Carvana posts improved net income in Q3; revenue down 18%

Carvana Co. said Thursday its continued focus in the third quarter on operating more efficiently and working to boost per-vehicle profits after a challenging 2022 yielded results including record net income in the quarter ending Sept. 30.

The Tempe, Ariz., online used-vehicle retailer reported net income of $741 million, a record for the quarter, compared with a $508 million net loss in the year- earlier quarter. Its third-quarter net income was significantly aided by a nonrecurring $878 million gain on debt extinguishment from a corporate debt exchange. Revenue fell 18 percent to $2.8 billion.

Carvana reported $148 million in adjusted earnings before interest, taxes, depreciation and amortization, which included $40 million in nonrecurring benefits.

Carvana's focus on improving unit economics over the past several quarters "led to Q3 results that clearly validate the differentiation and profitability potential of our business model," CEO Ernie Garcia said in a statement.

Shares of Carvana rose nearly 6 percent to $31.70 in after-hours trading Thursday.

Carvana retailed 80,987 used vehicles, down 21 percent from the year-earlier period but up 5.8 percent from the second quarter. It reported total gross profit per vehicle of $5,952, up 70 percent from the year-earlier quarter.

"We're effectively setting up the company to be kind of neutral to industry volume changes, whether that's seasonality or otherwise," Garcia said during the company's earnings call Thursday. "Q3 was great from a unit perspective. I think that was largely driven by seasonality."

Carvana will keep the settings of the business fairly neutral, Garcia said, as it focuses on the second part of a three-step plan to drive positive free cash flow.

The first step entailed achieving positive adjusted EBITDA, according to Carvana's latest letter to shareholders. The second and third steps are achieving positive unit economics and eventually returning to growth.

Garcia said Carvana anticipates a seasonal decrease in vehicles sold in the fourth quarter. The letter to shareholders said industry patterns, in addition to seasonal ones, would drive a quarter-over-quarter decline.

"Most importantly, the unit range that we expect is very much in line with what we've seen over the last several quarters," Garcia said. "We think that that's a reasonable unit range for us to continue to make gains as we power through Step 2 and get ready for Step 3."
 

Net revenue: $2.8 billion, down 18 percent from a year earlier

Net income: $741 million, an improvement from a loss of $508 million a year earlier; the figure factors in an $878 million gain on debt extinguishment

Adjusted EBITDA: $148 million, up from a loss of $186 million in the year-earlier period

Retail vehicles sold: 80,987, down 21 percent

Total gross profit per vehicle: $5,952, up 70 percent