Carvana Capital Raise Not Enough

May 21, 2019 3:33 PM ETCarvana Co. (CVNA)30 Comments
Bill Maurer profile picture
Bill Maurer
33.72K Followers

Summary

  • Company to sell equity and more bonds.
  • Dilution, interest just add to the story.
  • How long will this money last?

A couple of weeks ago, I discussed how auto retailer Carvana (NYSE:CVNA) was a cash incinerating machine. While the company has a recent history of strong revenue growth, it has also resulted in massive losses and cash burn. At the time, I questioned the balance sheet and discussed a need for more capital. After the bell on Monday, the company announced a capital raise, but I don't see it being a long-term solution.

Let me just remind you of the situation I discussed in my prior article. Last year saw $414 million of cash burned in operations, and that was before $150 million was spent on capex and acquisitions. In Q1 2019, the company burned through another $214.5 million in cash due to operations, up from $131.4 million a year ago. Capital expenditures also soared more than $15 million to $43.2 million, further weakening the balance sheet. As a result, here is what the company is offering to investors currently:

Carvana is proposing to sell 3,500,000 shares of Class A common stock and expects to grant the underwriters the right to purchase up to 525,000 additional shares of Class A common stock.

Concurrently with the proposed public offering of Class A common stock, Carvana is offering, subject to market conditions and other factors, $250.0 million of additional 8.875% senior notes due 2023 (the “new notes”) in a private offering. The new notes will be issued as additional notes under the indenture governing the outstanding $350.0 million in aggregate principal amount of Carvana’s 8.875% senior notes due 2023 that were issued on September 21, 2018.

The public offering of Class A common stock is not contingent upon the consummation of the concurrent new notes offering, and the concurrent new notes offering is not contingent upon the consummation of the public offering of

This article was written by

Bill Maurer profile picture
33.72K Followers
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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