{ "docId": "019dd923-622c-750b-8b98-98685acdea95", "docSlug": "11e962264b36", "documentTitle": "Carvana Co. (CVNA)", "authorId": "54_Spruce_Point_Capital", "authorName": null, "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2019-03-01 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 58, "pageCount": 98, "prevPage": 57, "nextPage": 59, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 6, "notes": "Uses excerpts from 10-K and S-1 filings to contrast reported margins with actual costs.", "elementsJson": [ "headline_text", "paragraph", "callout_box", "screenshot", "bar_chart_grouped" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-98685acdea95/58", "deckHref": "/decks/019dd923-622c-750b-8b98-98685acdea95", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-98685acdea95.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-98685acdea95#slide-58", "components": [ { "bbox": { "h": 0.05, "w": 0.96, "x": 0.02, "y": 0.36 }, "kind": "callout", "text": "Subtracting this $6.5M payment from Carvana’s FY 17 gross revenue would cut FY 17 GPU by 10%, from $1,539 to $1,392.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "abcf12d7-3946-47e7-9c9d-abec84c1b2ba", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "Subtracting this $6.5M payment from Carvana's FY 17 gross revenue would cut FY 17 GPU by 10%, from $1,539 to $1,392.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-64d2-7657-bbda-595fde278cf5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.28, "w": 0.43, "x": 0.55, "y": 0.61 }, "kind": "chart", "text": "GPU: As Reported vs. Ex-VSC Administration Fees", "attrs": null, "subkind": "bar-grouped", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2c5dbdff-9fbf-42e9-b827-061fc846cdce", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "Gross Profit per Unit (GPU): $1,392", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-64d2-7657-bbda-607d44d1c89b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.32, "x": 0.34, "y": 0.41 }, "kind": "other", "text": "CVNA FY 17 10-K, Pg. 54", "attrs": null, "subkind": "unclassified", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "00be0e95-6219-48f8-aacc-9c1cd71f1e08", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.32, "x": 0.14, "y": 0.55 }, "kind": "other", "text": "CVNA S-1 (Apr 23, 2018), Pg. 144", "attrs": null, "subkind": "unclassified", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b92da3d9-0387-46e0-aafb-e3a15b98d551", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.96, "x": 0.02, "y": 0.46 }, "kind": "paragraph", "text": "Other sales and revenues, which includes gains on the sales of loans we originate, GAP waiver coverage and sales commissions on VSCs and totaled $33.4 million and $13.0 million during the years ended December 31, 2017 , respectively. We expect other sales and revenues to increase with retail units sold and as we improve our ability to offer attractive financing solutions and ancillary products to our customers. Other sales and revenues are 100% gross margin products for which gross profit equals revenue.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7085af0b-bcb0-4500-aa54-93db76fabcd7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "paragraph", "text": "Industry standards dictate that revenue associated with the sale of VSC contracts be recognized as 100% gross margin revenue. However, Carvana notes that DriveTime / SilverRock received $6.5M and $0.1M in FY 17 and FY 16, respectively, “pursuant to the master dealer agreement for VSCs sold to our customers and for administering GAP waiver coverage.” CarMax also reports VSC revenue as bearing 100% gross margins, but does not report any similar payments to the administrators of its warranties or GAP insurance products. Is this something that CarMax simply doesn’t report, or do they not similarly reimburse its VSC partners for administering its warranties? If Carvana is paying SilverRock to administer its VSCs, should its VSC-related sales really be a 100% gross margin revenue stream?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ec9f2d7b-aa26-47e1-9286-c8233c30973e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.52, "x": 0.02, "y": 0.61 }, "kind": "paragraph", "text": "Master Dealer Agreement\nIn December 9, 2016, we entered into a master dealer agreement with an affiliate of DriveTime, pursuant to which we may sell certain ancillary products, including VSCs and GAP waiver coverage, to customers purchasing a vehicle from us through our transaction platform. We earn a commission on each VSC sold to Carvana customers and that affiliate subsequently administers the VSC. We also pay a per-contract fee to that affiliate to administer the GAP waiver coverage we sell to our customers. For the years ended December 31, 2017 and 2016, we were paid $10.5 million and $0.2 million, respectively, in commissions for VSC sales pursuant to the master dealer agreement. For the years ended December 31, 2017 and 2016, the affiliate of DriveTime received $6.5 million and $0.1 million, respectively, pursuant to the master dealer agreement for VSCs sold to our customers and for administering GAP waiver coverage.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ef054e06-b002-4d3c-ba00-b5369d1660fb", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "Other sales and revenues, which includes gains on the sales of loans we originate, GAP waiver coverage and sales commissions on VSCs and totaled $33.4 million and $13.0 million during the years ended December 31, 2017 , respectively. We expect other sales and revenues to increase with retail units sold and as we improve our ability to offer attractive financing solutions and ancillary products to our customers. Other sales and revenues are 100% gross margin products for which gross profit equals revenue. — CVNA FY 17 10-K, Pg. 54", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-64d2-7657-bbda-5d9934cc1787", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.65, "x": 0.31, "y": 0.05 }, "kind": "title", "text": "VSC-Related Sales Really 100% Gross Margin?", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "27eb7455-22da-4760-b9c9-8cc0eecb7040", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "b0411b58-068f-4f07-bd63-40e57f01342a", "evidence": "The slide exposes a potential accounting discrepancy regarding gross margin reporting.", "confidence": 0.9 } ], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }