Carvana : Q3 2023 Letter to Shareholders

Dear Shareholders,

Since Carvana's founding, we have had unwavering conviction about the profitability of our online sales model. In Q2 and Q3, our results resoundingly validated this conviction. In Q2 and Q3 combined, we generated $636 million of net income1 and more than $300 million of Adjusted EBITDA, which includes ~$110 million of non-recurring items.

Beneath the headline metrics, we believe the story is even stronger. First, we generated these results despite carrying the costs of significant excess capacity for future growth. In Q3, we demonstrated our ability to leverage these costs by decreasing SG&A expense per retail unit sold by more than $400 while increasing retail units by 6% sequentially.

Second, we achieved these results despite a challenging used vehicle industry environment. Used vehicle prices continue to be elevated, and interest rates remain at multi-decade highs. Despite these challenges, Carvana's profitability in Q3 reached an all-time high.

Our Q3 results highlight the significant progress we are making on our plan to drive positive free cash flow. As discussed previously, our plan has three steps:

1. Drive the business to positive Adjusted EBITDA.
2. Drive the business to significant Adjusted EBITDA per unit (also referred to as significant positive unit economics).
3. After completing Steps 1 and 2, return to growth.

In the second quarter, we completed Step 1. In the third quarter, we made significant progress in Step 2, reaching positive net income, delivering another quarter of exceptional Adjusted EBITDA results, demonstrating meaningful operating leverage, and continuing to make unit economic gains.

The impact of our efforts is evident in our results. For example, since Q1, we have reduced non-vehicle retail costs of sales by ~$600 per unit and operations expenses by ~$400 per unit, a nearly $1,000 gain in unit economics in just two quarters.

With the significant positive unit economics we are currently achieving, a natural question to ask is "When is the time to transition to Step 3 and return to growth"? To answer that question, we look at the opportunity still ahead of us in Step 2. We have built tremendous momentum in the business around many foundational initiatives that increase operating efficiency and seed the ground for profitable growth. As these initiatives come closer to maturation, we will be ready to shift to Step 3.

Our customers love our offering. Our team and execution are stronger than ever. And we still have 99% of the market to address. We have powerful infrastructure on-hand to support significant growth. Our opportunity remains as enormous as it has always been. We are firmly on the path to selling millions of cars per year and to becoming the largest and most profitable automotive retailer.

Summary of Q3 2023 Results

Q3 2023 Financial Results: All financial comparisons stated below are versus Q3 2022, unless otherwise noted. Complete financial tables appear at the end of this letter.

• Retail units sold totaled 80,987, a decrease of 21%
• Revenue totaled $2.773 billion, a decrease of 18%
• Total gross profit was $482 million, an increase of 34%
• Total gross profit per unit ("GPU") was $5,952, an increase of $2,452

• Throughout this letter, we mention third quarter positive net income due to SEC disclosure rules that require equal or greater prominence of GAAP metrics with non-GAAP metrics such as Adjusted EBITDA. Our significant Q3 positive net income was assisted by a gain on debt extinguishment from our Q3 exchange offer, which is a non-recurring benefit. We cannot guarantee we will achieve positive income in future periods.

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• Non-GAAPTotal GPU was $6,396, an increase of $2,526

• • GAAP and Non-GAAP Total GPU included ~$500 of non-recurring benefits, which primarily consisted of selling and holding a higher-than-normalized volume of loans
• Net income margin was 26.7%, a sequential improvement of 30.2%
• • Net income totaled $741 million and benefitted by ~$878 million gain on debt extinguishment as a result of our corporate debt exchange2
• Adjusted EBITDA margin was 5.3%, a sequential improvement of 0.1%
• • Adjusted EBITDA totaled $148 million, including ~$40 million of non-recurring benefits2
• Basic and diluted earnings per Class A share were $7.05 and $3.60, respectively, based on 111 million and 206 million shares of Class A common stock outstanding, respectively

Other Results and Recent Events:

• On September 1, 2023, we closed the previously announced corporate debt exchange with approximately 96.4% of noteholders agreeing to exchange $5.520 billion of our unsecured notes for cash or new senior secured notes, reducing total debt by over $1.325 billion, extending maturities, and decreasing required cash interest payments by more than $455 million per year for the next two years.
• On November 1, 2023, we extended our Floor Plan Facility with Ally to April 2025.
• In Q3, we completed four securitizations, selling an aggregate of over $1.0 billion of loan principal.

Fourth Quarter Outlook

Our third quarter results demonstrated continued significant progress on our path to profitability. We achieved positive net income, and for the second consecutive quarter, realized significant positive Adjusted EBITDA both with and without benefits from non-recurring items.

While the macroeconomic and industry environment continues to be uncertain, looking toward the fourth quarter of 2023, we expect the following as long as the environment remains stable:

• A sequential decline in retail units sold, driven primarily by industry and seasonal patterns,
• Non-GAAPTotal GPU above $5,000 for the third consecutive quarter3, and
• Positive Adjusted EBITDA for the third consecutive quarter3.

Looking toward 2024, we expect to drive significant Total GPU and Adjusted EBITDA3 for the second consecutive year.

Our Three-Step Plan

In our Q4 2022 shareholder letter we introduced our three-step plan for driving positive free cash flow. Step 1 (return to positive Adjusted EBITDA, achieved in Q2 2023) was primarily focused on right-sizingour staffing, advertising, and inventory for the current economic environment.

Step 2 (drive significant Adjusted EBITDA per unit, our current focus) is primarily focused on driving fundamental operating efficiencyacross the business. In Step 2, we are maintaining relatively stable levels of staffing, advertising, and inventory while we focus on numerous technology, process, and product initiatives that bolster

• Net income and Adjusted EBITDA both benefited from ~$40 million of non-recurring items, which primarily consisted of selling and holding a higher-than-normalized volume of loans.
  3 In order to clearly demonstrate our progress and highlight the most meaningful drivers within our business, we continue to use forecasted Non-GAAP financial measures, including forecasted Non-GAAP Total GPU and Adjusted EBITDA, as we look toward Q4 2023 and beyond. We have not provided a quantitative reconciliation of forecasted GAAP measures to forecasted Non-GAAP measures within this communication because we are unable, without making unreasonable efforts, to calculate one-time or restructuring expenses. These items could materially affect the computation of forward-looking GAAP GPU and Net Income.

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unit economics and we expect will position us well for future growth.

Step 3 (return to growth) will be focused on long-termprofitable growth, starting from our current base of ~1% of the U.S. used vehicle retail market. In Step 3 we will shift our management and product development focus to growth initiatives while growing inventory, advertising, and staffing to drive the flywheel of growth that we demonstrated from 2013 through 2021.

Why We Are Excited About Step 2

Our Q3 results demonstrate significant gains from our Step 2 focus on operating efficiency. The charts below, which can also be found in the "Cost Structure Detail" deck on our Investor Relations website, illustrate the exceptional progress we are making in two key drivers of variable unit economics: retail cost of sales and operations expenses per retail unit sold.

Retail Cost of Sales Efficiency

Our Step 2 focus has resulted in significant and sustainable improvements in retail cost of sales, which has contributed to our strength in Retail GPU over the last few quarters.

Operations Expense Efficiency

Our Step 2 focus is also showing meaningful gains in operations expenses per retail unit sold.4

• Operations expenses include the fulfillment, customer service, and transaction expenses associated with completing retail and wholesale vehicle sales (Carvana), and wholesale marketplace sales (ADESA). Operations expenses tend to be more variable in nature, although they also have semi-fixed components, resulting from, for example, operations management payroll and under-utilization of logistics haulers.

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Why We Are Excited About Step 3

While we remain focused on Step 2 today, we see a clear opportunity to demonstrate significant operating leverage when we return to growth in Step 3 due to the substantial volume supported by our existing infrastructure.

Significant Excess Capacity

Our existing infrastructure can handle multiples of current production and fulfillment needs, which unlocks a significant opportunity for efficient and profitable growth. The graph below illustrates our current infrastructure utilization as a percent of maximum annual capacity.

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Overhead Expense Leverage

Our substantial capacity also means we are carrying significantly more than a normalized level of overhead expenses.5 This presents a large opportunity for operating leverage when we return to growth in Step 3.

Management Objectives

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

• Net Income margin in Q3 2023 benefited from a one-time gain on debt extinguishment of ~$878 million.

• Overhead expenses include facilities, corporate, and technology expenses associated with supporting retail and wholesale vehicle sales (Carvana) and wholesale marketplace sales (ADESA). Overhead expenses tend to be more fixed in nature, although they may have semi-variable components, resulting from, for example,

certain corporate payroll and technology expenses.	5

• Adjusted EBITDA is defined as net income (loss) plus income tax provision, interest expense, other (income) expense, net, depreciation and amortization in cost of sales and SG&A, goodwill impairment, share-based compensation including the CEO Milestone Gift in cost of sales and SG&A, and restructuring costs, minus revenue related to our Root warrants and gain on debt extinguishment. For additional information on Adjusted EBITDA and other Non-GAAP financial metrics referenced in this letter, please see the financial tables at the end of this letter and our Q3 2023 supplemental financial tables posted on our investor relations website.

• EBITDA Margin is calculated as GAAP Net Income (Loss) plus income tax expense, interest expense, and depreciation and amortization, divided by revenues.

Objective #1: Grow Retail Units and Revenue

Retail units sold totaled 80,987 in Q3, a sequential increase of 6%. Revenue was $2.773 billion in Q3, a sequential decrease of 7%, primarily due to lower retail average selling prices and a reduction in wholesale vehicle revenue relative to retail revenue. While our recent efficiency initiatives have created a headwind to unit growth in recent quarters, our Q3 2023 retail units sold volume and total revenue generated a 5-year compound annual growth rate (CAGR) of 26% and 39%, respectively.

Objective #2: Increase Total Gross Profit Per Unit

Our Total GPU in Q3 2023 was primarily driven by substantial fundamental improvements in the operations of the business.

For Q3 2023

• Total

• Total GPU was $5,952 vs. $3,500 in Q3 2022 and $6,520 in Q2 2023.
• Non-GAAPTotal GPU was $6,396 vs. $3,870 in Q3 2022 and $7,030 in Q2 2023.6

• Consistent with the last three quarters of financial reporting, we are presenting two metrics for total GPU and for each GPU component: GAAP gross profit per unit and non-GAAP gross profit per unit, which excludes the impacts of depreciation and amortization, share-based compensation, Root warrant revenue, and restructuring costs. For additional information, please see our Q3 2023 supplemental financial tables.

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• Total GPU included an aggregate ~$500 per retail unit benefit from non-recurring items, including ~$400 from selling and holding a higher-than-normalized volume of loans and ~$100 from inventory allowance adjustment.7

• Retail

• • Retail GPU was $2,692 vs. $1,131 in Q3 2022 and $2,666 in Q2 2023.
  • Non-GAAPRetail GPU was $2,877 vs. $1,268 in Q3 2022 and $2,862 in Q2 2023.
  • The sequential increase in Retail GPU was primarily driven by lower average days to sale, lower reconditioning and inbound transport costs, and wider spreads between wholesale and retail market prices, partially offset by higher retail depreciation rates and a smaller inventory allowance adjustment benefit compared to Q2.
  • Year-over-yearchanges in Retail GPU were primarily driven by the same factors.
• Wholesale
• • Wholesale GPU was $618 vs. $448 in Q3 20228 and $849 in Q2 2023.
  • Non-GAAPWholesale GPU was $951 vs. $681 in Q3 2022 and $1,228 in Q2 2023.
  • Wholesale Vehicle

• • • Wholesale Vehicle GPU was $347 vs. $321 in Q3 2022 and $509 in Q2 2023.
    • Non-GAAPWholesale Vehicle GPU was $372 vs. $340 in Q3 2022 and $548 in Q2 2023.
    • Sequential changes in Wholesale Vehicle GPU were primarily driven by higher wholesale market depreciation rates in Q3 compared to Q2 and a lower ratio of wholesale units sold to retail units sold.
    • Year-over-yearimprovement was primarily driven by a higher ratio of wholesale units sold to retail units sold and lower inbound transport costs.
  • Wholesale Marketplace
  • • Wholesale Marketplace GPU was $271 vs. $127 in Q3 2022 and $340 in Q2 2023.
    • Non-GAAPWholesale Marketplace GPU was $579 vs. $341 in Q3 2022 and $680 in Q2 2023.
    • Sequential changes in Wholesale Marketplace GPU were primarily driven by seasonally lower volume, while year-over-year changes were primarily driven by higher volume in Q3 2023 compared to Q3 2022.
• Other

• Other GPU was $2,642 vs. $1,921 in Q3 2022 and $3,005 in Q2 2023.
• Non-GAAPOther GPU was $2,568 vs. $1,921 in Q3 2022 and $2,940 in Q2 2023.
• Sequential changes in Other GPU were impacted by the volume of loans held and sold in Q2 and Q3. We estimate that a higher-than-normalized volume of loans held and sold increased Other GPU by ~$650 in Q2 and ~$400 in Q3, other things being equal. Aside from these impacts, Other GPU in Q3 was primarily impacted by lower origination interest rates relative to benchmark interest rates, partially offset by lower credit spreads.
• Year-over-yearimprovement was primarily driven by the higher volume of loans held and sold relative to retail units sold volume in Q3 2023 as well as higher finance penetration rates and higher origination interest rates relative to benchmark interest rates, partially offset by wider market credit spreads.
• For additional details on our finance platform strategy in FY 2024, please see Appendix II.

• For additional details on non-recurring items, please see the Appendix I.

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

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Objective #3: Demonstrate Operating Leverage

On a sequential basis, Q3 2023 net income margin and Adjusted EBITDA margin improved by 30.2% and 0.1%, respectively. On a year-over-year basis Q3 2023 net loss margin and Adjusted EBITDA margin improved by 41.7% and 10.8%, respectively, each driven by our company-wide focus on improving profitability and reducing SG&A expenses as described throughout this letter and net income margin benefitting from gains on debt extinguishment as a result of our corporate debt exchange.

For Q3 2023, as a percentage of revenue:

• Several components of SG&A increased sequentially. Total SG&A increased by 0.4% and non-advertising SG&A increased by 0.3%. Compensation and benefits increased by 0.3%, advertising and logistics both increased by 0.1%, and market occupancy and other SG&A were both flat.
• Year-over-year,all components of SG&A improved. Total SG&A decreased by 3.8% and non-advertising SG&A decreased by 2.3%. Compensation and benefits decreased 0.8%, advertising decreased by 1.5%, logistics and market occupancy decreased by 0.8%, and other SG&A decreased by 0.8%.

For additional details on SG&A leverage please see our discussion earlier in this letter.

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Summary

We are proud of the results we posted this quarter. Thinking back to just one year ago, this speed would have been very difficult for most to imagine. The progress has been made because of the incredible work of our incredible team.

And that team remains hard at work today. While our current focus remains on step 2 of our plan, the people inside of Carvana know that is not the end goal. The end goal is to sell millions of cars and to become the largest and most profitable automotive retailer. Based on the progress outlined here, we believe we are well on our way.

The march continues,

Ernie Garcia, III, Chairman and CEO

Mark Jenkins, CFO

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