• an assessment of whether the proposed transaction is on terms that are comparable to the terms available to an unrelated third party or to
employees generally.
The Audit Committee may only approve those transactions that are in or are not inconsistent with our best interests and those of our
stockholders, as the Audit Committee determines in good faith.
AMENDED AND R ESTATED OPERATING AGREEMENT
In connection with the organizational transactions we effected in connection with our IPO, we amended and restated Carvana Group’s existing
operating agreement, which we refer to as the “LLC Operating Agreement.” In addition, on March 2, 2018, Carvana Group signed an amendment of its
LLC Agreement to, among other things, create a class of convertible preferred units. The convertible preferred units were created in connection with the
December 5, 2017, issuance and sale of 100,000 shares of convertible preferred stock of Carvana Co. The amendment was effective December 5, 2017. As
of December 31, 2018, the 100,000 shares of convertible preferred stock had all been converted into shares of Class A common stock and are no longer
outstanding.
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In connection with the issuance of our senior notes (see Carvana’s Annual Report on Form 10-K for 2018, page 66–67), 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.
The operations of Carvana Group, and the rights and obligations of the holders of our LLC Units (who we refer to as “LLC Unitholders”), are
set forth in the LLC Operating Agreement.
EXCHANGE AGREEMENT
On April 27, 2017, we entered into an exchange agreement with Carvana Co. Sub LLC (our wholly owned subsidiary) and the LLC
Unitholders. Under the exchange agreement, LLC Unitholders (and certain permitted transferees thereof) may exchange at any time their LLC Units for
either shares of our Class A common stock or for cash, whichever we decide. To the extent LLC Unitholders also hold Class B common stock, they will be
required to deliver to us the same number of shares of Class B common stock as Class A common stock being exchanged for. We will then cancel those
shares of Class B common stock. As LLC Unitholders exchange their interest in Carvana Group, our indirect interest in Carvana Group will increase
correspondingly.
When an LLC Unitholder makes an exchange, they will receive four shares of Class A common stock for every five Class A Units or, at our
option, cash equal to the value of a share of Class A common stock multiplied by 0.8 times the number of Class A Units being exchanged. The value of the
Class A common stock is determined by the average of the volume-weighted average prices for a share of Class A common stock for each of the three
consecutive full trading days ending on and including the last full trading day immediately prior to the related date of exchange. Class B Units are subject to
vesting and a participation threshold, and, as a result, LLC Unitholders exchanging Class B Units will receive a number of shares of Class A common stock
equal to the Class A common stock value (determined the same way as above) less the applicable participation threshold multiplied by 0.8 times the number
of Class B Units being exchanged, divided by the same Class A common stock value, subject to adjustment as set forth in the Exchange Agreement.
REGISTRATION R IGHTS AGREEMENT
In connection with the IPO, we entered into a registration rights agreement with certain LLC unitholders. These LLC unitholders are entitled to
request that we register their shares on a long-form or short-form registration statement on one or more occasions in the future, which registrations may be
“shelf registrations.” All of these LLC unitholders will be entitled to participate in certain of our
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registered offerings, subject to the restrictions in the registration rights agreement. We will pay expenses in connection with the exercise of these rights. The
registration rights described in this paragraph apply to (1) shares of our Class A common stock held by certain LLC unitholders, and (2) any of our capital
stock (or that of our subsidiaries) issued or issuable with respect to the Class A common stock described in clause (1) with respect to any dividend, stock
split, recapitalization, reorganization, or certain other corporate transactions (“Registrable Securities”). These registration rights are also for the benefit of
any subsequent holder of Registrable Securities, provided that any particular securities will cease to be Registrable Securities when they have been sold in a
registered public offering, sold in compliance with Rule 144 of the Securities Act or repurchased by us or our subsidiaries. In addition, any Registrable
Securities held by a person other than an LLC Unitholder and their affiliates will cease to be Registrable Securities if they can be sold without limitation
under Rule 144 of the Securities Act.
TAX REC EIVABLE AGREEMENT
We have entered into a Tax Receivable Agreement with LLC Unitholders that will provide for the payment from time to time by us to such
persons of 85% of the amount of the benefits, if any, that we realize or, under certain circumstances, are deemed to realize as a result of
1. the increase in our wholly owned subsidiary’s proportionate share of the existing tax basis of the assets of Carvana Group and an adjustment in
the tax basis of the assets of Carvana Group reflected in that proportionate share as a result of any future exchanges of LLC Units held by an
LLC Unitholder for shares of our Class A common stock or cash, and
2. certain other tax benefits related to our making payments under the Tax Receivable Agreement.
We expect to benefit from the remaining 15% of any tax benefits that we actually realize and, except in connection with a change in control, we will not
make any payments under the Tax Receivable Agreement until after we have directly or indirectly realized (or have been deemed to have realized) benefits
in excess of such payments. These payment obligations are obligations of Carvana Co. and not of Carvana Group. No payments were made during the year
ended December 31, 2018.
INDEMNIFICA TION OF OFFICERS AND DIRECTORS
We have entered into indemnification agreements with each of our officers and directors. The indemnification agreements provide the officers
and directors with contractual rights to indemnification, expense advancement, and reimbursement, to the fullest extent permitted under Delaware law.
Additionally, we may enter into indemnification agreements with any new directors or officers that may be broader in scope than the specific
indemnification provisions contained in Delaware law.
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CONTRIBUTION AGREEMENTS
On September 10, 2018, we announced a commitment by our chief executive officer, Ernest Garcia III, to contribute shares of Carvana Co.
Class A common stock from his personal shareholdings to Carvana at no charge, intended to fund equity awards of 165 restricted stock units (or roughly
$10,000 at the time of the announcement) to each of our then-current employees upon their satisfying certain employment-tenure requirements. During the
year ended December 31, 2018, Carvana and Mr. Garcia entered into contribution agreements pursuant to which Mr. Garcia contributed approximately
0.2 million shares of Carvana Co. Class A common stock to Carvana, at no charge. We subsequently granted approximately 0.2 million restricted stock
units. Although we do not expect Mr. Garcia to incur any tax obligations related to these contributions, we have indemnified Mr. Garcia from any such
obligations that may arise.
RELATIONSHIP WITH DRIVETIME
Prior to November 1, 2014, Carvana, LLC was a wholly owned subsidiary of DriveTime. On November 1, 2014, DriveTime distributed the
units of Carvana, LLC to the unit holders of DriveTime on a pro rata basis, which we refer to as the “Spinoff.” DriveTime is controlled by our controlling
stockholder, Ernest Garcia II, who is also the father of our Chief Executive Officer, Ernest Garcia III. Following the Spinoff, the unitholders of DriveTime
contributed the Carvana, LLC units to Carvana Group.
Subsequent to the Spinoff, we entered into several agreements with DriveTime and affiliated companies that were intended to facilitate our
transition to a standalone company, which are described below, along with subsequent agreements. We will refer to DriveTime and its subsidiaries and
affiliates, other than us, as “DriveTime”. There can be no assurances that DriveTime or its affiliated companies will enter into any new agreements or
arrangements with us, or extend or renew existing agreements or arrangements, on the same terms, similar terms, or at all.
ATLANTA,GAHUBLOCATIONLEASEGUARANTEE
In May 2013, DriveTime guaranteed our obligations under the lease governing our occupancy of the property on which an Atlanta hub is
located. We do not compensate DriveTime for the guarantee. The initial lease term and rent payments commenced December 1, 2013, and the current term
expires on November 30, 2019. Under the lease we may enter into one more two-year extension term. Base rent during the initial term was $9.5 thousand
per month but may increase by 3% of the then-current base rent during each extension term. Monthly rent payments for January 1, 2018, through
November 30, 2018, were $10.4 thousand per month, and as of December 1, 2018, are $10.7 thousand per month through November 30, 2019. In addition to
base rent, we are responsible for our proportionate share of common area maintenance charges.
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LEASEAGREEMENT
In connection with the Spinoff, we entered into a lease agreement dated November 1, 2014, with DriveTime that governs our access to and
utilization of space at DriveTime inspection and reconditioning centers (“IRCs”) for vehicle inspection and reconditioning in Blue Mound, Texas, and
Delanco, New Jersey, and previously for inspection and reconditioning in Winder, Georgia. The lease agreement was most recently amended in December
2018. The agreement also governs utilization of office space and parking spaces at various IRCs and retail facilities that we use as hubs.
Under the amended lease agreement, hubs generally have cancellable two-year terms subject to certain two consecutive one-year renewal
options and subject to the terms of any master lease under which we are subleasing. We increased our utilization of the DriveTime IRCs in Blue Mound,
Texas, and Delanco, New Jersey, to 100% as of July 2018. Under the lease agreement, we pay a monthly rental fee related to our pro rata utilization of
space at such facilities plus a pro rata share of each facility’s actual insurance costs and real estate taxes. As it relates to locations where we recondition
vehicles, our share of facility and reconditioning-supplies expenses are calculated monthly by multiplying the actual costs for operating the inspection
centers by an amount related to our pro rata share of total reconditioned vehicles and parking spaces used at such IRCs in a given month. Total expenses
related to this lease agreement were approximately $5.1 million for the year ended December 31, 2018.
HOUSTON,TXVENDINGMACHINELEASEGUARANTEE
On July 14, 2015, DriveTime guaranteed our obligations under the lease governing our occupancy of the property on which our Houston
vending machine is located. We do not compensate DriveTime for the guarantee. The initial lease term commenced January 8, 2016, and we began paying
base rent on May 7, 2016. Base rent during the initial term is $23.0 thousand per month, and the initial term expires on April 6, 2026. We have the option to
extend the initial term for four additional consecutive five-year periods. Base rent during each extension term will increase 10% of the then-current base
rent for each subsequent extension.
TEMPE,AZOFFICELEASE
In September 2016, we entered into an agreement to lease the second floor of our corporate headquarters in Tempe, Arizona beginning April
2017. Pursuant to this lease, we paid an initial monthly base rent of $107.0 thousand, which increases throughout the duration of the lease. The lease has an
initial term of 83 months and we have three 5-year extension options. At the request of the landlord, DriveTime agreed to partially guarantee our lease
payments until the 30th full calendar month of the lease. We do not compensate DriveTime for the guarantee.
In connection with this lease, we entered into a sublease with DriveTime for our use of the first floor of the same building. Under the sublease,
which is coterminous with DriveTime’s master lease and has a term of 83 months, subject to our right to exercise three 5-year extension options, we pay
DriveTime rent equal to the amounts due under the master lease, including initial monthly base rent of $102.0 thousand, beginning April 1, 2018, which
increases throughout the duration of the sublease and master lease. Total expenses related to this lease agreement were approximately $0.9 million for the
year ended December 31, 2018.
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TOLLESON,AZINSPECTIONANDRECONDITIONINGCENTERLEASE
In December 2016, we entered into a lease agreement with Verde Investments Inc. (“Verde”), an affiliate of DriveTime, for an IRC in Tolleson,
Arizona. The lease commenced in February, 2017. In August 2018, we entered into an additional lease agreement with a coterminous initial term with
Verde for contiguous space to use in connection with such center, which began that same month. The leases expire in December 2031 subject to our right to
extend for four 5-year terms. Pursuant to the leases, we pay an initial base rent of $137.5 thousand per month, which is adjusted each year beginning on
January 1, 2018, and $57.1 thousand per month, which is adjusted each year beginning on January 1, 2020, respectively, each in accordance with the
Consumer Price Index, subject to a minimum increase of 2% per year and a maximum increase of 5% per year. Total expense related to these lease
agreements was approximately $2.2 million for the year ended December 31, 2018.
WINDER,GAINSPECTIONANDRECONDITIONINGCENTERLEASE
In February 2017, we entered into a lease with DriveTime for an IRC in Winder, Georgia where we have maintained partial occupancy
previously under the DriveTime lease agreement described above. We are now the sole occupant. The lease has an 8-year term, subject to our ability to
exercise three renewal option terms of five years each. We began paying base rent of $83.3 thousand per month as of March 1, 2017. The monthly rent is
subject to adjustment each year beginning January 1, 2018, increasing in an amount equal to the percentage increase in the Consumer Price Index, with a
maximum of 5% and a minimum of 2%. The monthly rent increased on January 1, 2018, to $85.1 thousand. Our total expenses related to this lease
agreement were approximately $1.1 million for the year ended December 31, 2018.
HUBLEASEAGREEMENT
In March 2017, we entered into a lease with DriveTime that governs our utilization of office space and parking spaces at retail facilities that we
use as hubs. The lease was most recently amended in December 2018. Under the lease agreement, we pay a monthly rental fee related to our pro rata
utilization of space at such facilities plus a pro rata share of each facility’s actual insurance costs and real estate taxes. Each hub has an initial cancellable
term of two years, subject to certain two consecutive one-year renewal options. Our total expenses related to this lease agreement were approximately
$0.4 million for the year ended December 31, 2018.
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CLEVELAND,OHAREAINSPECTIONANDRECONDITIONINGCENTERSUBLEASE
In November 2018, Carvana entered into a sublease agreement with DriveTime for an inspection and reconditioning center near Cleveland,
Ohio. Pursuant to the sublease, Carvana temporarily shared space at the IRC until DriveTime vacated the facility in February 2019, at which point we
purchased certain leasehold improvements and equipment at the facility from DriveTime for approximately $4.3 million (which amount represented the
book value of such improvements and equipment net of accumulated depreciation and amortization) and became the sole occupant. We pay a base rent of
$35.0 thousand per month which increases in each extension term. The sublease has an initial term of three years. We have the ability to exercise three
renewal options of five years each. Before DriveTime vacated the property, we paid a monthly rental fee related to our pro rata utilization of space at the
facility plus a pro rata share of the facility’s actual insurance costs and real estate taxes. Our share of facility and shared reconditioning supplies expenses
were calculated based on the actual costs for operating the inspection and reconditioning center and our pro rata share of total reconditioned vehicles and
parking spaces at the IRC in a given month. Our total expenses related to this lease agreement were $29.4 thousand for the year ended December 31, 2018.
NASHVILLE,TNAREAINSPECTIONANDRECONDITIONINGCENTERLEASE
On February 28, 2019, Carvana assumed a lease from DriveTime of an IRC near Nashville, Tennessee. As part of the agreement, we agreed to
purchase certain leasehold improvements and equipment at the facility from DriveTime for approximately $2.0 million (which amount represented the book
value of such improvements and equipment net of accumulated depreciation and amortization). The term expires on October 31, 2023, subject to our ability
to exercise three renewal options of five years each. DriveTime will remain a partial occupant of the IRC until April 1, 2019 and will not be fully released
from lease obligations by the landlord. Beginning April 1, 2019, Carvana will be the sole occupant of the IRC. Base rent during the current term of the lease
is $21.0 thousand per month and will increase to between $30.0–$31.0 thousand per month in the second half of 2019, depending on the extent of Carvana’s
expansion of leased space, and will further increase during each extension term over the then-current base rent by an amount equal to the percentage
increase in the Consumer Price Index, with a maximum of 15% and a minimum of 10%.
SERVICINGAGREEMENTWITHDRIVETIME
In December 2015, we entered into a servicing agreement with DriveTime, wherein DriveTime agreed to perform certain servicing and
administrative functions with respect to automotive finance receivables we own after origination and before sale. In the year ended December 31, 2018,
DriveTime had aggregate earnings of approximately $0.9 million for performing servicing functions for such receivables.
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MASTERPURCHASEANDSALEAGREEMENT
In December 2016, we entered into a master purchase and sale agreement pursuant to which we sell finance receivables meeting certain
underwriting criteria to certain financing partners, including Ally Bank and Ally Financial (collectively, “Ally”). On November 3, 2017, we amended this
agreement to increase the aggregate amount of principal balances of finance receivables we can sell to $1.5 billion. We amended the agreement again on
November 2, 2018 to, among other things and subject to the terms of the agreement, increase the purchase commitment to up to a maximum of $1.25 billion
of additional principal balances of finance receivables during the remaining term of the agreement.
During the year ended December 31, 2018, we sold approximately $733.4 million in principal balances of finance receivables under the
purchase and sale agreement. As of December 31, 2018, there was approximately $1.1 billion of unused capacity under this agreement. The agreement was
most recently amended on January 4, 2019.
The financing partners have engaged DriveTime as servicer of the receivables purchased under this agreement. DriveTime had aggregate
earnings of $3.1 million pursuant to the agreement for performing servicing functions for the year ended December 31, 2018.
MASTERTRANSFERAGREEMENTS
In December 2016, we entered into a master transfer agreement pursuant to which we sell finance receivables meeting certain underwriting
criteria to certain financing partners (the “2016 Master Transfer Agreement”). Under the agreement, the purchaser trust agreed to purchase up to an
aggregate of $292.2 million in principal balances of finance receivables. In November 2017, we terminated the remaining capacity under the 2016 Master
Transfer Agreement and replaced this facility by entering into a new master transfer agreement pursuant to which we sell finance receivables meeting
certain underwriting criteria to certain financing partners (the “2017 Master Transfer Agreement”). Under the agreement, the purchaser trust agreed to
purchase up to an aggregate of $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 currently available financing following the amendment
permits up to $454.5 million in principal balances of finance receivables to be purchased, and the 2017 Master Transfer Agreement’s purchase commitment
contemplates the trust securing up to three times the currently available financing in the aggregate.
During the year ended December 31, 2018, we sold approximately $348.8 million in principal balances of finance receivables under the 2017
Master Transfer Agreement prior to the amendment in November, excluding those that were part of the refinancing transactions described below under
“Refinancing Transfer Agreements”. As of December 31, 2018, there was approximately $454.5 million of unused capacity under 2017 Master Transfer
Agreement. During the year ended December 31, 2017, Carvana sold an aggregate of approximately $163.7 million in principal balances of finance
receivables under the 2016 Master Transfer Agreement and 2017 Master Transfer Agreement.
The purchasers engaged Carvana as the administrator of the trust and DriveTime as servicer of the receivables. In the year ended December 31,
2018, we had aggregate earnings of $4.0 thousand for performing trust administrator functions for the purchasers and DriveTime had aggregate earnings of
$4.0 million for performing servicing functions.
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REFINANCINGTRANSFERAGREEMENTS
On August 6, 2018, in connection with a refinancing transaction, we purchased finance receivables we had previously sold under the 2017
Master Transfer Agreement and simultaneously entered into a transfer agreement with a purchaser trust under which the trust immediately purchased such
finance receivables from us. On December 21, 2018, in connection with another refinancing transaction, we purchased finance receivables we had
previously sold under the 2017 Master Transfer Agreement and simultaneously entered into another transfer agreement with a purchaser trust under which
the trust purchased such finance receivables and other finances receivables from us. During the year ended December 31, 2018, we sold approximately
$477.9 million in principal balances of finance receivables under these transfer agreements.
The trusts engaged Carvana as the administrator of the trust and DriveTime as servicer of the receivables. In the year ended December 31,
2018, we had aggregate earnings of $0.0 thousand for performing trust administrator functions for the purchasers and DriveTime had aggregate earnings of
$1.5 million for performing servicing functions.
MASTERDEALERAGREEMENT
In December 2016, we entered into a master dealer agreement with DriveTime. Pursuant to this agreement, we may sell vehicle service
contracts (“VSCs”) to customers purchasing a vehicle from us. We earn a commission on each VSC sold to our customers and DriveTime is obligated by
and subsequently administers the VSCs. We collect the retail purchase price of the VSCs from our customers and remit the purchase price net of
commission to DriveTime. During the year ended December 31, 2018, we recognized approximately $23.7 million of commissions earned on VSCs sold to
our customers and administered by DriveTime, net of a reserve for estimated contract cancellations. On November 5, 2018 (effective October 1, 2018), we
amended the master dealer agreement to allow Carvana 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. During the year ended December 31, 2018, Carvana recognized
approximately $1.9 million related to payments for excess reserves to which it expects to be entitled.
Beginning in 2017, DriveTime also administers a portion of our GAP waiver coverage and the limited warranty provided to all customers under
the master dealer agreement. We pay a per-contract fee to DriveTime to administer a portion of the GAP waiver coverage we sell to our customers and a
per-vehicle fee to DriveTime to administer the limited warranty included with every purchase. We incurred costs of approximately $2.2 million during the
year ended December 31, 2018, related to the administration of GAP waiver coverage and limited warranty.
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IPLICENSEAGREEMENT
In February 2017, we entered into a license agreement that governs the rights of certain intellectual property owned by us and the rights of
certain intellectual property owned by DriveTime. The license agreement, which was amended and restated on April 14, 2017, generally provides that each
party grants to the other certain limited exclusive (other than with respect to the licensor party and its affiliates) and nonexclusive 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 sub-prime 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 our patents, trademarks, logos, customers’ personally
identifiable information or any intellectual property related to our vending machine, automated vehicle photography or certain other elements of our brand.
AIRCRAFTTIMESHARINGAGREEMENT
On October 22, 2015, we entered into an agreement, which was amended on May 15, 2017, to share usage of two aircraft operated by
DriveTime. Pursuant to the agreement, we agreed to reimburse DriveTime for actual expenses for each of our flights. The original term of the agreement
was for 12 months, with perpetual 12-month automatic renewals. Either the lessors or the lessees can terminate the lease with 30 days’ written notice. We
reimbursed DriveTime $0.5 million under this agreement during the year ended December 31, 2018.
UNSECUREDSENIORNOTES
In September 2018, we issued an aggregate of $350.0 million in senior unsecured notes due 2023. 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. Verde Investments, Inc., an
affiliate of DriveTime, purchased notes reflecting $25.0 million of outstanding principal and subsequently sold a portion. As of December 31, 2018, Verde
held $15.0 million of principal of the notes.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of our common stock as of February 27, 2019, by:
• each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock,
• each of our named executive officers,
• each of our directors, and
• all of our current executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Unless otherwise indicated below, it is our understanding that the persons and entities named in the table have
sole voting and sole investment power with respect to all shares that they beneficially own, subject to community property laws where applicable. In
computing the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding
shares of our common stock subject to options, Class B Units, or restricted stock units held by that person that are currently exercisable or exercisable
within 60 days of February 27, 2019. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any
other person. We have based the percentage ownership of our Class A common stock on 41,201,324 shares of our common stock outstanding as of
February 27, 2019, and have based the percentage ownership of our Class B common stock on 104,336,303 shares as of the same date. Unless otherwise
indicated, the address of each beneficial owner listed on the table below is c/o Carvana Co., 1930 W Rio Salado Pkwy, Tempe, AZ 85281.
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SHARES BENEFICIALLY OWNED
CLASS A COMMON STOCK (1) CLASS B COMMON STOCK (1)
NAME OF BENEFICIAL OWNER SHARES % SHARES % VOTING %
Ernest C. Garcia II c/o Verde Investments, Inc. 1,578,208(2) 4% 87,701,897(3) 84% 91%
Spruce House Investment Management LLC; Spruce House
Capital LLC; Spruce House Partnership LP; Zachary
Sternberg; Benjamin Stein 5,600,000(4) 14% — —% *
Melvin Capital Management LP; Melvin Capital Master
Fund Ltd 3,725,000(5) 9% — —% *
FMR LLC 3,591,784(6) 9% — —% *
The Vanguard Group 2,954,186(7) 7% — —% *
Nantahala Capital Management, LLC; Wilmot B. Harkey;
Daniel Mack 2,329,714(8) 5% — —% *
CAS Investment Partners, LLC; Sosin Partners, L.P.;
Clifford Sosin 2,194,504(9) 5% — —% *
Blackrock, Inc. 2,104,793(10) 5% — —% *
Executive Officers and Directors
Ernest Garcia, III 93,060(11) * 15,616,526(12) 15% 16%
Mark Jenkins 876,676(13) 2% — —% *
Benjamin Huston 916,676(14) 2% — —% *
Daniel Gill 468,253(15) 1% — —% *
Ryan Keeton 417,269(16) 1% — —% *
Ira Platt 173,786(17) * 130,612* *
Gregory Sullivan 20,619(18) * — —% *
Dan Quayle 20,619(18) * — —% *
Michael Maroone 71,619(19) * — —% *
All executive officers and directors (10 individuals) 3,203,895(20) 8% 15,747,138 15% 16%
(1) Each share of Class A common stock entitles the registered holder thereof to one vote on all matters presented to stockholders for a vote generally,
including the election of directors. Each share of our Class B common stock held by the Garcia Parties entitles its holder to ten votes on all matters to
be voted on by stockholders generally, including the election of directors, for so long as the Garcia Parties maintain, in the aggregate, direct or
indirect beneficial ownership of at least 25% of the outstanding shares of Class A common stock (determined on an as-exchanged basis assuming that
all of the LLC Units were exchanged for Class A common stock). Each other share of our Class B common stock entitles its holder to one vote on all
matters to be voted on by stockholders generally, including the election of directors. The Class A common stock and Class B common stock vote as a
single class on all matters except as required by law or the certificate of incorporation. A “*” indicates percentages of less than 1%.
(2) This number includes 1,464,517 shares of our Class A common stock that Mr. Garcia II purchased through Verde Investments, Inc. (“Verde”), of
which Mr. Garcia II is the 100% owner. This number also includes 13,691 shares of our Class A common stock owned by the Ernest Irrevocable 2004
Trust III and 100,000 shares of our Class A common stock owned by the Ernest C. Garcia III Multi-Generational Trust III. While Ernest Garcia II is
the investment trustee over Ernest C. Garcia III Multi-Generational Trust III, the trust is irrevocable and he is not a beneficiary. While Ernest Garcia
II and Ernest Garcia III are the joint investment trustees over Ernest Irrevocable 2004 Trust III, the trust is irrevocable and Mr. Garcia II is not a
beneficiary. Mr. Garcia III is the
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sole beneficiary of the Ernest Irrevocable 2004 Trust III and Mr. Garcia III and his children are the beneficiaries of the Ernest C. Garcia III Multi-
Generational Trust III. This information is based on the Form 4 filed with the SEC by Mr. Garcia II on February 27, 2019. Verde’s and Mr. Garcia
II’s address is 1720 W. Rio Salado Parkway, Suite A, Tempe, AZ 85281.
(3) This number includes 52,937,458 shares of Class B common stock owned directly by Mr. Garcia II; 8,000,000 shares of Class B common stock
owned by ECG III SPE, of which Mr. Garcia II is the 100% owner; 2,860,439 shares of Class B common stock owned by DriveTime Sales and
Finance Company LLC. Mr. Garcia II is the chairman of the board of directors and largest stockholder of DriveTime, of which DriveTime Sales and
Finance Company LLC is a wholly owned subsidiary. This number also includes 11,952,000 shares of Class B common stock owned by the Ernest
Irrevocable 2004 Trust III, of which Mr. Garcia III is the sole beneficiary, and 11,952,000 shares of Class B common stock owned by the Ernest C.
Garcia III Multi-Generational Trust III, of which Mr. Garcia III is a beneficiary together with his children. While Ernest Garcia II is the investment
trustee over Ernest C. Garcia III Multi-Generational Trust III, the trust is irrevocable and he is not a beneficiary. While Ernest Garcia II and Ernest
Garcia III are the joint investment trustees over Ernest Irrevocable 2004 Trust III, the trust is irrevocable and Mr. Garcia II is not a beneficiary. These
shares of Class B common stock together with the corresponding LLC Units may be exchanged for 87,701,897 shares of Class A common stock.
These shares of Class A common stock represent approximately 58% of the shares of Class A common stock that would be outstanding if all
outstanding LLC Units were exchanged and all outstanding shares of Class B common stock were converted at that time. This information is based on
the Form 4 filed with the SEC by Mr. Garcia II on February 27, 2019. Verde’s, ECG III SPE’s, and Mr. Garcia II’s address is 1720 W. Rio Salado
Parkway, Suite A, Tempe, AZ 85281.
(4) Spruce House Investment Management LLC; Spruce House Capital LLC; Spruce House Partnership LP; Zachary Sternberg and Benjamin Stein
report shared voting and dispositive power of 5,500,000 shares of Class A common stock. Zachary Sternberg and Benjamin Stein each report sole
voting and dispositive power of 50,000 shares of Class A common stock. Spruce House Partnership LP holds the 5,500,000 shares with shared voting
and dispositive power and Spruce House Capital LLC serves as the general partner and Spruce House Investment Management LLC serves as the
investment manager. Zachary Sternberg and Benjamin Stein each serve as a managing member of the Spruce House Capital LLC and the Spruce
House Investment Management LLC. This information is based on the Schedule 13G/A filed with the SEC on February 14, 2019. The address for
each of these reporting persons is 435 Hudson Street, 8th Floor New York, NY 10014.
(5) Melvin Capital Management LP is the investment manager of Melvin Capital Master Fund Ltd. Melvin Capital Management LP reports shared voting
and dispositive power of 3,725,000 shares of Class A common stock. The number of shares reported above consists of 1,606,827 shares of Class A
common stock and call options exercisable into 861,600 shares of Class A common stock held by Melvin Capital Master Fund Ltd; 300,909 shares of
Class A common stock and call options exercisable into 161,200 shares of Class A common stock held by Melvin Capital Onshore LP; and 517,264
shares of Class A common stock and call options exercisable into 277,200 shares of Class A common stock held by one or more managed accounts.
Melvin Capital Management LP, as the investment manager to these funds and accounts, may be deemed to beneficially own the 2,425,000 shares of
Common Stock and the call options exercisable into 1,300,000 shares of Class A common stock held by them. This information is based on the
Schedule 13G/A filed with the SEC on February 15, 2019. The address for each of these reporting persons is 527 Madison Avenue, 25th Floor, New
York, NY 10022.
(6) FMR LLC reports sole power to dispose or direct the disposition of 3,591,784 shares of Class A common stock. This information is based on the
Schedule 13G filed with the SEC on February 14, 2019. FMR LLC’s address is 245 Summer Street, Boston, MA 02210.
(7) The Vanguard Group reports shared power to dispose or direct the disposition of 63,700 of these shares of Class A common stock. This information is
based on the Schedule 13G filed with the SEC on February 11, 2019. The Vanguard Group’s address is 100 Vanguard Blvd., Malvern, PA 19355.
(8) Wilmot B. Harkey and Daniel Mack are the managing members of Nantahala Capital Management, LLC and together report shared voting and
dispositive power with respect to these shares. This number of shares includes call options exercisable into 1,450,000 shares of Class A common
stock. This information is based on the Schedule 13G filed with the SEC on February 14, 2019. The address for each of these reporting persons is 19
Old Kings Highway S, Suite 200 Darien, CT 06820.
(9) CAS Investment Partners, LLC, Sosin Partners, L.P., and Clifford Sosin report shared voting and dispositive power with respect to 2,167,766 of these
shares and Mr. Sosin reports sole voting and dispositive power with respect to 26,738 of these shares. Sosin Partners, L.P. owns an aggregate of
2,167,766 shares of Class A common stock and CAS Investment Partners, LLC,
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is the investment manager of the fund. As a result, CAS Investment Partners, LLC, possesses the power to vote and dispose or direct the disposition of
all the shares owned by the fund. Thus, CAS Investment Partners, LLC, may be deemed to beneficially own a total of 2,167,766 shares. Mr. Sosin is
the managing member of CAS Investment Partners, LLC. As a result, Mr. Sosin possesses the power to vote and dispose or direct the disposition of
all the shares beneficially owned by CAS Investment Partners, LLC as investment manager of Sosin Partners, L.P. Mr. Sosin disclaims beneficial
ownership of any of the shares held by Sosin Partners, L.P. This information is based on the Schedule 13G/A filed with the SEC on February 14,
2019. The address for each of these reporting persons is 8 Wright Street, 1st FL Westport, CT 06880.
(10) Blackrock, Inc. reports sole power to dispose or direct the disposition of these shares of Class A common stock. This information is based on the
Schedule 13G filed with the SEC on February 8, 2019. Blackrock, Inc.’s address is 55 East 52nd Street, New York, NY 10055.
(11) This number includes 71,875 shares of Class A common stock owned directly by Ernest Garcia III, and 13,691 shares of our Class A common stock
owned by the Ernest Irrevocable 2004 Trust III. While Ernest Garcia II and Ernest Garcia III are the investment trustees over Ernest Irrevocable 2004
Trust III, the trust is irrevocable and Mr. Garcia II is not a beneficiary. Mr. Garcia III is the sole beneficiary of the Ernest Irrevocable 2004 Trust III.
This number also includes 3,997 shares of Class A common stock issuable upon the exercise of options that vest on April 1, 2019, and 3,497 shares of
Class A common stock issuable upon the vesting and settlement of restricted stock units that vest on April 1, 2019, inclusive of shares to be withheld
for tax purposes. This number excludes 14,572 shares of Class A common stock underlying performance-based RSUs that are subject to vesting on
the date that performance objectives are achieved, so long as it is achieved prior to April 27, 2027.
(12) This number includes 3,664,526 shares of Class B common stock owned directly by Mr. Garcia III, and 11,952,000 shares of Class B common stock
owned by the Ernest Irrevocable 2004 Trust III, of which Mr. Garcia III is the sole beneficiary. While Ernest Garcia II and Ernest Garcia III are the
investment trustees over Ernest Irrevocable 2004 Trust III, the trust is irrevocable and Mr. Garcia II is not a beneficiary. Mr. Garcia III is the sole
beneficiary of the Ernest Irrevocable 2004 Trust III. These shares of Class B common stock together with the corresponding LLC Units may be
exchanged for 15,616,526 shares of Class A common stock. These shares of Class A common stock represent approximately 10% of the shares of
Class A common stock that would be outstanding if all outstanding LLC Units were exchanged and all outstanding shares of Class B common stock
were converted at that time.
(13) This number includes 120 shares of Class A common stock owned directly by Mr. Jenkins; 869,531 shares of Class A common stock issuable in
exchange for vested Class B Units including those that will be vested within 60 days of February 27, 2019, based on an assumed price of $41.82 per
share (the closing price of our Class A common stock on the NYSE on February 27, 2019); 3,747 shares of Class A common stock issuable upon the
exercise of options that vest on April 1, 2019; and 3,278 shares of Class A common stock issuable upon the vesting and settlement of restricted stock
units that vest on April 1, 2019, inclusive of shares to be withheld for tax purposes. This number excludes 13,662 shares of Class A common stock
underlying performance-based RSUs that are subject to vesting on the date that performance objectives are achieved, so long as it is achieved prior to
April 27, 2027.
(14) This number includes 120 shares of Class A common stock owned directly by Mr. Huston; 909,531 shares of Class A common stock issuable in
exchange for vested Class B Units including those that will be vested within 60 days of February 27, 2019, based on an assumed price of $41.82 per
share (the closing price of our Class A common stock on the NYSE on February 27, 2019); 3,747 shares of Class A common stock issuable upon the
exercise of options that vest on April 1, 2019; and 3,278 shares of Class A common stock issuable upon the vesting and settlement of restricted stock
units that vest on April 1, 2019, inclusive of shares to be withheld for tax purposes. This number excludes 13,662 shares of Class A common stock
underlying performance-based RSUs that are subject to vesting on the date that performance objectives are achieved, so long as it is achieved prior to
April 27, 2027.
(15) This number includes 120 shares of Class A common stock owned directly by Mr. Gill; 461,950 shares of Class A common stock issuable in
exchange for vested Class B Units including those that will be vested within 60 days of February 27, 2019, based on an assumed price of $41.82 per
share (the closing price of our Class A common stock on the NYSE on February 27, 2019); 3,298 shares of Class A common stock issuable upon the
exercise of options that vest on April 1, 2019; and 2,885 shares of Class A common stock issuable upon the vesting and settlement of restricted stock
units that vest on April 1, 2019, inclusive of shares to be withheld for tax purposes. This number excludes 12,022 shares of Class A common stock
underlying performance-based RSUs that are subject to vesting on the date that performance objectives are achieved, so long as it is achieved prior to
April 27, 2027.
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(16) This number includes 6,120 shares of Class A common stock owned directly by Mr. Keeton; 404,966 shares of Class A common stock issuable in
exchange for vested Class B Units including those that will be vested within 60 days of February 27, 2019, based on an assumed price of $41.82 per
share (the closing price of our Class A common stock on the NYSE on February 27, 2019); 3,298 shares of Class A common stock issuable upon the
exercise of options that vest on April 1, 2019; and 2,885 shares of Class A common stock issuable upon the vesting and settlement of restricted stock
units that vest on April 1, 2019, inclusive of shares to be withheld for tax purposes. This number excludes 12,022 shares of Class A common stock
underlying performance-based RSUs that are subject to vesting on the date that performance objectives are achieved, so long as it is achieved prior to
April 27, 2027.
(17) This number includes 20,000 shares of Class A common stock owned directly by Mr. Platt and 2,500 shares of Class A common stock held directly
and jointly by Mr. Platt’s parents. This number also includes 130,667 shares of Class A common stock issuable in exchange for vested Class B Units
including those that will be vested within 60 days of February 27, 2019, based on an assumed price of $41.82 per share (the closing price of our
Class A common stock on the NYSE on February 27, 2019); 10,309 options to purchase shares of Class A common stock that vested on April 27,
2018; and 10,310 options to purchase shares of Class A common stock that vest on April 27, 2019. This number excludes 130,612 shares of Class A
common stock issuable in exchange for Class B common stock and LLC Units held by Mr. Platt and his dependent son, based on an assumed price of
$41.82 per share (the closing price of our Class A common stock on the NYSE on February 27, 2019). These shares of Class A common stock
represent less than 1% of the shares of Class A common stock that would be outstanding if all outstanding LLC Units were exchanged and all
outstanding shares of Class B common stock were converted at that time.
(18) This number includes 10,309 options to purchase shares of Class A common stock that vested on April 27, 2018, and 10,310 options to purchase
shares of Class A common stock that vest on April 27, 2019.
(19) This number includes 30,000 shares of Class A common stock owned directly by Mr. Maroone, 1,000 shares of Class A common stock held directly
by the Maroone Family Partnership, LP, an entity controlled by Mr. Maroone that Mr. Maroone disclaims beneficial ownership of except to the extent
of his pecuniary interest therein, and 20,000 shares of Class A common stock held directly by the Michael Maroone Family Partnership, LP, an entity
controlled by Mr. Maroone. This number also includes 10,309 options to purchase shares of Class A common stock that vested on April 27, 2018, and
10,310 options to purchase shares of Class A common stock that vest on April 27, 2019.
(20) This number includes 2,915,780 shares of Class A common stock issuable in exchange for vested Class B Units including those that will be vested
within 60 days of February 27, 2019, based on an assumed price of $41.82 per share (the closing price of our Class A common stock on the NYSE on
February 27, 2019); 41,236 options to purchase shares of Class A common stock that vested on April 27, 2018; 41,240 options to purchase shares of
Class A common stock that vest on April 27, 2019; 21,385 options to purchase shares of Class A common stock that vest on April 1, 2019; and
18,708 shares of Class A common stock issuable upon the vesting and settlement of restricted stock units that vest on April 1, 2019, inclusive of
shares to be withheld for tax purposes. This number excludes 15,747,138 shares of Class A common stock issuable in exchange for LLC Units held
by our executive officers and directors, based on an assumed price of $41.82 per share (the closing price of our Class A common stock on the NYSE
on February 27, 2019). These shares of Class A common stock represent approximately 10% of the shares of Class A common stock that would be
outstanding if all outstanding LLC Units were exchanged and all outstanding shares of Class B common stock were converted at that time.
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ITEM 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Grant Thornton LLP as our independent registered public accounting firm for the year ending
December 31, 2019. Services provided to Carvana and its subsidiaries by Grant Thornton LLP for the year ended December 31, 2018 are described below
and under “Audit Committee Report.”
FEES AND SERVICES
The following table summarizes the aggregate fees for professional audit services and other services rendered by Grant Thornton LLP for the
years ended December 31, 2018 and 2017:
SERVICES 2018 2017
Audit Fees $1,524,986(1) $1,061,451(3)
Audit-Related Fees $ — $ —
Tax Fees $ 349,220(2) $ 110,489
All Other Fees $ — $ —
(1) Includes the aggregate fees for the audit of our annual consolidated financial statements and internal controls, and the reviews of each of our quarterly
consolidated financial statements. These fees also include procedures performed related to our follow-on offering completed in April 2018,
registration of shares on Form S-3 in May and December 2018, and the issuance of our senior notes in September 2018.
(2) Includes the aggregate fees for tax return preparation and other tax compliance services.
(3) Includes $475,782 in fees related to our initial public offering in April 2017 that were reported in “All Other Fees” in our proxy statement prepared in
connection with our 2018 annual meeting of stockholders.
In considering the nature of the services provided by the independent auditor, the Audit Committee determined that such services are
compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent auditor and Carvana
management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement
the Sarbanes–Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.
The Audit Committee has adopted a policy that requires advance approval of all audit services as well as non-audit services to the extent
required by the Exchange Act and the Sarbanes–Oxley Act of 2002. Unless the specific service has been previously pre-approved with respect to that year,
the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it.
The Audit Committee approved all services provided by Grant Thornton LLP. Representatives of Grant Thornton LLP are expected to be
present at the annual meeting. They will have the opportunity to make a statement if they desire to do so, and we expect that they will be available to
respond to questions.
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Ratification of the appointment of Grant Thornton LLP requires affirmative votes from the holders of a majority of the shares present in person
or represented by proxy at the annual meeting and entitled to vote. If Carvana’s stockholders do not ratify the appointment of Grant Thornton LLP, the
Audit Committee will reconsider the appointment and may affirm the appointment or retain another independent accounting firm. Even if the appointment
is ratified, the Audit Committee may in the future replace Grant Thornton LLP as our independent registered public accounting firm if it is determined that
it is in Carvana’s best interests to do so.
The Audit Committee and the Board of Directors recommend that you vote “FOR” the ratification of the appointment of Grant Thornton LLP as
the independent registered public accounting firm of Carvana for the year ending December 31, 2019.
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A UDIT COMMITTEE REPORT
The Audit Committee oversees our financial reporting process on behalf of the Board. The Audit Committee is composed of three independent
directors (as defined by the New York Stock Exchange Listing Standards), met nine times in 2018, and operates under a written charter, which is posted on
our website at investors.carvana.com/corporate-governance/governance-documents. As provided in the charter, the Audit Committee’s oversight
responsibilities include monitoring the integrity of our financial statements (including reviewing financial information, the systems of internal controls, the
audit process, and the independence and performance of our internal audit function and independent registered public accounting firm) and our compliance
with legal and regulatory requirements. However, management has the primary responsibility for the financial statements and the reporting process,
including our systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee
• reviewed and discussed the audited financial statements for the year ended December 31, 2018, with our management;
• discussed with our independent auditors, Grant Thornton LLP, the matters required to be discussed by Public Company Accounting Oversight
Board (“PCAOB”) Auditing Standard No. 1301 (Communications with Audit Committees); and
• received the written disclosures and the letter from Grant Thornton LLP required by applicable requirements of the PCAOB regarding Grant
Thornton LLP’s communications with the audit committee concerning independence, and has discussed with Grant Thornton LLP the
independence of Grant Thornton LLP.
Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Respectfully submitted by:
Ira Platt
Gregory Sullivan
Michael Maroone
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ITEM 3 – SAY ON PAY
We are asking stockholders to approve, on an advisory basis, the compensation of our named executive officers as disclosed in the
“Compensation Discussion and Analysis,” the “Summary Compensation Table,” and the related compensation tables and narrative. This item is being
presented pursuant to Section 14A of the Securities Exchange Act of 1934. Although this advisory vote is not binding, the Compensation and Nominating
Committee will consider the voting results when evaluating our executive compensation program.
Our executive compensation programs are designed to support our long-term success and reflect our pay-for-performance culture. Our company
has grown dramatically over the years. Our growth has few historical precedents and makes us one of the fastest-growing technology, consumer, or retail
companies at our scale, and in 2018 we continued to grow rapidly, with another year of triple-digit unit and revenue growth while simultaneously making
significant progress in gross profit per unit and accelerating our operating leverage. We have a strong belief in promoting a pay-for-performance culture,
and, accordingly, as described in the “Compensation Discussion and Analysis” of this proxy statement, the Compensation and Nominating Committee has
set challenging performance targets based not on last year’s achievements but continued rapid growth, and has structured our executive compensation
program to tie total compensation to long-term stockholder value, as reflected primarily in our stock price. We believe that our executive compensation
plans effectively support our strategic and financial goals, create a culture of teamwork, and are directly tied to the performance of the company and
shareholder outcomes.
The Board recommends a vote “FOR” approval, on an advisory basis, of our executive compensation as described in this proxy statement.
ITEM 4 – SAY ON PAY FREQUENCY
Pursuant to Section 14A of the Exchange Act, we are asking stockholders to cast an advisory vote on the frequency of future advisory votes on
executive compensation. Stockholders may specify whether they prefer such votes to occur every year, every two years, or every three years, or they may
abstain. The Board recommends that this vote occur every year.
Although the stockholders’ vote on this proposal is not binding, the Board will consider the voting results in determining the frequency of
future advisory votes. Notwithstanding the Board’s recommendation and the outcome of the stockholder vote, the Board may in the future decide to conduct
advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with stockholders and the adoption of material
changes to compensation programs.
The Board recommends stockholders vote, on an advisory basis, to conduct future advisory votes on executive compensation every “ONE YEAR.”
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OTHER MATTERS
We are not aware of any matters other than those discussed in the foregoing materials contemplated for action at the annual meeting. The
persons named in the proxy card will vote in accordance with the recommendation of the Board on any other matters incidental to the conduct of, or
otherwise properly brought before, the annual meeting. The proxy card contains discretionary authority for them to do so.
INCORPORATION BY REFERENCE
The “Audit Committee Report” included in this proxy statement shall not be deemed soliciting material or filed with the SEC and shall not be
deemed incorporated by reference into any prior or future filings made by us under the Securities Act or the Exchange Act, except to the extent that we
specifically incorporate such information by reference. In addition, this document includes website addresses, which are intended to provide inactive,
textual references only. The information on these websites is not part of this document.
AVAILABILITY OF SEC FILINGS, CODE OF CONDUCT, AND COMMITTEE CHARTERS
Copies of our reports on Forms 10-K, 10-Q, 8-K, all amendments to those reports filed with the SEC, our code of business conduct, corporate
governance guidelines, the charters of the Audit Committee and Compensation and Nominating Committee, and any reports of beneficial ownership of our
common stock filed by executive officers, directors and beneficial owners of more than 10% of our outstanding common stock are posted on and may be
obtained through our website, investors.carvana.com, or may be requested in print, at no cost, by email at investors@carvana.com or by mail to Carvana
Co., 1930 W. Rio Salado Pkwy, Tempe, AZ 85281, Attention: Investor Relations.
WHERE TO FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and in accordance therewith, we file annual, quarterly, and current
reports and other information with the SEC. This information can be inspected and copied at the Public Reference Room at the SEC’s office at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Such
information may also be accessed electronically by means of the SEC’s home page on the internet at www.sec.gov. We are an electronic filer, and the SEC
maintains an internet site at www.sec.gov that contains the reports and other information we file electronically. Our website address is
investors.carvana.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge, through our
website, our annual report on Form 10-K, as amended, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as
soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on or accessible through
our website is not part of this proxy statement.
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COST OF PROXY SOLICITATION
Carvana is paying the expenses of this solicitation. Carvana will also make arrangements with brokerage houses and other custodians, nominees
and fiduciaries to forward proxy materials to beneficial owners of stock held as of the record date by such persons, and Carvana will reimburse such persons
for their reasonable out-of-pocket expenses in forwarding such proxy materials. In addition to solicitation by mail, directors, officers, and other employees
of Carvana may solicit proxies in person or by telephone, facsimile, email, or other similar means.
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100K MILESTONE GIFT
ANNEX
On September 10, 2018, we announced a commitment by our chief executive officer, Ernest Garcia III, 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 these 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.
NON-GAAP FINANCIAL MEASURES
To supplement the 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, and EBITDA margin ex-Gift. 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.
GROSSPROFITEX-GIFTANDGROSSPROFITPERUNITEX-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 Carvana, 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.
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A reconciliation of 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):
YEARS ENDED DECEMBER 31,
2018 2017 2016
Used vehicle gross profit $ 94,319 $32,806 $ 5,944
100k Milestone Gift in used vehicle cost of sales 3,870 — —
Used vehicle gross profit ex-Gift $ 98,189 $32,806 $ 5,944
Used vehicle unit sales 94,108 44,252 18,761
Used vehicle gross profit per unit ex-Gift $ 1,043 $ 741 $ 317
Wholesale vehicle gross profit $ 5,552 $ 1,845 $ 257
100k Milestone Gift in wholesale vehicle cost of sales 133 — —
Wholesale vehicle gross profit ex-Gift $ 5,685 $ 1,845 $ 257
Wholesale vehicle unit sales 15,125 6,509 2,651
Wholesale vehicle gross profit per unit ex-Gift $ 376 $ 283 $ 97
Total gross profit $196,709 $68,091 $19,197
100k Milestone Gift in total cost of sales 4,003 — —
Total gross profit ex-Gift $200,712 $68,091 $19,197
Used vehicle unit sales 94,108 44,252 18,761
Total gross profit per unit ex-Gift $ 2,133 $ 1,539 $ 1,023
EBITDAEX-GIFTANDEBITDAMARGINEX-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,
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income tax expense, depreciation and amortization 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 Carvana;
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 (dollars
in thousands):
YEARS ENDED DECEMBER 31,
2018 2017 2016 2015 2014
Net loss $(254,745) $(164,316) $(93,112) $(36,780) $(15,238)
Depreciation and amortization expense 23,539 11,568 4,658 2,800 1,706
Interest expense 25,018 7,659 3,587 1,412 108
100k Milestone Gift 11,821 — — — —
EBITDA ex-Gift $(194,367) $(145,089) $(84,867) $(32,568) $(13,424)
Total revenues $1,955,467 $858,870 $365,148 $130,392 $41,679
Net Loss Margin (13.0)% (19.1)% (25.5)% (28.2)% (36.6)%
EBITDA Margin ex-Gift (9.9)% (16.9)% (23.2)% (25.0)% (32.2)%
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ANNUAL MEETING OF CARVANA CO. Annual Meeting of Carvana Co. Date: April, 23, 2019 to be held on Tuesday, April 23, 2019 Time: 8:00 A.M (Pacific Daylight Time) for Holders as of February 25, 2019 Place: 3419 East University Drive, Phoenix, AZ 85034 This proxy is being solicited on behalf of the Board of Directors Please make your marks like this: Use dark black pencil or pen only The Board of Directors recommends that you vote “FOR” the directors in item 1; . VOTE BY: INTERNET TELEPHONE “FOR” items 2 and 3; and “ONE YEAR” for item 4. Call provided Go www To .proxypush.com/CVNA 866-509-2149 1: election of directors; • Cast your vote online. OR • Use any touch-tone telephone. View Meeting • Have your Proxy Card/Voting Instruction Form ready. Directors • Documents. Recommend • Follow the simple recorded instructions. For Withhold envelope MAIL 01 J. Danforth Quayle Forthe OR • Mark, sign and date your Proxy Card/Voting Instruction Form. 02 Gregory Sullivan For in • Detach your Proxy Card/Voting Instruction Form. • Return your Proxy Card/Voting Instruction Form in the For Against Abstain portion postage-paid envelope provided. 2: ratification of the appointment of Grant For Thornton LLP as Carvana’s independent this The undersigned hereby appoints Paul Breaux and Jonathan Allred, and each or either of them, as the true and registered public accounting firm for the lawful attorneys of the undersigned, with full power of substitution and revocation, and authorizes them, and each of year ending December 31, 2019; just them, to vote all the shares of capital stock of Carvana Co. which the undersigned is entitled to vote at said meeting and any adjournment thereof upon the matters specified and upon such other matters as may be properly brought 3: approval, executive by compensation an advisory (i vote, .e., “say of Carvana’s -on-pay” For before the meeting or any adjournment thereof, conferring authority upon such true and lawful attorneys to vote in return their
discretion on such other matters as may properly come before the meeting and revoking any proxy heretofore proposal) given. 1 year 2 years 3 years Abstain and THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS 4: recommendation, by an advisory vote, of the One Year frequency of future advisory votes on GIVEN, SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1; FOR THE PROPOSALS executive compensation (i.e., “say-on-pay IN ITEMS 2 AND 3; and “ONE YEAR” FOR ITEM 4. frequency”) perforation 5: other business as may properly come before the the meeting or any adjournment of the meeting.at PROXY TABULATOR FOR CARVANA CO. carefully P.O. BOX 8016 separate CARY, NC 27512-9903 Please Authorized Signatures—This section must be completed for your Instructions to be executed. Please Sign Here Please Date Here Please Sign Here Please Date Here Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.
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Proxy — Carvana Co. Annual Meeting of Stockholders Tuesday, April 23, 2019, 8:00 a.m. Pacific Daylight Time This Proxy is Solicited on Behalf of the Board of Directors The undersigned appoints Paul Breaux and Jonathan Allred (the “Named Proxies”) and each of them as proxies for the undersigned, with full power of substitution, to vote the shares of common stock of Carvana Co., a Delaware corporation (“the Company”) the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the 3419 East University Drive, Phoenix, AZ 85034 on Tuesday, April 23 at 8:00 a.m. (PDT) and all adjournments thereof. Please The purpose of the Annual Meeting is to take action on the following: 1. to elect two nominees identified in the accompanying proxy statement to serve as directors, as recommended by the Compensation and Nominating separate Committee of the board of directors of Carvana; 2. to ratify the appointment of Grant Thornton LLP as Carvana’s independent carefully registered public accounting firm for the year ending December 31, 2019; at 3. to consider the approval, by an advisory vote, of Carvana’s executive the compensation (i.e., “say-on-pay” proposal) 4. to recommend, by an advisory vote, the frequency of future advisory votes on executive compensation (i.e., “say-on-pay frequency”) perforation 5. to transact other business as may properly come before the meeting or any and adjournment of the meeting. return The two directors up for re-election are: J. Danforth Quayle and Gregory Sullivan. just The Board of Directors of the Company recommends a vote “FOR” all nominees for director, “FOR” proposals 2 and 3, and a vote of “1 Year” for proposal 4. this This proxy, when properly executed, will be voted in the manner directed portion herein. If no direction is made, this proxy will be voted “FOR” all nominees for director. In their discretion, the Named Proxies are authorized to vote in upon such other matters that may properly come before the Annual Meeting the or any
adjournment or postponement thereof. You are encouraged to specify your choice by marking the appropriate box envelope (SEE REVERSE SIDE) but you need not mark any box if you wish to vote in accordance with the Board of Directors’ recommendation. The Named provided Proxies cannot vote your shares unless you sign and return this card. . To attend the meeting and vote your shares in person, please mark this box.
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