Carvana Co. (NYSE:CVNA) shares jumped by over a third after it reported a big improvement in second-quarter earnings and announced an agreement to cut total outstanding debt by over $1.2 billion.
Alongside its 2Q results, the online used car dealer said in a statement that the agreement with noteholders will eliminate more than 83% of its 2025 and 2027 unsecured note maturities and lower required cash interest expense by over $430 million per year for the next two years.
“The strong performance of our business in 2023 presented an opportunity for an impactful and win-win transaction for Carvana and its senior unsecured noteholders,” chief financial officer Mark Jenkins said.
“This transaction significantly increases our financial flexibility by reducing our total debt, extending maturities, and lowering near-term cash interest expense as we continue to execute our plan of driving significant profitability and returning to growth.”
Carvana said the period to June 30, 2023, was the best quarter in its history for adjusted underlying earnings (EBITDA) and total gross profit per unit (GPU).
Total GPU amount to $6,520, up 94% compared to 2Q 2022 and exceeding its previous best quarter by 27%.
Adjusted EBITDA improved to $155 million from a $216 million loss a year earlier and the company said it expected the trend to continue in 3Q.
While retail units sold fell 35% to 76,530 and revenue declined 24% to $2.968 billion, it said this was driven largely by the internal prioritization of profitability initiatives.
“Our strong execution has made the business fundamentally better, and combined with today’s agreement with noteholders that reduces our cash interest expense and total debt outstanding, gives us great confidence that we are on the right path to complete our three-step plan and return to growth,” commented founder and CEO Ernie Garcia.
The company’s shares were up 34% at $54.93 in early US trading.
Contact the author at stephen.gunnion@proactiveinvestors.com