Carvana Co. · NYSE:CVNA
Carvana — Investor Day (November 2018)
92 slides from Carvana's investor day presentation, Nov 29, 2018
Slide 1: Welcome to Carvana's Analyst Day
Slide 2: Safe Harbor
OCARVANA SAFE HARBOR Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Carvana’s current expectations and projections with respect to, among other thing
Slide 3: Intro to Analyst Day
Slide 4: Retail Units Sold, Total Gross Profit per Unit, EBITDA Margin
RETAIL UNITS SOLD TOTAL GROSS PROFIT PER UNIT EBITDA MARGIN
Slide 5: Results footnote
(1) (1) (1) Excludes the CEO’s 100K Milestone Gift in Q3 2018.
Slide 6: Carvana Analyst Day 2018
OCARVANA CARVANA ANALYST DAY 2018 Dan Gill Mark Jenkins Ernie Garcia Chief Product Officer Chief Financial Officer Chief Executive Officer a, fs
Slide 7: Takeaways from the Day
OCARVANA CARVANA ANALYST DAY 2018 TAKEAWAYS FROM THE DAY: Ss Q &® G WE ALWAYS START WITH THE CUSTOMER WE HAVE GREAT PEOPLE WE ARE AN AMBITIOUS COMPANY E TUNITY TO AN ENORMOUS & VERY PROPITABLE| BUSINESS
Slide 8: Leading with Technology
Slide 9: Standing Out in Retail
OCARVANA STANDING OUT IN RETAIL -~@ | =r 255722222 a Experience Selection pf if if; \ \ \ YN x Cc oO EEA eee eee eee
Slide 10: Differentiation in Auto Retail Is Hard
OCARVANA DIFFERENTIATION IN AUTO RETAIL IS HARD The same: vehicle sources ileal 3rd party software/systems 7, merchandising/fulfillment 3rd party lending {op E labor/cost structure OEM compliance hurdles means the same experience, selection, and value.
Slide 11: All of these capabilities are unlocked and scaled via technology
All of these capabilities are unlocked and scaled via technology
Slide 12: Clayton Christensen quote on integrated experiences
Creating the right experiences, and then integrating around them to solve a job, is critical for competitive advantage. That's because while competitors may attempt to copy products, it's difficult for them to copy experiences that are well integrated into your company's processes. Clayton Christens
Slide 13: Transparency & Simplicity
TRANSPARENCY & SIMPLICITY Best Experience means: * Intuitive, transparent, simple, fast, self-service tools GET PRE-QUALIFIED FOR AN AUTO LOAN IN 2 MINUTES, @ carvana x O@CARVANA
Slide 14: Surprise and Delight
OCARVANA SURPRISE AND DELIGHT Best Experience means: * Intuitive, transparent, simple, fast, self-service tools * Shareable moments that inspire people to tell their friends [> —_=> o__,
Slide 15: Enabling Exceptional Service
OCARVANA ENABLING EXCEPTIONAL SERVICE Best Experience means: * Intuitive, transparent, simple, fast, self-service tools * Shareable moments that inspire people to tell their friends * No-pressure driveway deliveries where we can sell cars, without being car salesmen [> —_=> =~
Slide 16: Best Experience
Chevrolet Camaro SS Convertible 2D $23,400 7 This vehicle is currently not available for purchase. DDS oo PHOTOS BUILD MY DEAL
Slide 17: Best Experience
ABOUTCARVANA ¥ — HOWITWORKS SUPPORT ¥ QXCARVANA —seancit cars SELUTRADE FINANCING + © A sustin 2016 CHEVROLET $32,750 =e CAMARO ’ | cesar | EXPLORE \ HIGHLIGHTS VEHICLE DETAILS = MAKEITYOURS —_—_150 POINT INSPECTION
Slide 18: Best Selection
@CARVANA BEST SELECTION What was the reason you purchased a car at a dealership and not Carvana? | did not understand what Carvana does | did not find the car | was looking for | was not happy with my financing terms | was not happy with my trade-in value | am not comfortable buying a car online — 0
Slide 19: 14,000+ cars to choose from
• 14,000+ cars to choose from, available in a timely, predictable manner. Days, not weeks. Inventory available on-site as of November 26, 2018.
Slide 20: Selection, delivery and 7 day test-own
• 14,000+ cars to choose from, available in a timely, predictable manner. Days, not weeks. • Brought to you, protected by a 7 day test-own, and no penalties or restocking fees. Inventory available on-site as of November 26, 2018.
Slide 21: Selection, delivery and accurate descriptions
• 14,000+ cars to choose from, available in a timely, predictable manner. Days, not weeks. • Brought to you, protected by a 7 day test-own, and no penalties or restocking fees • Accurately described and easy to compare. Inventory available on-site as of November 26, 2018.
Slide 22: The Spearfisherman
RVANA THE SPEARFISHERMAN MAKE & MODEL YEAR MILEAGE sor r ping 38,100 || zm e700 see PRICE FINANCE FEATURES cotor 22
Slide 23: Real-Time Personalization
REAL-TIME PERSONALIZATION RESULTS: 14,275 [resis an [amasen | semnesm | rete | [ccncasen } cen on} [reas | sukoam [wieasas | vase] . MOEN AL ECOMMENOED ~ MAKE & MODEL a mal rid MILEAGE \ \ sor Tire Feel 38,100 || mer 28,700 || 2zEew 29,400 PRICE FINANCE FEATURES coLoR cing ters ness edi 23
Slide 24: Best Value
BEST VALUE OCARVANA Self-service transactions, and centralization of labor means our variable cost structure can be significantly lower at scale. Vehicle Journey Dealership Carvana Enabling Technology Purchasing Car buyer (often in-lane) Automated, Centralized Machine learning, Algo decisioning Tran
Slide 25: Reducing variable costs
• Intense focus on reducing variable costs via self-service tooling, automation, and data obsession
Slide 26: Vertically integrated financing and ancillary products
• Intense focus on reducing variable costs via self-service tooling, automation, and data obsession • Vertically integrated financing and ancillary products to generate incremental GPU
Slide 27: Scalable customer acquisition
• Intense focus on reducing variable costs via self-service tooling, automation, and data obsession • Vertically integrated financing and ancillary products to generate incremental GPU • Scalable customer acquisition via a national brand and Online 2 Online capabilities
Slide 28: Cost structure and customer acquisition
• Intense focus on reducing variable costs via self-service tooling, automation, and data obsession • Vertically integrated financing and ancillary products to generate incremental GPU • Scalable customer acquisition via a national brand and Online 2 Online capabilities
Slide 29: Cost structure and customer acquisition
• Intense focus on reducing variable costs via self-service tooling, automation, and data obsession • Vertically integrated financing and ancillary products to generate incremental GPU • Scalable customer acquisition via a national brand and Online 2 Online capabilities
Slide 30: Sharing structural advantages with customers
• Intense focus on reducing variable costs via self-service tooling, automation, and data obsession • Vertically integrated financing and ancillary products to generate incremental GPU • Scalable customer acquisition via a national brand and Online 2 Online capabilities • The sum is that we are able
Slide 31: Technology teams and former founder/CEOs
• 32+ Technology Teams, each with defined missions, systems ownership, isolated KPIs, and resources needed to autonomously pursue their goals • 11 former Founder/CEOs • All mildly embarrassed by the current state of things with a roadmap many years long...
Slide 32: Long-Term Model
Slide 33: Question: Largest or most profitable?
@CARVANA QUESTION Q: Does Carvana want to be the largest automotive retailer or the most profitable? A: Both. E-Commerce > New Opportunities
Slide 34: Goals for Today
@CARVANA GOALS FOR TODAY Long-term total GPU goals * Deep dive on buying from customers * Deep dive on financing opportunities * Other opportunities Long-term cost structure goals * Key drivers for compensation & benefits, advertising, logistics & market occupancy, and other SG&A Long-term financial
Slide 35: Long-Term GPU Goals
LONG-TERM GPU GOALS 1. Buying cars from customers 2. Financing opportunities 3. Other GPU opportunities OCARVANA
Slide 36: A Better Way to Sell a Car
OCARVANA A BETTER WAY TO SELL A CAR Simple Customer inputs license plate or VIN and answers a few questions Automated CAR WoRTH? OD cifcal intelligence algorithms determine offer for the customer in real-time Convenient 2015 Nissan Versa SV Sedan We pick up the car the car using our last-mile delive
Slide 37: Acquisition Channels and Disposition Channels
Acquisition Channels Disposition Channels
Slide 38: Used Industry Leader Profit per Unit Goal
Used Industry Leader 38 – 52% Profit per Unit Goal $500 – 1,000 Total GPU Contribution Goal $200 – 500
Slide 39: Wholesale to retail unit ratio and GPU goals
Used Industry Leader 55 – 65% Ratio of Wholesale Units to Retail Units Profit per Unit Goal $500 – 1,000 Total GPU Contribution Goal $250 – 650
Slide 40: Drivers of customer buying improvements
Increased customer awareness Scalable technology and processes Vehicle data and bidding optimization Website testing and optimization Disposition process optimization
Slide 41: Long-Term GPU Goals
1. Buying cars from customers 2. Financing opportunities 3. Other GPU opportunities
Slide 42: Participants in auto financing
1. Dealers • Acquire the customer; ensure vehicle quality; collect loan information and documentation for lenders 2. Lenders (Banks, Credit Unions, Finance Companies) • Underwrite the loan with credit scoring, pricing, and verifications algorithms; service the loan; arrange funding by investors 3. I
Slide 43: Traditional dealer financing structure
Lender Investor Lender Investor Dealer Lender Investor Lender Investor This diagram is an illustrative simplification. In some cases, lenders may also play the role of investors by holding their loans until maturity, as is often the case with banks and credit unions. In other cases, lenders may reta
Slide 44: In-house lender structure
Investor In-House Lender Investor Dealer Lender Investor Lender Investor This diagram is an illustrative simplification. In some cases, lenders may also play the role of investors by holding their loans until maturity, as is often the case with banks and credit unions. In other cases, lenders, inclu
Slide 45: Vertically integrated dealer and lending platform
Investor Investor Vertically-Integrated Dealer and Lending Platform Investor Investor This diagram is an illustrative simplification. In some cases, a vertically-integrated dealer-lender may also play the role of investor by retaining a portion of the loans they sell to investors.
Slide 46: A Better Way to Finance a Car
OCARVANA A BETTER WAY TO FINANCE A CAR W @ carvana GET PRE-QUALIFIED FOR AN AUTO LOAN IN 2 MINUTES fl Noimpact to your eredit score! INFORMATION 2. ACCOUNT PERSONAL INFORMATION 0 Simple Customer fills out a short application form on our website Automated We leverage state-of-the-art data and artific
Slide 47: Financing Benefits of Vertical Integration
FINANCING BENEFITS OF VERTICAL INTEGRATION Lower Costs No Dealer Management Costs Vertical integration reduces sales and management overhead costs Automation of Underwriting Tasks Single technology platform and process facilitates automation OCARVANA Better Loans Certified Vehicle Quality 150-point
Slide 48: Lower prices, payments and LTV
Lower retail prices Lower monthly payments Lower retail prices Lower loan-to-value ratios (LTV) Lower monthly payments + Lower LTVs Better Performance
Slide 49: Securitization market transactions vs. Carvana
Securitization Market Transactions Carvana Each black dot in the chart represents an automotive securitization market transaction completed in 2018. The black line is a best-fit line of the individual transactions in the chart. The blue line represents the historical and current best estimates of
Slide 50: Long-term goal: reduce cost of funds by 175 to 250 bps
Estimated Funding Cost (spread over benchmark) Long-term goal: Reduce cost of funds by 175 to 250 bps Both seasoned issuer cost of funds based on weighted average cost of debt from 2018 securitization transactions and estimated cost of equity from public filings. Spreads are over the applicable benc
Slide 51: Example impact of 100 bps improvement in cost of funds
Example impact of a 100 bps improvement in cost of funds: • Example loan size = $18,000 • Example weighted average life of loan = 2.3 years • Increase in loan value = 18,000 x 2.3 x 1.0% = $414/loan • Improvement in total GPU = $414/loan x 70-75% = $290-310/unit
Slide 52: Long-Term GPU Goals
1. Buying cars from customers 2. Financing opportunities 3. Other GPU opportunities
Slide 53: Other GPU opportunities
Reduce average days to sale 125 Improve utilization of IRCs and logistics network 115 114 109 107 Increase attachment of VSC and GAP products 105 105 105 97 97 Add new ancillary products 95 95 93 93 92 89 85 85 83 75 72 70 66 65 63 55 45
Slide 54: Total GPU goal
(1) (1) Excludes the CEO’s 100K Milestone Gift in Q3 2018.
Slide 55: Lower long-term cost structure of online model
We believe our online model has a lower long-term cost structure than the traditional brick-and-mortar model Customer self-service Vertical integration Automation Real estate efficiency Centralization Scale
Slide 56: Compensation, fulfillment and customer service goal
Long-term goal: 2.25 – 2.75% of revenue 10.2% Key Drivers 8.9% Fulfillment & Customer Service (~4/5th in LT) Leverage in logistics and last-mile delivery (1) 6.5% network and automation of manual tasks Technology & Corporate (~1/5th in LT) Leverage technology investment and corporate 2.25 – 2.75% ov
Slide 57: Advertising goal
Long-term goal: 1.0 – 1.5% of revenue Key Drivers Leverage in existing markets AdEx per unit has historically declined in existing markets with accumulated awareness and word of mouth Lower AdEx per unit in new markets Newer market cohorts are launching with lower AdEx per unit than previous market
Slide 58: Logistics and market occupancy goal
Long-term goal: 1.0 – 1.5% of revenue 350 Simulated Average Miles to Nearest IRC Key Drivers Average Distance 300 Adding IRC’s over time reduces the distance between our cars and 250 Simulated impact of adding our customers more IRCs over time 200 Retail Utilization 150 As new markets scale, utiliza
Slide 59: Other SG&A goal
Long-term goal: 1.75 – 2.25% of revenue 9.4% Key Drivers 8.2% Technology & Corporate (~1/2 in LT) 6.4% Operating leverage in IT and software, non-market occupancy, professional services, and other general and admin expenses Transaction & Customer Benefits (~1/2 in LT) 1.75 – 2.25% Efficiency gains t
Slide 60: Long-term EBITDA margin goal
(1) Excludes the CEO’s 100K Milestone Gift in Q3 2018. YTD 2018 numbers are for the nine months ending September 30, 2018.
Slide 61: Where We're Headed
Slide 62: US retail sales by category
Source: National Automobile Dealers Association for 2017; Figures may not sum due to rounding
Slide 63: Vehicle registrations
Source: IHS Markit Registrations, Experian
Slide 64: Selling a Broad and Broadening Mix of Cars
@CARVANA SELLING A BROAD AND BROADENING MIX OF CARS DISTRIBUTION OF CARVANA STAR RATINGS BY SALES BY VEHICLE AGE VEHICLE AGE 0 1 2 3 4 i) 6 7 8 9 fe) 1 2 3 4 5 6 7 8 9 —— Total Retail Sales — Customer Sourced Sales 64
Slide 65: Vehicle registrations
Source: IHS Markit Registrations
Slide 66: Why Don't People Switch More Often
OCARVANA WHY DON’T PEOPLE SWITCH MORE OFTEN 6.75 YEARS —_ between transactions Time between Transactions (yrs) Market Size 125% Market Growth 90m Cost frictions Experience frictions Negative equity 4 5 6 68% 35% 12.5% 67m 54m 45m 66
Slide 67: Retail category sales by sector
$1,023B $692B $639B $545B $333B $326B $191B $97B $90B $83B $61B $56B Automobile General Grocery stores Electronic Health and Building mat. and Clothing stores Electronics and Auto parts, Sporting goods, Furniture stores Home furnishings dealers merchandise shopping and personal care supplies dealers
Slide 68: Market share of largest players by category
54% 40% 28% 25% 22% 18% 19% 14% 11% 10% 10% Automobile General Grocery stores Electronic Health and Building mat. and Clothing stores Electronics and Auto parts, Sporting goods, Furniture stores Home furnishings dealers merchandise shopping and personal care supplies dealers appliance stores accesso
Slide 69: Largest players market share
Largest Player #2 Player #3 Player #4 Player Largest Player #2 Player #3 Player #4 Player
Slide 70: Simple Growth Model
OCARVANA SIMPLE GROWTH MODEL MARKET PENETRATION BY COHORT + Open new markets / New markets catching up to DD older markets J Older markets continue to grow Market Penetration / 2013 COHORT = 2014 COHORT Gem 2015 COHORT MB 2016 COHORT em 2017 COHORT Data as of 12/31/2017. 70
Slide 71: Drivers of Market Share Gains
@CARVANA DRIVERS OF MARKET SHARE GAINS YING DEMAND O IS ING
Slide 72: Growth in Underlying Demand
OCARVANA GROWTH IN UNDERLYING DEMAND AWARENESS UNDERSTANDING Marketing, word of mouth Marketing, word of mouth, website communication, advocates Customer preference migration OPEN MIND CREDIBILITY , {Jd Great customer experience, word of mouth, advocates 72
Slide 73: Significant Room to Grow Traffic
@CARVANA SIGNIFICANT ROOM TO GROW TRAFFIC Atlanta Web Traffic 2013 2014 2015 2016 2017
Slide 74: Web traffic source note
Source: Scaled player traffic based on US web traffic from competitive set of automotive listing sites and dealers in the US with an estimation for Atlanta specific traffic
Slide 75: Growth Through Conversion Gains
OCARVANA GROWTH THROUGH CONVERSION GAINS Increasing Inventory Size Decreasing Delivery Times 75
Slide 76: Conversion Growth Through Execution
OCARVANA CONVERSION GROWTH THROUGH EXECUTION Atlanta Market Share —» 1.54% x Alor x 90% —_ 540k @ 90% Population Coverage ATLQ4 2017 Annual U.S. Sales Pop. Coverage Sales/Year Market Share 540k sales means > SAOk @ A5day — 3Qdays — ADdk more inventory on site cars on Sales/Year Turn time On Site Car
Slide 77: Conversion Growth Through Execution
OCARVANA CONVERSION GROWTH THROUGH EXECUTION Q4 2017 Extrapolation Change Inventory: 8k A5k 5.5x IRC’s: 3 11 +8 What does 5.5x more cars onsite and shorter delivery times do to market share?
Slide 78: Powerful Network Effects
OCARVANA POWERFUL NETWORK EFFORTS MORE SALES SHORTER ‘ / MORE DELIVERYTIMES >. fo IRC’S ~s. MORE «’ » INVENTORY CARS CLOSER TO CUSTOMERS 78
Slide 79: Largest player share by category
$1,023B $692B $639B $545B $333B $326B $191B $97B $90B $83B $61B $56B Automobile General Grocery Electronic Health and Building mat. Clothing Electronics Auto parts, Sporting Furniture Home dealers merchandise stores shopping and personal care and supplies stores and accessories, goods, stores furnis
Slide 80: 2+ million units per year
2+ million Units per year
Slide 81: Dealer vehicles for sale vs. Carvana inventory by distance
TOTAL NUMBER OF DEALER VEHICLES FOR SALE IN CARVANA’S AVERAGE MARKET ESTIMATED CARVANA INVENTORY BY MILES AWAY FROM AVERAGE CUSTOMER
Slide 82: Dealer vehicles for sale vs. Carvana inventory by distance
TOTAL NUMBER OF DEALER VEHICLES FOR SALE IN CARVANA’S AVERAGE MARKET ESTIMATED CARVANA INVENTORY BY MILES AWAY FROM AVERAGE CUSTOMER
Slide 83: Distance to the nearest IRC
DISTANCE TO THE NEAREST IRC FOR AVERAGE CARVANA CUSTOMER DISTANCE TO THE AVERAGE IRC FOR AVERAGE CARVANA CUSTOMER
Slide 84: Distance to the nearest IRC
DISTANCE TO THE NEAREST IRC FOR AVERAGE CARVANA CUSTOMER DISTANCE TO THE AVERAGE IRC FOR AVERAGE CARVANA CUSTOMER
Slide 85: Our mission is to change the way people buy cars
Slide 86: Appendix
Slide 87: Non-GAAP Measures
OCARVANA NON-GAAP MEASURES This presentation contains financial measures which are not recognized under U.S. Generally Accepted Accounting Principles (*GAAP”)—Gross Profit ex-Gift and Gross Profit per Unit ex-Gift; Gross Margin ex-Gift; and EBITDA ex-Gift and EBITDA Margin ex-Gift. These are describ
Slide 88: Non-GAAP Measures
OCARVANA NON-GAAP MEASURES Gross Margin ex-Gift Gross Margin ex-Gift is a non-GAAP supplemental measures of operating performance that does not represent and should not be considered an alternative to gross margin, as determined by GAAP. Gross Margin ex-Gift is defined as gross margin before compens
Slide 89: Non-GAAP Measures
OCARVANA NON-GAAP MEASURES 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.
Slide 90: EBITDA Reconciliation
@CARVANA EBITDA RECONCILIATION - a Net Loss ($15,238) ($36,780) ($93,112) ($164,316) ($52,672) ($51,250) ($64,419) D&A $1,706 $2,800 $4,658 $11,568 $4,605 $5,257 $6,439 Interest Expense $108 $1,412 $3,587 $7,659 $3,541 $4,165 $5,649 100k Milestone Gift $7,761 EBITDA ex-Gift ($13,424) ($32,568) ($84,
Slide 91: Non-GAAP Financial Reconciliation
Non-GAAP Financial Reconciliation Used vehicle unit sales Wholesale vehicle unit sales Sales and operating revenues: Used vehicle sales, net Wholesale vehicle sales Other sales and revenues, including $6,696 from related parties Net sales and operating revenues. Cost of sales Used vehicle gross prof
Slide 92: Non-GAAP Financial Reconciliation
OCARVANA Non-GAAP Financial Reconciliation ‘Compensation and benefits” s 88,649 100k Milestone Gift 6.70 Advertising expense 79.259 Market occupancy costs 8.238 Logistics 24,056 Other costs 87,644 ‘otal selling, general and administrative expenses 294,606 Less: 100k Milestone Gift (6.760) ‘Total sel