Unlocking Technology for Retail Success Carvana results

Unlocking Technology for Retail Success Carvana results

• 4. RETAIL UNITS SOLD TOTAL GROSS PROFIT PER UNIT EBITDA MARGIN

• 5. (1) Excludes the CEO’s 100K Milestone Gift in Q3 2018. (1) (1)

• 11. All of these capabilities are unlocked and scaled via technology

• 12. 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 Christensen Competing Against Luck (2018)

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• 16. • BEST EXPERIENCE

• 17. • BEST EXPERIENCE

• 19. • 14,000+ cars to choose from, available in a timely, predictable manner. Days, not weeks. Inventory available on-site as of November 26, 2018.

• 20. • 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.

• 21. • 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.

• 25. • Intense focus on reducing variable costs via self-service tooling, automation, and data obsession

• 26. • Intense focus on reducing variable costs via self-service tooling, automation, and data obsession • Vertically integrated financing and ancillary products to generate incremental GPU

• 27. • 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

• 28. • 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

• 29. • 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

• 30. • 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 to share some of our structural advantages with our customers in the form of lower prices, while still expecting to reach our profit targets

• 31. • 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...

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• 34. •••••

• 37. Acquisition Channels Disposition Channels

• 38. Used Industry Leader 38 – 52% Profit per Unit Goal $500 – 1,000 Total GPU Contribution Goal $200 – 500

• 39. 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

• 40. Increased customer awareness Scalable technology and processes Vehicle data and bidding optimization Website testing and optimization Disposition process optimization

• 41. 1. Buying cars from customers 2. Financing opportunities 3. Other GPU opportunities

• 42. 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. Investors (Banks, Credit Unions, Fixed Income Investors) • Hold loan instruments to earn a risk-adjusted fixed income return

• 43. Dealer Lender Lender Lender Investor Investor 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 retain a portion of the loans they sell to investors, also making them partial investors themselves.

• 44. Dealer In-House Lender Lender Lender Investor Investor Investor 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, including a captive lender, may retain a portion of the loans they sell to investors, also making them partial investors themselves.

• 45. Vertically-Integrated Dealer and Lending Platform Investor Investor 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.

• 47. Lower Costs Better Loans

• 48. Lower retail prices  Lower monthly payments Lower retail prices  Lower loan-to-value ratios (LTV) Lower monthly payments + Lower LTVs  Better Performance

• 49.  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 future performance for all loans originated on Carvana’s website.

• 50. 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 benchmark rate at the time of each deal. Carvana cost of funds based on internal best estimates of life-of-loan performance and actual realized premiums for loans sold in the nine months ending September 30, 2018, including financing monetization fee revenue. Estimated Funding Cost (spread over benchmark) Long-term goal: Reduce cost of funds by 175 to 250 bps

• 51. 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

• 52. 1. Buying cars from customers 2. Financing opportunities 3. Other GPU opportunities

• 53. 114 109 107 95 97 105 85 83 93 92 89 93 105 97 72 70 66 63 45 55 65 75 85 95 105 115 125 Reduce average days to sale Improve utilization of IRCs and logistics network Increase attachment of VSC and GAP products Add new ancillary products

• 54. (1) Excludes the CEO’s 100K Milestone Gift in Q3 2018. (1)

• 55. We believe our online model has a lower long-term cost structure than the traditional brick-and-mortar model Customer self-service Automation Centralization Vertical integration Real estate efficiency Scale

• 56. Key Drivers Fulfillment & Customer Service (~4/5 th in LT) Leverage in logistics and last-mile delivery network and automation of manual tasks Technology & Corporate (~1/5 th in LT) Leverage technology investment and corporate overhead across more retail units sold Long-term goal: 2.25 – 2.75% of revenue (1) Excludes the CEO’s 100K Milestone Gift in Q3 2018. YTD 2018 numbers are for the nine months ending September 30, 2018. (1) 10.2% 8.9% 6.5% FY 2016 FY 2017 YTD 2018 LONGTERM 2.25 – 2.75%

• 57. 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 cohorts Long-term goal: 1.0 – 1.5% of revenue Data as of 12/31/2017.

• 58. 0 50 100 150 200 250 300 350 Long-term goal: 1.0 – 1.5% of revenue Simulation Time Key Drivers Average Distance Adding IRC’s over time reduces the distance between our cars and our customers Retail Utilization As new markets scale, utilization of the network increases Market Occupancy (~1/5 th in LT) More units create leverage in existing markets as they scale Simulated Average Miles to Nearest IRC Simulated impact of adding more IRCs over time

• 59. 9.4% 8.2% 6.4% FY 2016 FY 2017 YTD 2018 LONGTERM Key Drivers Technology & Corporate (~1/2 in LT) Operating leverage in IT and software, non-market occupancy, professional services, and other general and admin expenses Transaction & Customer Benefits (~1/2 in LT) Efficiency gains through automation, in-sourcing, and process improvements Long-term goal: 1.75 – 2.25% of revenue (1) YTD 2018 numbers are for the nine months ending September 30, 2018. 1.75 – 2.25%

• 60. (1) Excludes the CEO’s 100K Milestone Gift in Q3 2018. YTD 2018 numbers are for the nine months ending September 30, 2018.

• 62. Source: National Automobile Dealers Association for 2017; Figures may not sum due to rounding

• 63. Source: IHS Markit Registrations, Experian

• 65. Source: IHS Markit Registrations

• 67. $1,023B $692B $639B $545B $333B $326B $191B $97B $90B $83B $61B $56B Automobile dealers General merchandise stores Grocery stores Electronic shopping and mail-order houses Health and personal care stores Building mat. and supplies dealers Clothing stores Electronics and appliance stores Auto parts, accessories, and tire stores Sporting goods, hobby, music, and book stores Furniture stores Home furnishings stores

• 68. 54% 18% 19% 25% 28% 14% 40% 11% 10% 10% 22% Automobile dealers General merchandise stores Grocery stores Electronic shopping and mail-order houses Health and personal care stores Building mat. and supplies dealers Clothing stores Electronics and appliance stores Auto parts, accessories, and tire stores Sporting goods, hobby, music, and book stores Furniture stores Home furnishings stores

• 69. Largest Player #2 Player #3 Player #4 Player Largest Player #2 Player #3 Player #4 Player

• 70. Data as of 12/31/2017.

• 74. 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

• 79. $1,023B $692B $639B $545B $333B $326B $191B $97B $90B $83B $61B $56B Automobile dealers General merchandise stores Grocery stores Electronic shopping and mail-order houses Health and personal care stores Building mat. and supplies dealers Clothing stores Electronics and appliance stores Auto parts, accessories, and tire stores Sporting goods, hobby, music, and book stores Furniture stores Home furnishings stores 54% 18% 19% 25% 28% 14% 40% 11% 10% 10% 22% Automobile dealers General merchandise stores Grocery stores Electronic shopping and mail-order houses Health and personal care stores Building mat. and supplies dealers Clothing stores Electronics and appliance stores Auto parts, accessories, and tire stores Sporting goods, hobby, music, and book stores Furniture stores Home furnishings stores Largest Player #2 Player #3 Player #4 Player Largest Player #2 Player #3 Player #4 Player

• 81. TOTAL NUMBER OF DEALER VEHICLES FOR SALE IN CARVANA’S AVERAGE MARKET ESTIMATED CARVANA INVENTORY BY MILES AWAY FROM AVERAGE CUSTOMER

• 82. TOTAL NUMBER OF DEALER VEHICLES FOR SALE IN CARVANA’S AVERAGE MARKET ESTIMATED CARVANA INVENTORY BY MILES AWAY FROM AVERAGE CUSTOMER

• 83. DISTANCE TO THE NEAREST IRC FOR AVERAGE CARVANA CUSTOMER DISTANCE TO THE AVERAGE IRC FOR AVERAGE CARVANA CUSTOMER

• 84. DISTANCE TO THE NEAREST IRC FOR AVERAGE CARVANA CUSTOMER DISTANCE TO THE AVERAGE IRC FOR AVERAGE CARVANA CUSTOMER