Carvana IPO projected to surpass $210M


PHOENIX - 

Along with sharing some of its first-quarter sales and loss projections, online used-vehicle retailer Carvana late on Thursday announced the pricing of its initial public offering of 15 million shares of its Class A common stock at a price to the public of $15 per share.

The company said in its latest filing with the Securities and Exchange Commission that the action should yield proceeds of approximately $210.7 million or $242.0 million if the underwriters exercise their option in full to purchase additional shares of Class A common stock.

The shares began trading on the New York Stock Exchange on Friday under the symbol CVNA. The offering is expected to close on May 3, subject to customary closing conditions.

"We are honored to celebrate this milestone with our employees who have worked so hard to help us build a great car buying experience for consumers," Carvana chief executive officer and co-founder Ernie Garcia said in a news release.

"We're excited for our future, and what it holds for our company and millions of car buyers across the country," Garcia added.

Carvana has granted the underwriters a 30-day option to purchase up to 2,250,000 additional shares of Class A common stock.

Wells Fargo Securities, LLC, BofA Merrill Lynch, Citigroup Global Markets Inc. and Deutsche Bank Securities are acting as joint book-running managers for the offering. Robert W. Baird & Co., William Blair & Co., BMO Capital Markets Corp. and JMP Securities are acting as co-managers.

“We estimate, based upon an assumed initial public offering price of $15 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we will receive net proceeds from this offering … after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses payable by us,” the company said in the SEC filing.

“We intend to contribute the net proceeds to our wholly owned subsidiary, Carvana Sub, that will in turn acquire 18,750,000 newly-issued LLC Units (or 21,562,500 LLC Units if the underwriters exercise their option in full to purchase additional shares of Class A common stock) in Carvana Group,” the company continued.

“In turn, Carvana Group intends to apply the net proceeds it receives from us to repay all outstanding borrowings under the Verde Credit Facility, to pay expenses incurred in connection with the organizational transactions and for general corporate purposes,” the company went on to say.

“Carvana Sub will also transfer approximately 170,000 LLC Units to Ernest Garcia, II (assuming an initial public offering price of $15 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) in exchange for his 0.1 percent ownership interest in Carvana,” the company added.

Carvana’s filing also touched on its current dividend policy

“We currently intend to retain any future earnings for investment in our business and do not expect to pay any dividends in the foreseeable future,” the company said. “The declaration and payment of all future dividends, if any, will be at the discretion of our board of directors and will depend upon our financial condition, earnings, contractual restrictions, or applicable laws and other factors that our board of directors may deem relevant.”

Expected Q1 performance

As previously mentioned, Carvana revealed some of its expected performance metrics from the first quarter.

During the three-month span that concluded on March 31, the online retailer said in the SEC filing that its projected retail sales would fall between 8,250 and 8,350 units. In the year-ago quarter, Carvana indicated its retail sales totaled 3,783 units.

Carvana attributed the sales growth in part to its market growth. The company operated in 11 markets during the first quarter of last year and in 23 markets in the opening quarter of this year.

“This increase in unit sales was also driven by growth in existing markets due to expanded inventory selection, enhanced marketing efforts, increased brand awareness and customer referrals,” Carvana said in the SEC filing.

The growth in vehicle turns pushed Carvana’s expectation for total net sales and operating revenues to be between $157.3 and $159.3 million, as compared to total net sales and operating revenues of $73.0 million in Q1 of last year.

“The increase in total net sales and operating revenues was primarily the result of the increase in unit sales,” the company said.

And perhaps the metric that might pique the interest of much of the used-vehicle industry, Carvana said it expects Q1 total gross profit to be between $9.3 million and $9.8 million, as compared to total gross profit of $4.0 million in the year-ago period.

“The expected increase in gross profit is primarily due to increased unit sales and increased used vehicle gross profit per unit, which was primarily driven by enhancements in our proprietary vehicle purchasing, pricing and logistics technology,” the company said in the SEC filing.

Despite that gross profit jump, Carvana acknowledged that total net losses are projected to rise year-over-year.

For the first quarter, the online retailer said in the SEC filing that its total net loss should be between $39.3 million and $38.3 million, as compared to total net loss of $17.3 million for the three months of 2016.

“The expected increase in net loss is primarily due to an increase in selling, general and administrative expenses associated with expansion to additional markets and investment in infrastructure and headcount to support our growth,” Carvana said.

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