the six months ended June 30, 2018 from $18,002 during the six months ended June 30, 2017. We believe average selling prices increased primarily as a result of a decrease in average days to sale to 67 days in the six months ended June 30, 2018 from 100 days in the comparable prior year period.2018.

Wholesale Vehicle Sales

Three months ended June 30, 20182019 Versus 2017.2018. Wholesale vehicle sales increased by $8.8$46.4 million to $63.0 million during the three months ended June 30, 2019, compared to $16.6 million during the three months ended June 30, 2018, compared to $7.8 million during the three months ended June 30, 2017.2018. We primarily obtain our wholesale inventory by acquiring vehicles from customer trade-ins.customers. As our retail unit sales have increased, so have the trade-ins we receive. Moreover, during the three months ended June 30, 2019, we also acquired more vehicles from customers who did not purchase a retail unit from us. Therefore, we have had more units available for sale to wholesalers over time and our revenues attributed to wholesale vehicle sales have increased, despiteincreased. In addition, the 8.2% decrease in theaverage selling price perof our wholesale unit.units sold increased to $5,858 during the three months ended June 30, 2019 from $4,544 during the three months ended June 30, 2018.

Six months ended June 30, 20182019 Versus 2017. 2018.Wholesale vehicle sales increased by $13.2$69.3 million to $96.0 million during the six months ended June 30, 2019, compared to $26.8 million during the six months ended June 30, 2018, compared to $13.5 million during the six months ended June 30, 2017.2018. We primarily obtain our wholesale inventory by acquiring vehicles from customer trade-ins.customers. As our retail unit sales have increased, so have the trade-ins we receive. Moreover, during the six months ended June 30, 2019, we also acquired more vehicles from customers who did not purchase a retail unit from us. Therefore, we have had more units available for sale to wholesalers over time and our revenues attributed to wholesale vehicle sales have increased, despiteincreased. In addition, the 5.6% decrease in theaverage selling price perof our wholesale unit.units sold increased to $5,502 six months ended June 30, 2019 from $4,459 during the six months ended June 30, 2018.

Other Sales and Revenues

Three months ended June 30, 20182019 Versus 2017.2018. Other sales and revenues primarily consist of gains on the sales of loans we originate, commissions we receive on sales of VSCs and sales of GAP waiver coverage. Other sales and revenues increased by $13.1$46.7 million to $67.4 million during the three months ended June 30, 2019, compared to $20.7 million during the three months ended June 30, 2018, compared to $7.6 million during the three months ended June 30, 2017.2018. This increase was primarily driven by the increase in retail units sold which led to an increase in loans originated and sold, as well as an increase in VSC sales and GAP waiver coverage sales. The increase also includes an increase in interest income during the three months ended June 30, 2019 from interest earned on finance receivables we held on balance sheet prior to our securitization transaction in June.

Six months ended June 30, 20182019 Versus 2017. 2018.Other sales and revenues primarily consist of gains on the sales of loans we originate, commissions we receive on sales of VSCs and sales of GAP waiver coverage. Other sales and revenues increased by $24.4$68.8 million to $105.8 million during the six months ended June 30, 2019, compared to $37.0 million during the six months ended June 30, 2018, compared2018. The increase is primarily related to $12.6 million duringincreased gains on loan sales due to selling more loans in the sixmonths ended June 30, 2017. This2019 compared to June 30, 2018, partially due to the securitization transactions in March and June. The remaining increase wasis primarily due to increased revenue from commissions received on sales of vehicle service contracts, increased GAP waiver revenues driven by the increase in retail units sold which led tounit sales and timing of loan sales, and an increase in loans originated and sold, as well as an increase in VSC sales and GAP waiver coverage sales.interest
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income primarily related to the interest earned on the finance receivables held on our balance sheet during 2019 for the securitization transactions.

Used Vehicle Gross Profit

Three months ended June 30, 20182019 Versus 2017.2018. Used vehicle gross profit, including Gift, increased by $18.5$36.7 million to $63.4 million during the three months ended June 30, 2019, compared to $26.6 million during the three months ended June 30, 2018, compared2018. Used vehicle gross profit ex-Gift, which excludes the impact of the 100k Milestone Gift on cost of sales, increased by $38.5 million to $8.2$65.2 million during the three months ended June 30, 2017.2019, compared to $26.6 million during the three months ended June 30, 2018. This increase was driven primarily by an increase in retail units sold, as well as an increase in used vehicle gross profit per unit, including Gift, and used vehicle gross profit per unit ex-Gift to 1,440 and $1,482, respectively, for the three months ended June 30, 2019 compared to $1,180 for the three months ended June 30, 2018 compared to $765 for the three months ended June 30, 2017.2018. The per unit increase was primarily driven by acquiring more vehicles from customers, incremental shipping revenue, and a decrease in average days to sale to 61 days in the three months ended June 30, 2019 from 66 days in the three months ended June 30, 2018 from 105 days in the three months ended June 30, 2017.2018.

Six months ended June 30, 20182019 Versus 2017. 2018.Used vehicle gross profit, including Gift, increased by $30.5$67.2 million to $110.5 million during the six months ended June 30, 2019, compared to $43.3 million during the six months ended June 30, 2018, compared2018. Used vehicle gross profit ex-Gift, which excludes the impact of the 100k Milestone Gift on cost of sales, increased by $69.8 million to $12.8$113.1 million during the six months ended June 30, 2017.2019, compared to $43.3 million during the six months ended June 30, 2018. This increase was driven primarily by an increase in retail units sold, as well as an increase in used vehicle gross profit per unit, including Gift, and used vehicle gross profit per unit ex-Gift to $1,368 and $1,400, respectively, for the six months ended June 30, 2019 compared to $1,055 for the six months ended June 30, 2018 compared to $673 for the six months ended June 30, 2017.2018. The per unit increase was primarily driven by acquiring more vehicles from customers, incremental shipping revenue, and a decrease in average days to sale to 62 days in the six months ended June 30, 2019 from 67 days in the six months ended June 30, 2018 from 100 days in the six months ended June 30, 2017.2018.

Wholesale Vehicle Gross Profit

Three months ended June 30, 20182019 Versus 2017.2018. Wholesale vehicle gross profit, including Gift and excluding Gift, increased by $1.4$5.3 million and $5.4 million to $7.0 million and $7.1 million, respectively, during the three months ended June 30, 2019, compared to $1.7 million during the three months ended June 30, 2018, compared to $0.3 million during the three months ended June 30, 2017. This
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increase was driven primarily by an increase in wholesale units sold to 3,658 from 1,580 and an increase in wholesale vehicle gross profit per wholesale unit to $452 from $169.

Six months ended June 30, 2018 Versus 2017. Wholesale vehicle gross profit increased by $2.6 million to $3.0 million during the six months ended June 30, 2018, compared to $0.4 million during the six months ended June 30, 2017.2018. This increase was driven primarily by an increase in wholesale units sold to 6,00010,756 from 2,8683,658 and an increase in wholesale vehicle gross profit per wholesale unit, including Gift, and wholesale vehicle gross profit per wholesale unit ex-Gift to $650 and $660, respectively, in the three months ended June 30, 2019 compared to $452 in the three months ended June 30, 2018. The per-unit increase was primarily due to the expansion of our program of acquiring vehicles from customers.

Six months ended June 30, 2019 Versus 2018. Wholesale vehicle gross profit, including Gift and excluding Gift, increased by $7.0 million and $7.1 million to $10.0 million and $10.2 million, respectively, during the six months ended June 30, 2019, compared to $3.0 million during the six months ended June 30, 2018. This increase was driven primarily by an increase in wholesale units sold to 17,457 from 6,000 and an increase in wholesale vehicle gross profit per wholesale unit, including Gift, and wholesale vehicle gross profit per wholesale unit ex-Gift to $574 and $582, respectively, from $501 in the six months ended June 30, 2018. The per-unit increase was primarily due to the expansion of our program of acquiring vehicles from $147.customers.

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.

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Components of SG&A

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2018 2017 2018 2017 2019 2018 2019 2018 
(in thousands)(in thousands)(in thousands)
Compensation and benefits (1)
Compensation and benefits (1)
$29,251 $18,789 $54,238 $35,092 
Compensation and benefits (1)
$54,184 $29,251 $102,988 $54,238 
Advertising expense26,782 12,385 51,791 23,824 
Market occupancy costs (2)
2,618 1,424 5,128 2,407 
100k Milestone Gift100k Milestone Gift1,415 — 3,603 — 
AdvertisingAdvertising50,367 26,782 89,889 51,791 
Market occupancy (2)
Market occupancy (2)
4,720 2,618 9,090 5,128 
Logistics (3)
Logistics (3)
7,826 3,116 14,144 5,924 
Logistics (3)
13,643 7,826 25,892 14,144 
Other costs (4)
29,175 16,297 53,537 30,672 
Other (4)
Other (4)
57,514 29,175 105,622 53,537 
TotalTotal$95,652 $52,011 $178,838 $97,919 Total$181,843 $95,652 $337,084 $178,838 
(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.sales, 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, and those related to the 100k Milestone Gift.
(2) Market occupancy costs includes rent, utilities, security, repairsoccupancy costs of our vending machine and maintenance and depreciation of buildings and improvements, including vending machines and fulfillment centers, excluding the portionhubs. It excludes occupancy costs related to reconditioning vehicles which isare included in cost of sales and excluding the portion related to corporate occupancy.occupancy which are included in other costs.
(3) 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.
(4) 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 increased by $43.6$86.2 million and $80.9$158.2 million to $181.8 million and $337.1 million and during the three and six months ended June 30, 2019, respectively, compared to $95.7 million and $178.8 million during the three and six months ended June 30, 2018, respectively, comparedrespectively. The increase was partially due to $52.0an increase in compensation and benefits by $24.9 million and $97.9$48.8 million during the three and six months ended June 30, 2017, respectively. The increase was partially due to an increase in advertising expense of $14.4 million and $28.0 million during the three and six months ended June 30, 2018,2019, respectively, compared to the three and six months ended June 30, 20172018, which was primarily driven by expansion of our logistics and delivery network, as well as growth in our engineering, technology, and corporate teams.

In addition, during the three and six months ended June 30, 2019, the third and fourth tranches of the 100k Milestone Gift related to Mr. Garcia's contribution occurred resulting in $1.4 million and $3.6 million, respectively, of compensation expense within selling, general and administrative expense, which is presented separately above, compared to none in the three and six months ended June 30, 2018.

The increase in selling, general and administrative expenses was also due to an increase in national television advertising and numberexpense of markets. Compensation and benefits increased by $10.5$23.6 million and $19.1$38.1 million during the three and six months ended June 30, 2018,2019, respectively, compared to the three and six months ended June 30, 2017, which was driven by expansion into new2018 primarily due to an increase in number of markets and the increase in headcount requiredintroduction of advertising related to support this growth.buying cars from customers. Market occupancy, logistics and other overhead expenses also increased during the three and six months ended June 30, 20182019 compared to the prior period primarily due to an increase in number of markets.our continued growth. These expenses will increase in absolute terms as we grow in existing markets and expand to additional markets.

Interest Expense

Interest expense increased by $1.7$15.2 million and $3.1$27.3 million to $19.3 million and $35.0 million during the three and six months ended June 30, 2019, respectively, compared to $4.2 million and $7.7 million during the three and six months ended June 30, 2018, respectively, comparedrespectively. The increase is primarily due to $2.5incurring $10.0 million and $4.6$17.8 million of interest expense during the three and six months ended June 30, 2017, respectively.  In order to expand the inventory we make available to customers, we increased our borrowings under our Floor Plan Facility period over period, resulting in increased interest expense2019, respectively, related to the facility.outstanding balance of the Senior Notes we issued in September 2018 and May 2019. The remaining increase is due to increased interest expense incurred on our short-term revolving facilities, capital and finance leases and long-term debt entered into during the three and six months ended June 30, 2018 related to the finance leases and notes payable entered into throughout 2017 and 2018 as discussed in "Liquidity and Capital Resources." The increase in interest expense related to the Floor Plan Facility, finance leases and notes payable is partially offset by the $1.2 million and $1.3 million interest incurred related to the Verde Credit Facility during the three and six months ended June 30, 2017,2019.

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respectively. Total borrowings of $35.0 million under the Verde Credit Facility were repaid in full with the proceeds of our IPO and the facility was terminated in May 2017.

Non-GAAP Financial Measures

To supplement the unaudited condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we also present the following non-GAAP measures: gross profit ex-Gift, gross profit per unit ex-Gift, EBITDA ex-Gift, EBITDA margin ex-Gift, adjusted net loss and adjusted net loss per share. We believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team, and it also improves investors’ understanding of our underlying operating performance and their ability to analyze our ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.

Gross Profit ex-Gift and Gross Profit per Unit ex-Gift

Gross Profit ex-Gift and Gross Profit per Unit ex-Gift are non-GAAP supplemental measures of operating performance that do not represent and should not be considered an alternative to gross profit, as determined by GAAP. Gross Profit ex-Gift is defined as gross profit before compensation expense related to the 100k Milestone Gift included in cost of sales. Gross Profit per Unit ex-Gift is Gross Profit ex-Gift divided by units sold. We use Gross Profit ex-Gift to measure the operating performance of our business and Gross Profit per Unit ex-Gift to measure our operating performance relative to our units sold. We believe that Gross Profit ex-Gift and Gross Profit per Unit ex-Gift are useful measures to us and to our investors because they exclude the expense associated with the 100k Milestone Gift recognized in cost of sales. We expect the 100k Milestone Gift to be a one-time award program for which we will recognize varying amounts of expense beginning in the second half of 2018 and continuing through the first half of 2020, and therefore we believe the related expense does not reflect our core operations, is not included in our past operations, and may not be indicative of our future operations. Additionally, the shares issued to settle the 100k Milestone Gift are offset by share contributions from Mr. Garcia to the Company, therefore we expect the impact on shares outstanding to be nearly zero. We believe that excluding it enables us to more effectively evaluate our performance period-over-period and relative to our competitors. 

A reconciliation the Gross Profit ex-Gift amounts to each corresponding gross profit amount, which are the most directly comparable GAAP measures and include expenses attributable to the 100k Milestone Gift, and calculations of each Gross Profit per Unit ex-Gift amount are as follows (dollars in thousands, except per unit amounts):

Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
Used vehicle gross profit$63,378 $26,641 $110,500 $43,287 
100k Milestone Gift in used vehicle cost of sales1,808 — 2,572 — 
Used Vehicle Gross Profit ex-Gift$65,186 $26,641 $113,072 $43,287 
Used vehicle unit sales44,000 22,570 80,766 41,034 
Used Vehicle Gross Profit per Unit ex-Gift$1,482 $1,180 $1,400 $1,055 
Wholesale vehicle gross profit$6,993 $1,652 $10,028 $3,007 
100k Milestone Gift in wholesale vehicle cost of sales103 — 125 — 
Wholesale Vehicle Gross Profit ex-Gift$7,096 $1,652 $10,153 $3,007 
Wholesale vehicle unit sales10,756 3,658 17,457 6,000 
Wholesale Vehicle Gross Profit per Unit ex-Gift$660 $452 $582 $501 
Total gross profit$137,793 $49,035 $226,325 $83,269 
100k Milestone Gift in total cost of sales1,911 — 2,697 — 
Total Gross Profit ex-Gift$139,704 $49,035 $229,022 $83,269 
Used vehicle unit sales44,000 22,570 80,766 41,034 
Total Gross Profit per Unit ex-Gift$3,175 $2,173 $2,836 $2,029 




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EBITDA ex-Gift and EBITDA Margin ex-Gift

EBITDA ex-Gift and EBITDA Margin ex-Gift are non-GAAP supplemental measures of operating performance that do not represent and should not be considered an alternative to net loss or cash flow from operations, as determined by GAAP. EBITDA ex-Gift is defined as net loss before interest expense, income tax expense, and depreciation and amortization expense.expense, and the compensation expense related to the 100k Milestone Gift. EBITDA Margin ex-Gift is EBITDA ex-Gift as a percentage of total revenues. We use EBITDA ex-Gift to measure the operating performance of our business and EBITDA Margin ex-Gift to measure our operating performance relative to our total revenues. We believe that EBITDA ex-Gift and EBITDA Margin ex-Gift are useful measures to us and to our investors because they exclude certain financial and capital structure items and the expense associated with the 100k Milestone Gift 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. In particular, we expect the 100k Milestone Gift to be a one-time award program for which we will recognize varying amounts of expense beginning in the second half of 2018 and continuing through the first half of 2020, and therefore we believe the related expense does not reflect our core operations, is not included in our past operations, and may not be indicative of our future operations. Additionally, the shares issued to settle the 100k Milestone Gift are offset by share contributions from Mr. Garcia to the Company, therefore we expect the impact on shares outstanding to be nearly zero. We believe that excluding these items enables us to more effectively evaluate our performance period-over-period and relative to our competitors. EBITDA ex-Gift and EBITDA Margin ex-Gift may not be comparable to similarly titled measures provided by other companies due to potential differences in methods of calculations. A reconciliation of EBITDA ex-Gift to net loss which includes 100k Milestone Gift expense and is the most directly comparable GAAP measure, and calculation of EBITDA Margin ex-Gift is as follows (in(dollars in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2018201720182017
Net loss$(51,250)$(38,870)$(103,922)$(77,309)
Depreciation and amortization expense5,257 2,584 9,862 4,645 
Interest expense4,165 2,507 7,706 4,566 
EBITDA$(41,828)$(33,779)$(86,354)$(68,098)
Total revenues$475,286 $209,365 $835,708 $368,438 
EBITDA Margin(8.8)%(16.1)%(10.3)%(18.5)%

Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
Net loss$(64,059)$(51,250)$(146,655)$(103,922)
Depreciation and amortization expense8,887 5,257 16,830 9,862 
Interest expense19,315 4,165 34,963 7,706 
100k Milestone Gift3,326 — 6,300 — 
EBITDA ex-Gift$(32,531)$(41,828)$(88,562)$(86,354)
Total revenues$986,221 $475,286 $1,741,455 $835,708 
EBITDA Margin ex-Gift(3.3)%(8.8)%(5.1)%(10.3)%

Adjusted Net Loss and Adjusted Net Loss per Share

Adjusted net loss represents net loss attributable to Carvana Co. assuming the full exchange of all outstanding LLC Units for shares of Class A common stock.stock and excluding the compensation expense associated with the 100k Milestone Gift. Adjusted net loss per share is calculated by dividing adjusted net loss by the weighted-average shares of Class A common stock outstanding assuming (i) the full exchange of all outstanding LLC Units, (ii) shares issued in the IPO were outstanding for the entire period presented and (iii) outstanding LLC Units immediately following the Organizational Transactions related to our IPO, including conversion of the Class C Redeemable Preferred Units, were outstanding for all periods prior to the IPO.Units.

Adjusted net loss and adjusted net loss per share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net loss and net loss per share, as determined under GAAP. We believe that by assuming the full exchange of all outstanding LLC Units and excluding the expense associated with the 100k Milestone Gift for the reasons described above, adjusted net loss and adjusted net loss per share supplement GAAP measures and enable us and our investors to more effectively evaluate our performance period-over-period and relative to our competitors that have different organizational and tax structures because the assumption eliminates the effect of any changes in net income attributable to Carvana Co. driven by increases in our ownership of Carvana Group, LLC as well as the expense associated with the 100k Milestone Gift, which are unrelated to our operating performance.



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A reconciliation of adjusted net loss to net loss attributable to Carvana Co., the most directly comparable GAAP measure, and the computation of adjusted net loss per share are as follows (in thousands, except per share amounts):
Three Months Ended June 30,Six Months Ended June 30,
2018 2017 2018 2017 
Numerator:
Net loss attributable to Carvana Co.$(9,965)$(14,542)$(17,008)$(52,981)
Net loss attributable to non-controlling interests(41,285)(24,328)(86,914)(24,328)
Dividends on Class A convertible preferred stock(1,375)— (2,720)— 
Accretion of beneficial conversion feature on Class A convertible preferred stock— — (1,380)— 
Adjusted net loss attributable to Carvana Co. Class A common stock$(52,625)$(38,870)$(108,022)$(77,309)
Denominator:
Weighted-average shares of Class A common stock outstanding(1)(3)
27,780 15,026 23,063 15,013 
Adjustments:
Weighted-average assumed exchange of LLC Units for shares of Class A common stock (2)
114,897 121,666 116,878 121,713 
Adjusted shares of Class A common stock outstanding142,677 136,692 139,941 136,726 
Adjusted net loss per share$(0.37)$(0.28)$(0.77)$(0.57)

Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
Numerator:
Net loss attributable to Carvana Co.$(26,610)$(9,965)$(55,159)$(17,008)
Net loss attributable to non-controlling interests(37,449)(41,285)(91,496)(86,914)
Dividends on Class A convertible preferred stock— (1,375)— (2,720)
Accretion of beneficial conversion feature on Class A convertible preferred stock— — — (1,380)
100k Milestone Gift3,326 — 6,300 — 
Adjusted net loss attributable to Carvana Co. Class A common stock$(60,733)$(52,625)$(140,355)$(108,022)
Denominator:
Weighted-average shares of Class A common stock outstanding(1)
46,038 27,780 43,695 23,063 
Adjustments:
Weighted-average assumed exchange of LLC Units for shares of Class A common stock106,377 114,897 107,676 116,878 
Adjusted shares of Class A common stock outstanding152,415 142,677 151,371 139,941 
Adjusted net loss per share$(0.40)$(0.37)$(0.93)$(0.77)
(1) Amounts for periods prior to the initial public offering have been retrospectively adjusted to give effect to 15.0Excludes approximately 0.8 million shares of Class A commonnonvested restricted stock issued in the initial public offering.
(2) Amounts for periods prior to the initial public offering have been retrospectively adjusted to include all LLCawards and units and 1.2 million vested and nonvested stock options outstanding at the initial public offering, including conversion of the Class C Redeemable Preferred Units into Class A Units on a one-for-one basis. Also assumes exchange of all outstanding LLC Units for shares of Class A common stock during each period presented.
(3)June 30, 2019, because they were determined to be anti-dilutive. Excludes approximately 0.5 million nonvested restricted stock awards and units and 0.8 million vested and nonvested stock options outstanding at June 30, 2018, because they were determined to be anti-dilutive. Excludes approximately 0.5 million restricted stock awards and 0.5 million stock options outstanding at June 30, 2017, because they were determined to be anti-dilutive.

Liquidity and Capital Resources

General

Our principal sources of liquidity are cash generated from our operations and from financing activities. Cash generated from operating activities primarily includes cash derived from the sale of used retail vehicles, the sale of wholesale vehicles and proceeds from the sale of automotive finance receivablesloans originated in connection with the sale of used vehicles. Cash generated from our financing activities primarily includes net proceeds from the saleissuance of Class A common stock in our IPO in 2017 and follow-on offering in 2018, proceeds from the sale of Class A Convertible Preferred Stock in 2017,equity instruments, net proceeds from our Floor Plan Facility (defined below), and net proceeds from issuance of other long-term debt, and sales of Class C Preferred Units throughout 2015 and 2016.  debt.

We have incurred losses each year from inception through June 30, 2018,2019, and expect to incur additional losses in the future. Our ability to service our debt and fund working capital, capital expenditures and business development efforts 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. On January 1,November 2, 2018, we amended the Floor Plan Facility to increase the capacity increased to $350.0$650.0 million and extend the maturity date to allow forOctober 31, 2020 to finance more vehicle inventory purchases. We plan to increase the amounthave also funded some of our capital expenditures through long-term financing with lenders and extend the maturity date of financing available to purchase vehicle inventory within the next 12 months by amending our existing Floor Plan Facility or by enteringother investors. We have historically entered into a new agreement. As of June 30, 2018,various agreements under which we sell the finance receivables under multiple agreements, allwe originate to financing partners, or as part of which feature commitments that expire in November 2018. We plan to extend or enter into new agreements to sell finance receivables to third parties prior to the
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expiration of the agreements.a securitization transaction. We believe that our existing sources of liquidity including future debt and equity financing will be sufficient to fund our operations, including lease obligations, debt service requirements, capital expenditures and working capital obligations for at least the next 12 months. However, our future capital requirements will depend on many factors, including our rate of revenue growth, our expansion into new markets, construction of vending machines and inspection and reconditioning centers and the timing and extent of our spending to support our technology and software development efforts. To the extent that existing cash and cash from operations are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

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Floor Plan Facility

We have a floor plan facility with a third partylender to finance our used vehicle inventory, which is secured by substantially all of our assets, other than our interests in real property (the "Floor Plan Facility"). We most recently amended the Floor Plan Facility in August 2017November 2018 to, among other things, extend the maturity date to DecemberOctober 31, 2018, and2020, increase the available creditcapacity to $650.0 million from $350.0 million, and lower the annual interest rate to one-month LIBOR plus 3.40%, a decrease from January 1, 2018 through December 31, 2018. We are required to makethe previous rate of one-month LIBOR plus 3.65%. The Floor Plan Facility requires monthly interest payments on borrowings under the Floor Plan Facility at a rate per annum equal to one-month LIBOR plus a fixed base. The Floor Plan Facility requiresand that at least 5% of the total principal amount owed to the lender is held as restricted cash.

Repayment in an amount equal to the amount of the advance or loan must be made within five business days of selling or otherwise disposing of the underlying vehicle inventory, unless customers financed the purchase by originating an automotive finance receivable. For used vehicle sales involving financing originated by us and sold under a certain master purchase and sale agreementeither the MPSA or master transfer agreement,the Finance Receivable Facilities (as defined below), the lender has extended repayment to the earlier of fifteen business days after the sale of the used vehicle or one business day following the sale of the related finance receivable. In November 2017, we also entered into a letter agreementWith respect to extend repayment of amounts due under the Floor Plan Facility forsuch used vehicle sales involving financing that are not sold under a certain master purchase and sale agreementeither the MPSA or master transfer agreement. With respect to such vehicles,the Finance Receivables Facilities, the lender agreed to extend repayment of the advance or the loan for such vehicles to the earlier of fifteen business days after the sale of the used vehicle or two business days following the sale or funding of the related finance receivable. Outstanding balances related to vehicles held in inventory for more than 180 days require monthly principal payments equal to 10% of the original principal amount of that vehicle until the remaining outstanding balance is the lesser of (i) 50% of the original principal amount or (ii) 50% of the wholesale value. Prepayments may be made without incurring a premium or penalty. Additionally, we are permitted to make prepayments to the lender to be held as principal payments under the Floor Plan Facility and subsequently reborrow such amounts. These prepayments and amounts reborrowed are presented on a gross basis within the consolidated statements of cash flows.

As of June 30, 2018,2019, the interest rate on the Floor Plan Facility was approximately 5.7%5.80%, we had an outstanding balance under this facility of approximately $347.1$23.8 million, borrowingunused capacity available of approximately $2.9$626.2 million, and held approximately $17.4$1.2 million in restricted cash related to this facility.

VerdeFinance Receivable Facilities

In April 2019, we entered in a Loan and Security Agreement with Ally Bank pursuant to which Ally Bank agreed to provide a $300.0 million revolving credit facility (the "DART I Credit Facility") to fund certain automotive finance receivables originated by us. We can draw upon the DART I Credit Facility until April 17, 2020, and it has an annual interest rate of one-month LIBOR plus a spread ranging from 1.00% to 1.80%.

In May 2019, we entered into the Amended and Restated Loan and Security Agreement (the "A&R Loan and Security Agreement") in connection with the $350.0 million SART 2017-1 Credit Facility, as defined below, to fund certain automotive finance receivables originated by us. We can draw upon the SART 2017-1 Credit Facility until November 1, 2019, and we have an annual interest rate of one-month LIBOR plus 1.95%.

The DART I Credit Facility and the SART 2017-1 Credit Facility (collectively, the "Finance Receivable Facilities") each require that at least 2% of the outstanding pledged finance receivables principal balances, plus any undistributed amounts collected on the pledged finance receivables amount, is held as restricted cash.

Interest payments on the Finance Receivable Facilities are payable monthly on each draw date. Principal repayments will occur on the fifteenth day of each calendar month in an amount equal to the undistributed receivables collected. The lender will receive repayment in accordance with its respective commitment. Prepayment of the entire aggregate outstanding principal and any accrued unpaid interest through the next draw date is permitted twice per calendar quarter.

As of June 30, 2019, the DART I Credit Facility had an interest rate ranging between approximately 3.40% and 4.20%, and the SART 2017-1 Credit Facility had an interest rate of approximately 4.35%. We had an outstanding balance under the Finance Receivable Facilities of approximately $15.9 million, unused capacity of $634.1 million, and held approximately $1.0 million in restricted cash related to these facilities.

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We had the following liquidity resources available as of June 30, 2019 and December 31, 2018 (in thousands):

June 30, 2019December 31, 2018
Cash and cash equivalents$40,200 $78,861 
Availability under short-term revolving facilities (1)
638,006 253,601 
Availability under sale-leaseback agreements (2)(3)
75,248 77,359 
Committed liquidity resources available$753,454 $409,821 
(1) Based on pledging all eligible vehicles and finance receivables under the Floor Plan Facility and Finance Receivables Facilities.
(2) Under the Master Sale-Leaseback Agreement with VMRE, the total sales price of properties the Company has sold and is leasing back at any point in time is limited to $75.0 million. We are also party to other sale-leaseback arrangements.
(3) We had $129.2 million and $132.4 million of total unpledged gross real estate assets as of June 30, 2019 and December 31, 2018, respectively.

In addition, we had $29.4 million and $0.0 million of total unpledged beneficial interests in securitizations as of June 30, 2019 and December 31, 2018, respectively.

Senior Unsecured Notes

On February 27, 2017,September 21, 2018, we issued an aggregate of $350.0 million in senior unsecured notes due 2023 (the "Existing Notes") under an indenture entered into a credit facility with Verde for an amount up to $50.0 millionby and among us, each of the guarantors party thereto and U.S. Bank National Association, as trustee (the "Verde Credit Facility"“Indenture”). Amounts outstanding accruedOn May 24, 2019, we issued $250.0 million in aggregate principal amount of additional notes (the "New Notes") under the Indenture, at a 100.5% premium. The Existing Notes and New Notes (together the "Senior Notes") are treated as a single class for all purposes and have the same terms. The Senior Notes accrue interest at a rate of 12.0%8.875% per annum, which is payable semi-annually in arrears on April 1 and were scheduled toOctober 1 of each year beginning April 1, 2019. The Senior Notes mature in August 2018. Upon executionon October 1, 2023, unless earlier repurchased or redeemed, and are guaranteed by our existing domestic restricted subsidiaries (other than our subsidiaries formed solely for the purpose of facilitating our sales of finance receivables, if any). We may redeem some or all of the agreement,Senior Notes on or after October 1, 2020 at redemption prices set forth in the Indenture, plus any accrued and unpaid interest to the redemption date. Prior to October 1, 2020, we paid Verdemay redeem up to 35.0% of the aggregate principal amount of the Senior Notes at a $1.0 million commitment fee. In connectionredemption price equal to 108.875%, together with accrued and unpaid interest to, but not including, the date of redemption, with the IPO completed on May 3, 2017,net cash proceeds of certain equity offerings. In addition, we repaidmay, at our option, redeem some or all of the outstandingSenior Notes prior to October 1, 2020, by paying a make-whole premium plus any accrued and unpaid interest, to, but not including, the redemption date. If we experience certain change of control events, we must make an offer to purchase all of the Senior Notes at 101.0% of the principal balance of $35.0 millionamount thereof, plus any accrued and accruedunpaid interest, of approximately $0.4 million in full andto the Verde Credit Facility terminated.repurchase date.

Other Long-Term DebtThe Indenture governing the Senior Notes contains restrictive covenants that limit our ability to, among other things, incur additional debt or issue preferred stock, create liens, create restrictions on our ability to make intercompany payments, pay dividends and make other distributions in respect of our capital stock, redeem or repurchase our capital stock or prepay subordinated indebtedness, make certain investments or certain other restricted payments, guarantee indebtedness, designate unrestricted subsidiaries, sell certain kinds of assets, enter into certain types of transactions with affiliates, and effect mergers or consolidations. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating from any two of Moody’s Investors Service, Inc., Standard & Poor’s Rating Services, and Fitch Ratings, Inc., and there is no continuing default. As of June 30, 2019 we were in compliance with all covenants. See Item 1A - Risk Factors.

The outstanding principal of the Senior Notes, net of debt issuance costs and including the premium, was approximately $589.9 million as of June 30, 2019, of which $15.0 million was held by Verde Investments, Inc, an affiliate of DriveTime ("Verde").

Notes Payable

We enterhave entered into promissory note and disbursement agreements to finance certain equipment for our transportation fleet and building improvements. The assets financed with the proceeds from these notes serve as the collateral for each note and certain security agreements related to these assets have cross collateralization and cross default provisions with respect to one another. Each note has a fixed annual interest rate, a two to five-year term and requires monthly payments. As of June 30, 2018,
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2019, the outstanding principal of these notes had a weighted-average interest rate of 5.6%6.1% and totaled approximately $31.3$30.7 million, of which approximately $6.7$8.2 million is due within the next twelve months.

Beginning in 2017, we have financedOther Real Estate Financing Transactions

We finance certain purchases and construction of our property and equipment through various sale and leaseback transactions. As of June 30, 2018,2019, none of these transactions have qualified for sale accounting due to meeting the criteria for finance leases, or forms of continuing involvement, such as repurchase options or renewal periods that extend the lease for substantially all of the asset's remaining useful life, and are therefore accounted for as financing transactions. These arrangements require monthly payments
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and have initial terms that expire in fifteen to twenty years. Some of the agreements are subject to renewal options of up to twenty years and base rent increases throughout the term. As of June 30, 2018,2019, the outstanding liability associated with these sale and leaseback arrangements, net of unamortized debt issuance costs, is approximately $52.3$90.9 million.

In November 2017, we entered into a master sale-leaseback agreement (the "Master Sale-Leaseback Agreement" or "MSLA"), which was amended in November 2018, pursuant to which we may sell and lease back certain of our owned or leased properties and construction improvements. A portion of our finance leases described above is through the MSLA. A portion of the fixed rental payments set forth in the respective lease agreements is payable annually beginning in November 2019. Under the MSLA, at any time we may elect to, and beginning in November 20192020 or until a property owner of a leased site consents to the sale-leaseback, the purchaser has the right to, demand that we repurchase one or more of the properties sold and leased back pursuant to the MSLA for an amount equal to the repurchase price. Repurchase prices are defined in each of the applicable leases and are generally the original purchase prices plus any accrued and unpaid rent. As of June 30, 2018, the repurchase prices for all properties under the MSLA excluding unpaid rent totaled approximately $28.8 million. Under the MSLA, the total sales price of properties we have sold and are leasing back at any point in time is limited to $75.0 million. As of June 30, 2018,2019, we may sell and lease back an additional approximately $46.2$75.0 million of our property and equipment under the MSLA.

Beginning in August 2018, we have finance lease obligations to finance certain equipment for our transportation fleet. The leases have a weighted average fixed annual interest rate of 5.6%, a five-year term and require monthly payments. As of June 30, 2019, the outstanding amount of the leases is approximately $37.2 million, of which $8.0 million is due within the next twelve months.

Financing of Beneficial Interests in Securitizations

In June 2019, we financed certain retained beneficial interests in securitizations through a secured borrowing facility whereby we sold such interests and agreed to repurchase them at the expiration of the facility for their fair value at that time. We have retained certain Beneficial Interests in Securitizations pursuant to our obligations as a sponsor under Risk Retention Rules.

As of June 30, 2019, we have pledged $15.2 million of our beneficial interests in securitizations as collateral under the repurchase agreement with an expected repurchase in February 2026. Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transaction. In the event of a decline in the fair value of the pledged collateral, the repurchase price of the pledged collateral will be increased by the amount of the decline.

As of June 30, 2019, we have recorded approximately $10.7 million in long-term debt, net of a current portion of approximately $4.5 million.

Finance Receivables

Our customers can obtain vehicle financing directly on our website. Historically, we have entered into various arrangements to sell the finance receivables we originate. Sales of receivables are a source of cash from operations and remove these loans from our balance sheet without recourse for their post-sale performance. In December 2016, we entered into a master purchase and sale agreement (the "Purchase"Master Purchase and Sale Agreement" or "MPSA") and a master transfer agreement (the "2016 Master Transfer Agreement") pursuant to which we sell finance receivables meeting certain underwriting criteria to certain third party purchasers,financing partners, including Ally Bank and Ally Financial (the "Ally Parties"). Through November 2017 under the Purchase and Sale AgreementMPSA and the 2016 Master Transfer Agreement, we could sell up to an aggregate of $375.0 million, and $292.2 million, respectively, in principal balances of finance receivables subject to adjustment as described in the respective agreements.

On November 3, 2017, we amended our Purchase and Sale AgreementMPSA to increase the aggregate amount of principal balances of finance receivables we can sell from $375.0 million to $1.5 billion. AlsoOn November 2, 2018, we amended the MPSA to, among other things and subject to the terms of the agreement, commit the purchaser to purchase up to a maximum of $1.25 billion of
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principal balances of finance receivables after the amendment date. Subsequently, on April 19, 2019, we amended the MPSA to, among other things and subject to the terms of the agreement, commit the purchaser to purchase up to a maximum of $1.0 billion of principal balances of finance receivables after the amendment date.

During the six months ended June 30, 2019 and 2018, we sold approximately $257.0 million and $308.8 million, respectively, in principal balances of finance receivables under the MPSA and had approximately $820.2 million of unused capacity as of June 30, 2019.

On November 3, 2017, we terminated the remaining capacity under the 2016 Master Transfer Agreement and replaced this facility by entering into a new master transfer agreement (the "2017 Master Transfer Agreement") with a third partypurchaser trust under which the third party hastrust committed to purchase up to an aggregate of approximately $357.1 million in principal balances of finance receivables. On November 2, 2018, we amended the 2017 Master Transfer Agreement to, among other things and subject to the terms of the agreement, increase and extend the trust's commitment to purchase finance receivables from us. The trust's available financing permits up to $454.5 million in principal balances of finance receivables to be purchased after the amendment date, and the trust's purchase commitment contemplates it securing up to three times the currently available financing in the aggregate.

On May 7, 2019, we purchased the certificate of the trust for $34.0 million, net of cash acquired. At the time of acquisition the trust assets included $139.7 million of finance receivables that we had previously sold to the trust under the 2017 Master Transfer Agreement, and its liabilities included $105.7 million in associated debt and other liabilities. In connection with the certificate purchase, we and Ally Bank entered into an Amended and Restated Loan and Security Agreement (the "A&R Loan and Security Agreement") pursuant to which Ally Bank agreed to provide a $350.0 million revolving credit facility (the "SART 2017-1 Credit Facility") to fund certain automotive finance receivables originated by us.

During the six months ended June 30, 2018,2019, prior to the acquisition of the certificate in the trust, we sold approximately $308.8$139.3 million in principal balances of finance receivables under the Purchase and Sale Agreement, and2017 Master Transfer Agreement. During the six months ended June 30, 2018, we sold approximately $184.4 million in principal balances of finance receivables under the 2017 Master Transfer Agreement. As of

During the six months ended June 30, 2018, there was approximately $847.6 million and $140.5 million of unused capacity2019, prior to the certificate purchase, we also purchased finance receivables that we previously sold to the purchaser trust under the Purchase and Sale Agreement and the 2017 Master Transfer Agreement for a total price of approximately $127.7 million and immediately resold such finance receivables into a securitization transaction. This transaction was entered into in connection with the securitization transaction and was entered into independently from the terms of the 2017 Master Transfer Agreement.

The total gain related to finance receivables sold to financing partners under the MPSA, the 2017 Master Transfer Agreement and to investors in securitization transactions was approximately $40.4 million and $12.4 million during the three months ended June 30, 2019 and 2018, respectively, and $59.6 million and $22.3 million during the six months ended June 30, 2019 and 2018, respectively.

Liquidity Upon Debt and Equity Offerings

On May 3, 2017, we completed an initial public offering and received $205.8 million in proceeds, net of underwriting discounts and commissions and offering costs. We used the net proceeds to purchase Class A Units of Carvana Group. Carvana Group used a portion of the proceeds to repay $35.0 million of outstanding borrowings plus accrued interest under the Verde Credit Facility. Carvana Group used the remaining net proceeds for working capital and general corporate purposes. On April 30, 2018, we completed a follow-on public offering of 6.6 million shares of our Class A common stock and received proceeds from the offering of approximately $172.3 million, net of underwriting discounts and commissions and offering expenses. We used the net proceeds to purchase Class A Units of Carvana Group, and Carvana Group used the net proceeds for working capital and general corporate purposes.
On May 24, 2019, we completed a public equity offering of 4.2 million shares of Class A common stock and received net proceeds from the offering of approximately $258.8 million, net of underwriting discounts and commissions and offering expenses. As part of the offering, we granted the underwriters a 30-day option to purchase all or part of approximately 0.6 million additional shares of Class A common stock. On June 20, 2019, the underwriters exercised their option in full for an additional $38.9 million in proceeds after offering expenses. We used the net proceeds for general corporate purposes including paying down the Floor Plan Facility.

In September 2018, we issued our Senior Notes and received approximately $342.5 million in proceeds, net of debt issuance costs. In May 2019, we issued additional Senior Notes and received approximately $246.2 million, net of debt issuance
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costs. We used the net proceeds to purchase Class A Non-Convertible Preferred Units of Carvana Group, and Carvana Group has been using the net proceeds for working capital and 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, 20182019 and 20172018 (in thousands):

Six Months Ended June 30,Six Months Ended June 30,
2018 2017 2019 2018 
Net cash used in operating activitiesNet cash used in operating activities$(179,485)$(61,291)Net cash used in operating activities$(294,834)$(179,485)
Net cash used in investing activitiesNet cash used in investing activities(80,095)(42,576)Net cash used in investing activities(87,029)(80,095)
Net cash provided by financing activitiesNet cash provided by financing activities290,005 209,189 Net cash provided by financing activities335,550 290,005 
Net decrease in cash, cash equivalents and restricted cash30,425 105,322 
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash(46,313)30,425 
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period187,123 49,450 Cash, cash equivalents and restricted cash at beginning of period88,709 187,123 
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period$217,548 $154,772 Cash, cash equivalents and restricted cash at end of period$42,396 $217,548 

Operating Activities

For the six months ended June 30, 2018,2019, net cash used in operating activities was $179.5$294.8 million, an increase of $118.2$115.3 million compared to net cash used in operating activities of $61.3$179.5 million for the six months ended June 30, 2017.2018. Significant changes impacting net cash used in operating activities comparing the six months ended June 30, 20182019 and 20172018 are as follows:

Our net loss was $146.7 million during the six months ended June 30, 2019, an increase of $42.7 million from a net loss of $103.9 million during the six months ended June 30, 2018 an increase of $26.6 million from a net loss of $77.3 million during the six months ended June 30, 2017 primarily due to an increase in selling, general and administrative expenses associated with expansion to additional markets and expanding our corporate infrastructure.

Net increase in vehicle inventory was $192.0 million during the six months ended June 30, 2019 compared to a net increase in vehicle inventory of $74.8 million during the six months ended June 30, 2018, compared to a net decrease in vehicle inventory of $11.7 million during the six months ended June 30, 2017, resulting in a $86.5$117.2 million increase in use of cash related to our efforts to increase and optimize our inventory levels.

• Net cash used related to originations and proceeds of finance receivables was $12.1 million during the six months ended June 30, 2018, compared to net proceeds of $8.1 million during the six months ended June 30, 2017 resulting in an increased use of cash of $20.2 million year over year. This is primarily due to the timing of originations and subsequent sales of finance receivables.

These increases in uses of cash are partially offset by net cash inflows associated withfrom originations, payments and proceeds of finance receivables of $43.4 million during the change in accounts payable and accrued liabilitiessix months ended June 30, 2019, compared to net cash outflows of $33.0$12.1 million during the six months ended June 30, 2018, as compareddue to a net cash inflowthe timing of $0.9 million during the six months ended June 30, 2017, resulting in an increase to cashoriginations and subsequent sales of $32.1 million year over year.finance receivables.

Investing Activities

Cash used in investing activities was $80.1$87.0 million and $42.6$80.1 million during the six months ended June 30, 20182019 and 2017,2018, respectively, an increase of $37.5$6.9 million. The increase primarily relates to the increase in purchases of property and equipment of $30.8$14.7 million, reflecting the expansion of our business operations into new markets and construction of new vending machines.machines and inspection and reconditioning centers.

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Financing Activities

Cash provided by financing activities was $290.0$335.6 million and $209.2$290.0 million during the six months ended June 30, 20182019 and 2017,2018, respectively, an increase of $80.8$45.5 million. The net increase primarily relates to the following financing activities:

Net proceeds from the issuance of Class A common stock in May and payments onJune 2019 of $297.6 million, compared to net proceeds from the Floor Plan Facility increasing by $440.6follow-on offering in April 2018 of $172.3 million, and $343.8 million, respectively, resulting in aincreased net increaseproceeds by $125.3 million.

Net proceeds from the issuance of the Senior Notes in May 2019 of $246.2 million.

Proceeds from other long-term debt, net of payments, increased by $34.7 million year over year, primarily due to sourcesentering into more sale leaseback transactions for property and equipment and entering into financing of cash of $96.8 million. The increasebeneficial interests in activity under our Floor Plan Facility is attributable to the increase in the amount of retail units sold to customerssecuritizations during the six months ended June 30, 2018 compared2019.

These increases in sources of cash are offset by a net increase to uses of cash of $360.9 million related to the short-term revolving facilities during the six months ended June 30, 20172019 as compared to June 30, 2018 as a result of increased payments on and the increase in our inventory balance year over year. The increase in activity is also partially due to our ability to make prepayments to the lender, which are held as principal payments, and subsequently re-borrow such amounts. Additionally, the increase in cash provided by financing activities relates to an increase of $22.7 million in proceeds from long-term debt, primarily associated with our sale lease-back transactions. These increases are offsetthe facilities by a decrease of $34.0 million in net proceeds to $172.3 from the follow-on offering in April 2018 compared to net proceeds of $206.3 million from the IPO in April 2017.$1.4 billion and $1.1 billion, respectively.
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Contractual Obligations and Commitments

We have not entered into any material contractual obligations or commitments outside of the ordinary course of business since the most recently ended fiscal year as disclosed in the header "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K.

Fair Value Measurements

We report money market securities, certain receivables, and beneficial interests in securitizations at fair value. See Note 1517 — Fair Value of Financial Instruments, included in Part I, Item 1, Unaudited Condensed and Consolidated Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Off-Balance Sheet Arrangements

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 receivables 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 8 — Securitizations and Variable Interest Entities, included in Part I, Item 1, Unaudited Condensed Consolidated Financial Statements, of this Quarterly Report on Form 10-Q, for further discussion regarding our transactions with unconsolidated variable interest entities.

Except as discussed above, we did not have any off-balance sheet arrangements as of June 30, 2018.

JOBS Act

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.

The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period is irrevocable.2019.

Critical Accounting Policies

Refer to Note 2 — Summary of the Notes to Condensed Consolidated Financial StatementsSignificant Accounting Policies, included in Part 1, Item 1, Unaudited Condensed Consolidated Financial Statements, of this Quarterly Report on Form 10-Q for accounting pronouncements adoptedand material changes to our critical accounting policies since December 31, 2017.2018. There have been no other material changes to our critical accounting policies and use of 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.

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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:

future financial position;

business strategy;

budgets, projected costs and plans;

future industry growth;

financing sources;

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 history of losses and ability to maintain profitability in the future;

our ability to effectively manage our rapid growth;

our ability to maintain customer service quality and reputational integrity and enhance our brand;

our limited operating history;

the seasonal and other fluctuations in our quarterly operating results;

our relationship with DriveTime;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 ability to sell and generate gains on the sale of automotive finance receivables;

our dependence on the sale of automotive finance receivables for a substantial portion of our gross profits;

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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;

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our ability to successfully market and brand our business;

our reliance on Internetinternet searches to drive traffic to our website;

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;

our ability to address the shift to mobile device technology by our customers;

risks related to the larger automotive ecosystem;

the geographic concentration where we provide services and recondition and store vehicle inventory;

our ability to obtain affordable inventory insurance;

our ability to raise additional capital;

our ability to maintain adequate relationships with the third partieslenders that finance our vehicle inventory purchases;

the representations we make in 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;

the risks associated with the construction and operation of our inspection and reconditioning centers, fulfillment centershubs and vending machines, including our dependence on one supplier for construction and maintenance for our vending machines;

our ability to finance vending machines and inspection and reconditioning centers;

our ability to protect the personal information and other data that we collect, process and store;

disruptions in availability and functionality of our website;

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;

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our dependence on key personnel to operate our business;

the resources required to comply with public company obligations;

the diversion of management’s attention and other disruptions associated with potential future acquisitions;

risks relating to the ability ofrestrictions that could limit the flexibility in operating our Class A Convertible Preferred Stock holder to influencebusiness imposed by the covenants contained in the indenture governing our business;senior unsecured notes;

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the legal proceedings to which we may be subject in the ordinary course of business;

potential errors in our retail installment contracts with our customers that could render them unenforceable;

risks relating to our corporate structure and tax receivable agreements; 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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our quantitative and qualitative disclosures about market risk 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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officerthe chief executive officer and Chief Financial Officer, wechief financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation,evaluation, our Chief Executive Officerchief executive officer and Chief Financial Officerchief financial officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officerchief executive officer and Chief Financial Officer,chief financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the six months ended June 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity and capital resources.

Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our most recent Annual Report on Form 10-K, except as disclosed under the heading "Risk Factors" in our Quarterly Report on Form 10-Q filed on May 9, 2018.

8, 2019,

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

There were no unregistered sales of equity during the six months ended June 30, 2018,2019, except as otherwise previously reported.

During the six months ended June 30, 2018,2019, pursuant to the terms of the Exchange Agreement entered into in connection with our IPO, certain LLC Unitholders exchanged approximately 4.24.5 million LLC Units and approximately 3.23.0 million shares of Class B common stock for approximately 3.33.6 million newly-issued shares of Class A common stock. These shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

OnContribution Agreement

In connection with an ongoing commitment from the Company's Chief Executive Officer, Ernest Garcia III, related to the previously announced 100k Milestone Gift program, the Company and Mr. Garcia entered into a contribution agreement on August 7, 2018,6, 2019, under which Mr. Garcia will contribute to us 59,400 shares of our Class A common stock that he individually owns, at no charge. The contribution will take place on August 9, 2019 and is intended to fund restricted stock unit awards to certain employees of Carvana, LLC upon their satisfying applicable employment tenure requirements. Although we purchased finance receivablesdo not expect Mr. Garcia to incur any tax obligations related to the contribution, we have indemnified Mr. Garcia from any such obligations that we previously sold to an unrelated party under the 2017 Master Transfermay arise. The Contribution Agreement for a price of approximately $253.0 million and immediately resold such finance receivables to an unrelated party for the same price under a new transfer agreement. We received a fee of approximately $4.0 million for arranging and participating in the transaction. The new transfer agreement is filed herewith as Exhibit 10.1.


4958


ITEM 6. EXHIBITS


Exhibit No.Description
Description4.1
10.4 *W
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.

* Certain portions of the exhibit (indicated by "[***]") have been omitted as the Registrant has determined (i) the omitted information is not material and (ii) the omitted information would likely cause competitive harm to the Registrant if publicly disclosed.

W

All schedules and exhibits to the Amended and Restated Loan and Security Agreement have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. Registrant will furnish copies of such schedules and exhibits to the Securities and Exchange Commission upon request by the Commission; provided, however, that the Registrant may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules and exhibits so furnished.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:August 8, 20187, 2019Carvana Co.
(Registrant)
By:/s/ Mark Jenkins
Mark Jenkins
Chief Financial Officer
(On behalf of the Registrant and as Principal Financial Officer)


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