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Item 7. Management’s Discussion and Analysis

2026-02-18 compared with 2025-02-19 · 139 added, 129 removed, 420 unchanged (39% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with Part I, including matters set forth in the "Risk Factors" section of this Annual Report on Form 10-K, and our financial statements and notes thereto included in Part II, Item 8 "Financial Statements and Supplementary Data," of this Form 10-K.

Except when stated otherwise, we present the discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.

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Retail Vehicle Unit Sales

Since launching to customers in Atlanta, Georgia in January 2013, we have historically experienced rapid growth in sales through our website www.carvana.com.

Since launching to customers in Atlanta, Georgia in January 2013, we have experienced rapid growth in sales through our website www.carvana.com.

During the year ended December 31, 2025, the number of vehicles we sold to retail customers increased by 43.3% to 596,641, compared to 416,348 in the year ended December 31, 2024.

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Each time we sell a vehicle to a new customer, that customer may refer future customers and can become a repeat buyer in the future.

• Retail units sold are an important driver of the average number of days between when we acquire the vehicle and when we sell it.

Reducing average days to sale impacts gross profit on our vehicles because used vehicles generally depreciate over time.

• Retail units sold allow us to benefit from economies of scale due to our centralized online sales model.

We believe our model provides meaningful operating leverage in acquisition, reconditioning, transport, customer service, and delivery.

We are simultaneously maintaining our focus on efficiency gains and other profitability initiatives, while continuing to invest in technology and infrastructure to support efficient growth in retail units sold.

This includes continued investment in our vehicle acquisition, reconditioning and logistics network, as well as continued investment in product development and engineering to deliver customers a best-in-class experience.

We continue to prioritize efficient growth in retail units sold, absent any material changes in macroeconomic conditions.

To prioritize growth, we are pursuing investments in technology and infrastructure, while simultaneously maintaining our focus on efficiency gains and profitability.

This includes continued investment in our vehicle acquisition, reconditioning and logistics network, as well as partnerships, product development and engineering to deliver customers a best-in-class experience.

Revenue and Gross Profit

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We generate a majority of gross profit on retail vehicle sales from the difference between the retail selling price of the vehicle and our cost of sales associated with acquiring the vehicle and preparing it for sale.

Retail vehicle sales also include shipping and delivery fees and service revenue from retail marketplace

transactions, which are retail marketplace partner vehicles sold to customers through Carvana that receive net revenue treatment due to the timing of payments with our partners.

Retail vehicle sales also include shipping and delivery fees and service revenue from retail marketplace transactions, which are retail marketplace partner vehicles sold to customers through Carvana, that, depending on the structure of the partnership, may receive net revenue treatment.

Wholesale sales and revenues includes sales of trade-ins and other vehicles acquired from customers that do not meet the requirements for our retail inventory.

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Wholesale sales and revenues totaled $4.1 billion and $2.8 billion during the years ended December 31, 2025 and 2024, respectively.

We generally expect wholesale sales to trend proportionately with retail units sold through trade-ins and from customers who wish to sell us a car independent of a retail sale and with the movement of wholesale marketplace units.

We generally expect wholesale sales to trend proportionately with retail units sold through inventory we acquire via trade-ins and from customers who wish to sell us a car independent of a retail sale and with the movement of wholesale marketplace units.

We generate gross profit on wholesale vehicle sales from the difference between the wholesale selling price of the vehicle and our cost of sales associated with acquiring the vehicle and preparing it for sale.

We generate a gross profit on wholesale marketplace units from the difference between the revenue earned from the sale of wholesale marketplace units through our wholesale marketplace platform less our cost of sales associated with operating the wholesale marketplace platform.

Other sales and revenues, which primarily includes gains on the sales of finance receivables we originate and sales commissions on complementary products such as VSCs, GAP waiver coverage, and auto insurance, totaled $1.2 billion and $753 million during the years ended December 31, 2024 and 2023, respectively.

Other sales and revenues, which primarily includes gains on the sales of finance receivables we originate and sales commissions on complementary products such as VSCs, GAP waiver coverage, and auto insurance, totaled $1.7 billion and $1.2 billion during the years ended December 31, 2025 and 2024, respectively.

We generally expect other sales and revenues to trend proportionately with retail units sold.

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Other sales and revenues are 100% gross margin products for which gross profit equals revenue.

Our highest priority continues to be providing exceptional customer experiences while improving efficiency and utilizing our infrastructure to support efficient growth in retail units sold to help us move along the path to achieve sustained profitability.

Our highest priority continues to be providing exceptional customer experiences while making effective use of our infrastructure to support efficient growth in retail units sold.

Strategies to support efficient growth initiatives, which we may undertake from time to time, include the following:

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• Leverage existing inspection and reconditioning infrastructure.

As we scale, we intend to more fully utilize the capacity at our existing IRCs and auction locations, which collectively have capacity to inspect and recondition more than 1 million vehicles per year at full utilization.

As we scale, we intend to more fully utilize the capacity at our existing IRCs and auction locations, which collectively have capacity to inspect and recondition approximately 1.5 million vehicles per year at full utilization.

• Expand our logistics network.

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We expect to experience seasonal and other fluctuations in our quarterly operating results, including as a result of macroeconomic conditions, which may not fully reflect the underlying performance of our business.

Retail and wholesale used vehicle sales generally exhibit seasonality with sales peaking late in the first calendar quarter and diminishing through the rest of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter.

Retail and wholesale used vehicle sales generally exhibit seasonality with sales peaking late in the first calendar quarter and diminishing through the rest

of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter.

Due to our historical and current rapid growth, our overall sales patterns in the past have not always reflected the general seasonality of the used vehicle industry.

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Used vehicle prices also exhibit seasonality, with used vehicles generally depreciating at a faster rate in the fourth and first quarters of each year and a slower rate in the second and third quarters of each year, all other factors being equal.

Effects of Tariffs

The global trade environment is uncertain and rapidly evolving.

We are continuing to monitor changes in tariff policy and the impact of these changes on our industry and the economy and seek to adjust to these changes as efficiently as possible.

For the year ended December 31, 2025, tariffs did not materially impact our financial or operating results.

Investment in Growth

For the past several years, we have been and continue to be focused on driving fundamental gains in gross profit per unit and operational efficiency, flexibility, and scalability through process and technology improvements to increase profitability and provide a strong foundation for profitable growth.

As we continue targeting initiatives aimed at improving efficiencies, we are simultaneously investing in the profitable expansion of our business.

While we intend to become increasingly efficient over time, we also anticipate that our operating expenses will increase as we grow retail units sold, wholesale units sold, and wholesale marketplace units transacted.

We maintain a primary focus on expanding the scale and reach of our business, while simultaneously driving operational efficiency, flexibility, and scalability through process and technology improvements that underpin sustainable, profitable growth.

While we intend to become increasingly efficient over time, absent any material changes in macroeconomic conditions, we also anticipate that our operating expenses will increase as we grow retail units sold, wholesale units sold, and wholesale marketplace units transacted.

There is no guarantee that we will be able to realize the desired return on our investments.

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We define a monthly unique visitor as an individual who has visited our website or iOS/Android application within a calendar month, based on data provided by Google Analytics.

We calculate average monthly unique visitors as the sum of monthly unique visitors in a given period, divided by the number of months in that period.

We calculate average monthly unique visitors as the sum of

monthly unique visitors in a given period, divided by the number of months in that period.

We view average monthly unique visitors as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising campaigns, and consumer awareness of our brand.

During 2024, the methodology used by Google Analytics to count unique visitors changed to include individuals visiting our iOS/Android application, in addition to those visiting our website.

We believe this change allows us to more accurately calculate and reflect average monthly unique visitors.

To conform to current period presentation, we have recast average monthly unique visitors for the year ended December 31, 2023.

The change in measurement methodology resulted in 8.5% more average monthly unique visitors for the year ended December 31, 2023, compared to previously reported numbers.

Total Website Units

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We define total gross profit per unit, non-GAAP as the aggregate gross profit, non-GAAP in a given period, divided by retail units sold in that period.

Gross profit, non-GAAP is defined as gross profit plus depreciation and amortization expense in cost of sales, share-based compensation expense in cost of sales, and restructuring expense, minus revenue related to warrants to purchase shares of Root's Class A common stock (the "Root Warrants") as discussed in Note 18 — Fair Value of Financial Instruments.

Gross profit, non-GAAP is defined as gross profit plus depreciation and amortization expense in cost of sales, share-based compensation expense in cost of sales, and restructuring expense, minus revenue related to warrants to acquire common stock of other entities (the "Warrants") as discussed in Note 17 — Fair Value of Financial Instruments.

Refer to "Non-GAAP Financial Measures" for more information, including the reconciliation of non-GAAP financial measures to the most directly comparable financial measures under generally accepted accounting principles in the United States ("GAAP").

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Retail Vehicle Sales

Retail vehicle sales represent the aggregate sales of used vehicles to customers through our website.

Revenue from retail vehicle sales is recognized upon delivery to the customer or pick up of the vehicle by the customer, and is reported net of a

reserve for expected returns.

Retail vehicle sales represent the aggregate sales of new and used vehicles to customers through our website.

Revenue from retail vehicle sales is recognized upon delivery to the customer or pick up of the vehicle by the customer, and is reported net of a reserve for expected returns.

Factors affecting retail vehicle sales revenue include the number of retail units sold and the average selling price of these vehicles.

Changes in retail units sold are a much larger driver of changes in revenue than are changes in average selling price.

Retail vehicle sales also include shipping and delivery fees and service revenue from retail marketplace transactions, which are retail marketplace partner vehicles sold to customers through Carvana, where we recognize revenue on the sale of the vehicle on a net basis, rather than recognizing the full amount of the vehicle sales price as revenue.

As a result, an increase in retail marketplace units sold as a percentage of total retail units sold would lead to a decrease in retail revenue per unit sold, and vice versa, other things being equal.

The number of retail vehicles we sell depends on the volume of traffic to our website, our inventory selection, the effectiveness of our branding and marketing efforts, the quality of our customers' purchase experience, our volume of referrals and repeat customers, the competitiveness of our pricing, competition from other used car dealerships, and general macroeconomic and used car industry conditions.

Retail vehicle sales also include shipping and delivery fees and service revenue from retail marketplace transactions, which are retail marketplace partner vehicles sold to customers through Carvana, where, depending on the structure of the partnership, we may recognize revenue on the sale of the vehicle on a net basis, rather than recognizing the full amount of the vehicle sales price as revenue.

As a result, an increase in retail marketplace units sold as a percentage of total retail units sold could lead to a decrease in retail revenue per unit sold, and vice versa, other things being equal.

The number of retail vehicles we sell depends on the volume of traffic to our website, our inventory selection, the effectiveness of our branding and marketing efforts, the quality of our customers' purchase experience, our volume of referrals and repeat customers, the competitiveness of our pricing, competition from other car dealerships and general macroeconomic and used car industry conditions, including inflationary pressures and benchmark interest rates, as well as those conditions that could arise from the global trade and geopolitical environment.

On a quarterly basis, the number of retail vehicles we sell is also affected by seasonality, with demand for retail vehicles generally reaching a seasonal high point late in the first quarter of each year, commensurate with the timing of tax refunds, and diminishing through the rest of the year, with the lowest relative level of retail vehicle sales generally expected to occur in the fourth calendar quarter.

In 2023, heightened inflation and rising interest rates resulted in lower demand for used vehicles.

Heightened inflation and interest rates persisted during the first several months of 2024, and, to a lesser extent, during the remainder of 2024, but were outweighed by seasonal demand associated with the timing of tax refunds and certain of our initiatives focused on growth in retail units sold.

Our revenue per retail unit depends on macroeconomic and used car industry conditions, the mix of vehicles we acquire, retail prices in our markets, our pricing strategy, our average days to sale, and the number of retail marketplace units sold.

Our revenue per retail unit depends on macroeconomic and used car industry conditions, including those that could arise from the global trade and geopolitical environment, the mix of vehicles we acquire, retail prices in our markets, our pricing strategy, our average days to sale, and the number of retail marketplace units sold.

We may choose to shift our inventory mix to higher or lower cost vehicles, or to raise or lower our prices relative to market to take advantage of supply or demand imbalances, which could temporarily lead to average selling prices increasing or decreasing.

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The vehicles we sell to wholesalers are primarily acquired from customers who sell a vehicle to us without purchasing a retail vehicle and from our customers who trade in their existing vehicles when making a purchase from us.

Factors affecting wholesale sales and revenues include the number of wholesale units sold and the average wholesale selling price of these vehicles.

Factors affecting wholesale sales and revenues include the number of wholesale units sold and the average wholesale selling price of these vehicles, and macroeconomic conditions, including those that could arise from the global trade and geopolitical environment.

The average selling price of our wholesale units is primarily driven by the mix of vehicles we sell to wholesalers, as well as general supply and demand conditions in the applicable wholesale vehicle market, including the level of depreciation in the wholesale vehicle market.

Wholesale sales and revenues includes aggregate proceeds we receive on vehicles sold to DriveTime through competitive online auctions that are managed by an unrelated third party and through the Company's wholesale marketplace platform.

Wholesale marketplace revenues include revenue earned from the sale of wholesale marketplace units by third-party sellers to buyers through our wholesale marketplace platform, including auction fees and related services revenue.

Wholesale marketplace revenues include revenue earned from the sale of wholesale marketplace units by third-party sellers or Carvana to buyers through our wholesale marketplace platform, including auction fees and related services revenue.

Other Sales and Revenues

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The securitization trusts issue asset-backed securities, some of which are collateralized by the finance receivables that we sell to the securitization trusts.

We also sell the loans we originate under committed forward-flow arrangements, including a Master Purchase and Sale Agreement (as defined in Note 8 — Finance Receivables Sales Agreements of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K), and through fixed pool loan sales, with financing partners who generally acquire them at premium prices without recourse to us for their post-sale performance.

We also sell the loans we originate under committed forward-flow arrangements, including the Ally Master Purchase and Sale Agreement (as defined in Note 7 — Finance Receivable Sale Agreements of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K the "Ally MPSA"), and through fixed pool loan sales, with financing partners who generally acquire them at premium prices without recourse to us for their post-sale performance.

Factors affecting revenue from these sales include the number of loans we originate, the average principal balance of the loans, the credit quality of the portfolio, the price at which we are able to sell them in securitization transactions or to financing partners, and economic conditions in the capital markets.

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The price at which we sell the loan is driven by the terms of our securitization transactions and forward-flow arrangement, applicable interest rates, and whether or not the loan includes GAP waiver coverage.

We receive a commission for selling VSCs that DriveTime administers under a master dealer agreement with DriveTime.

The commission revenue we recognize on VSCs depends on the number of retail units we sell, the conversion rate of VSCs on these sales, commission rates we receive, VSC early cancellation frequency and product features.

We receive a commission for selling VSCs that DriveTime Automotive Group, Inc.

(together with its consolidated affiliates, collectively, "DriveTime") administers under a master dealer agreement with DriveTime.

The commission revenue we recognize on VSCs depends on the number of retail units we sell, the conversion rate of VSCs on these sales, commission

rates we receive, VSC early cancellation frequency and product features.

The GAP waiver coverage revenue we recognize depends on the number of retail units we sell, the number of customers that choose to finance their purchases with us, the frequency of GAP waiver coverage early cancellation, and the conversion rate of GAP waiver coverage on those sales.

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Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the vehicle market.

Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles, as well as indirect costs, such as IRC overhead.

Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles, as well as indirect costs, such as IRC and auction site overhead.

Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition to the IRC or other site.

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Retail Vehicle Gross Profit

Retail vehicle gross profit is the vehicle sales price minus our costs of sales associated with vehicles that we list and sell on our website.

Retail vehicle gross profit is primarily the vehicle sales price minus our costs of sales associated with vehicles that we list and sell.

Retail vehicle gross profit per unit is our aggregate retail vehicle gross profit in any measurement period divided by the number of retail units sold in that period.

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SG&A expenses include expenses associated with advertising and providing customer service to customers, including financing, title and registration and limited warranty services, operating our vending machines, hubs, physical auctions, logistics and fulfillment network and other corporate overhead expenses, including expenses associated with information technology, product development, engineering, legal, accounting, finance, and business development.

SG&A expenses exclude the costs of inspecting and reconditioning vehicles and transporting vehicles from the point of acquisition to the IRC, which are

included in cost of sales, and payroll costs for our employees related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

SG&A expenses exclude the costs of inspecting and reconditioning vehicles and transporting vehicles from the point of acquisition to the IRC or other site, which are included in cost of sales, and payroll costs for our employees related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

Other Operating Expense, Net

Other operating expense, net primarily includes other general operating expenses such as gains or losses from disposals of long-lived assets.

Interest Expense

Interest expense includes interest incurred on our various tranches of Senior Secured Notes and Senior Unsecured Notes, our Floor Plan Facility, and our Finance Receivable Facilities (each as defined in Note 10 — Debt Instruments of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K), as well as our finance leases, and long-term debt, which are used to fund general working capital, our inventory, our transportation fleet, and certain of our property and equipment.

Interest expense also includes amortization of capitalized debt issuance costs, which is offset by amortization of debt premium and interest income earned on cash and cash equivalents.

Interest expense excludes the interest incurred during various construction projects to build, upgrade, or remodel certain facilities, which is capitalized to property and equipment and depreciated over the estimated useful lives of the related assets.

Other (Income) Expense, Net

Other (income) expense, net includes changes in fair value on our beneficial interests in securitizations, purchase price adjustment receivables, and fair value adjustments related to our Root Warrants as discussed in Note 18 — Fair Value of Financial Instruments of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

Other (income) expense, net also includes expense related to our Tax Receivable Agreement ("TRA") liability.

Refer to Note 15 — Income Taxes for further discussion of the TRA.

Interest Expense, Net

Interest expense, net includes interest incurred on our various tranches of Senior Secured Notes and Senior Unsecured Notes, our Floor Plan Facility, and our Finance Receivable Facilities (each as defined in Note 9 — Debt Instruments of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K), as well as our finance leases, and long-term debt, which are used to fund general working capital, our inventory, our transportation fleet, and certain of our property and equipment.

Interest expense, net also includes amortization of capitalized debt issuance costs, which is offset by amortization of debt premium and interest income earned on cash and cash equivalents.

Interest expense, net excludes the interest incurred during various construction projects to build, upgrade or remodel certain facilities, which is capitalized to property and equipment and depreciated over the estimated useful lives of the related assets.

Other Expense (Income), Net

Other expense (income), net includes changes in fair value on our beneficial interests in securitizations, purchase price adjustment receivables, and fair value adjustments related to our warrants to acquire common stock of other entities as discussed in Note 17 — Fair Value of Financial Instruments of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

Other expense (income), net also includes expense related to our Tax Receivable Agreement ("TRA") liability.

Refer to Note 14 — Income Taxes of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K for further discussion of the TRA.

Income Tax (Benefit) Provision

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Retail vehicle sales increased by $4.9 billion to $14.5 billion during the year ended December 31, 2025 compared to $9.7 billion during the year ended December 31, 2024.

The increase in revenue was primarily due to an increase in the number of retail vehicles sold to 416,348 from 312,847 during the years ended December 31, 2024 and 2023, respectively, partially offset by a decrease in retail revenue per retail unit sold to $23,252 in the year ended December 31, 2024 from $24,018 in the prior year, due primarily to higher retail marketplace units sold as a share of total retail units sold, partially offset by faster turn times, compared to the year ended December 31, 2023.

The increase in revenue was primarily due to an increase in the number of retail vehicles sold to 596,641 from 416,348 during the years ended December 31, 2025 and 2024, respectively, and an increase in retail revenue per retail unit sold to $24,365 in the year ended December 31, 2025 from $23,252 in the prior year, primarily due to lower retail marketplace units sold as a share of total retail units sold.

Wholesale Sales and Revenues

Wholesale sales and revenues increased by $337 million to $2.8 billion during the year ended December 31, 2024, compared to $2.5 billion during the year ended December 31, 2023.

The increase in revenue was primarily due to an increase in the number of wholesale units sold to 199,780 from 156,545 during the years ended December 31, 2024 and 2023, respectively.

The increase in wholesale units sold was primarily a result of an increase in overall vehicle acquisitions during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase was partially offset by higher overall depreciation in the wholesale vehicle market as the wholesale revenue per wholesale unit sold decreased to $9,611 from $10,527 during the years ended December 31, 2024 and 2023, respectively.

Additionally, wholesale marketplace revenues were higher during the year ended December 31, 2024 at $921 million, compared to $856 million during the year ended December 31, 2023, primarily due to an increase in the number of wholesale marketplace units transacted to 955,802 from 871,200 during the years ended December 31, 2024 and 2023, respectively.

Wholesale sales and revenues increased by $1.2 billion to $4.1 billion during the year ended December 31, 2025, compared to $2.8 billion during the year ended December 31, 2024.

The increase in revenue was primarily due to an increase in the number of wholesale units sold to 297,643 from 199,780 during the years ended December 31, 2025 and 2024, respectively, driven by an increase in overall vehicle acquisitions compared to the prior year.

Additionally, wholesale revenue per wholesale unit sold increased to $10,519 from $9,611 during the years ended December 31, 2025 and 2024, respectively.

Other Sales and Revenues

Other sales and revenues increased by $398 million to $1.2 billion during the year ended December 31, 2024, compared to $753 million during the year ended December 31, 2023.

The increase was primarily due to an increase in gain on loan sales as a result of increased retail units sold, more loan sales, and higher loan sale spreads during the year ended December 31, 2024.

Other sales and revenues increased by $582 million to $1.7 billion during the year ended December 31, 2025, compared to $1.2 billion during the year ended December 31, 2024.

The increase was primarily due to an increase in gain on loan sales as a result of increased retail units sold, loan sale volume, and loan sale spreads, and to higher VSC conversion rates during the year ended December 31, 2025, partially offset by lower interest income on finance receivables held for sale.

Retail Vehicle Gross Profit

Retail vehicle gross profit increased by $633 million to $1.4 billion during the year ended December 31, 2024, compared to $746 million during the year ended December 31, 2023.

Retail vehicle gross profit increased by $599 million to $2.0 billion during the year ended December 31, 2025, compared to $1.4 billion during the year ended December 31, 2024.

This increase was driven primarily by an increase in the number of retail vehicles sold to 596,641 from 416,348 during the years ended December 31, 2025 and 2024, respectively.

Additionally, retail vehicle gross profit per unit increased to $3,312 for the year ended December 31, 2024, compared to $2,385 for the year ended December 31, 2023.

The per unit increase was primarily driven by lower average days to sale, lower vehicle acquisition costs relative to sales prices, and lower reconditioning and inbound transport costs on retail vehicles sold during the year ended December 31, 2024.

Additionally, retail vehicle gross profit per unit was approximately flat at $3,315 for the year ended December 31, 2025, compared to $3,312 for the year ended December 31, 2024.

Wholesale Gross Profit

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Total $ 2,308 $ 1,874

(1) Compensation and benefits includes all payroll and related costs, including benefits, payroll taxes, and equity-based compensation, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

(2) Market occupancy costs includes occupancy costs of our vending machine and hubs.

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(4) Other costs include all other selling, general and administrative expenses such as IT expenses, corporate occupancy, professional services and insurance, limited warranty, and title and registration.

Selling, general and administrative expenses increased by $78 million to $1.9 billion during the year ended December 31, 2024 compared to $1.8 billion during the year ended December 31, 2023, primarily due to higher employee headcount and other SG&A expenses, primarily associated with higher retail units sold.

Selling, general and administrative expenses increased by $434 million to $2.3 billion during the year ended December 31, 2025 compared to $1.9 billion during the year ended December 31, 2024, primarily due to higher employee headcount, advertising, and other SG&A expenses, primarily associated with higher retail units sold.

Other Operating Expense, Net

Other operating expense, net increased by $4 million to $12 million during the year ended December 31, 2024 compared to $8 million during the year ended December 31, 2023, due to higher disposals of long-lived assets.

Interest Expense

Interest expense increased by $19 million to $651 million during the year ended December 31, 2024 compared to $632 million during the year ended December 31, 2023, primarily due to increased interest on the Senior Secured Notes, partially offset by lower interest on the Senior Unsecured Notes, floor plan facility, and finance receivable facilities, and higher interest income.

Loss (Gain) on Debt Extinguishment

Loss on debt extinguishment was $12 million during the year ended December 31, 2024, due to the repurchase of $370 million of 2028 Senior Secured Notes in the open market for $384 million, which included $8 million of accrued interest and $1 million in pro-rata write-offs of unamortized debt issuance costs and unamortized premium.

Additionally, in the year ended December 31, 2024 the Company redeemed $100 million of 2028 Senior Secured Notes for $108 million, which included $3 million of accrued interest.

Gain on debt extinguishment was $878 million during the year ended December 31, 2023, due to the exchange of $5.5 billion in principal of Senior Unsecured Notes for $4.2 billion in principal of Senior Secured Notes and $341 million in cash, along with the write off of $66 million of debt issuance costs and a $40 million deferred premium on a portion of the Senior Secured Notes.

Other (Income) Expense, Net

Other (income) expense, net was income of $73 million during the year ended December 31, 2024 and was primarily due to a $115 million increase in the fair value of Root Warrants and a $23 million increase in the fair value of beneficial interests in securitizations, partially offset by $67 million of TRA expense.

Other (income) expense, net was income of $9 million during the year ended December 31, 2023 and was primarily due to a $14 million increase in the fair value of beneficial interests in

securitizations, $6 million of other income, and a $3 million increase in the fair value of Root Warrants, partially offset by $14 million of TRA expense.

Other operating expense, net decreased by $9 million to $3 million during the year ended December 31, 2025 compared to $12 million during the year ended December 31, 2024, due to lower disposals of long-lived assets.

Interest Expense, Net

Interest expense, net decreased by $146 million to $505 million during the year ended December 31, 2025 compared to $651 million during the year ended December 31, 2024, primarily due to lower interest on the Senior Secured Notes as a result of the repurchases and redemptions of the 2028 Senior Secured Notes and 2025 Senior Unsecured Notes, our election to pay cash interest on the 2028 and 2030 Senior Secured Notes, higher interest income, and lower interest on the finance receivable facilities and floor plan facility.

Loss on Debt Extinguishment

Loss on debt extinguishment was $16 million and $12 million during the years ended December 31, 2025 and 2024, respectively.

During the year ended December 31, 2025, $611 million of principal amount of 2028 Senior Secured Notes were voluntarily repurchased and redeemed for $633 million, which included $7 million of accrued interest and $1 million of pro-rata write-offs of unamortized debt issuance costs and unamortized premium.

During the year ended December 31, 2024, $470 million of principal amount of 2028 Senior Secured Notes were voluntarily repurchased and redeemed for $492 million, which included $12 million of accrued interest and $2 million of pro-rata write-offs of unamortized debt issuance costs and unamortized premium.

Other Expense (Income), Net

Other expense (income), net was an expense of $2.3 billion during the year ended December 31, 2025 and was primarily due to $2.2 billion of TRA expense and a $64 million decrease in the fair value of Root Warrants, partially offset by a $12 million increase in the fair value of beneficial interests in securitizations.

Other expense (income), net was income of $73 million during the year ended December 31, 2024 and was primarily due to a $115 million increase in the fair value of Root Warrants and a $23 million increase in the fair value of beneficial interests in securitizations, partially offset by $67 million of TRA expense.

Income Tax (Benefit) Provision

Income tax (benefit) provision changed by $29 million to a benefit of $4 million during the year ended December 31, 2024 compared to an expense of $25 million during the year ended December 31, 2023.

The change was primarily due to the income tax expense related to the cancellation of debt income recognized on the exchange of $5.5 billion in principal of Senior Unsecured Notes for $4.2 billion in principal of Senior Secured Notes and $341 million in cash during the year ended December 31, 2023.

Income tax (benefit) provision was a benefit of $2.8 billion during the year ended December 31, 2025 and was primarily due to the release of our valuation allowance against our deferred tax assets.

We released $2.2 billion of our valuation allowance during the year ended December 31, 2025 and recorded $547 million of income tax benefit as a result of current year activity.

Income tax (benefit) provision was a benefit of $4 million during the year ended December 31, 2024.

For additional information, see Note 14 —Income Taxes.

Non-GAAP Financial Measures

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SG&A expenses, non-GAAP;

and Total SG&A expenses per retail unit, non-GAAP are supplemental measures of operating performance that do not represent and should not be considered an alternative to net income (loss), gross profit, or SG&A expenses, as determined by GAAP.

Adjusted EBITDA is defined as net income (loss) plus income tax (benefit) provision, interest expense, other operating expense, net, other (income) expense, net, depreciation and amortization expense in cost of sales and SG&A expenses, share-based compensation expense in cost of sales and SG&A expenses, goodwill impairment, loss on debt extinguishment, and restructuring expense, minus revenue related to our Root Warrants and gain on debt extinguishment.

and Total SG&A expenses per retail unit, non-GAAP are supplemental measures of operating performance that do not represent and should not be considered an alternative to net income, gross profit, or SG&A expenses, as determined by GAAP.

Adjusted EBITDA is defined as net income plus (minus) income tax (benefit) provision, interest expense, net, other operating expense, net, other expense (income), net, depreciation and amortization expense in cost of sales and SG&A expenses, share-based compensation expense in cost of sales and SG&A expenses, loss (gain) on debt extinguishment, and restructuring expense, minus revenue related to our warrants.

Adjusted EBITDA margin is Adjusted EBITDA as a percentage of total revenues.

Gross profit, non-GAAP is defined as GAAP gross profit plus depreciation and amortization expense in cost of sales, share-based compensation expense in cost of sales, and restructuring expense in cost of sales, minus revenue related to our Root Warrants.

Gross profit, non-GAAP is defined as GAAP gross profit plus depreciation and amortization expense in cost of sales, and share-based compensation expense in cost of sales, minus revenue related to our warrants.

Total gross profit per retail unit, non-GAAP is Gross profit, non-GAAP divided by retail vehicle unit sales.

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and Total SG&A expenses per retail unit, non-GAAP may not be comparable to similarly titled measures provided by other companies due to potential differences in methods of calculations.

A reconciliation of Adjusted EBITDA to net income (loss), Gross profit, non-GAAP to gross profit, and SG&A expenses, non-GAAP to SG&A expenses, which are the most directly comparable GAAP measures, and calculations of Adjusted EBITDA margin, Total gross profit per retail unit, non-GAAP, and Total SG&A expenses per retail unit, non-GAAP is as follows:

A reconciliation of Adjusted EBITDA to net income, Gross profit, non-GAAP to gross profit, and SG&A expenses, non-GAAP to SG&A expenses, which are the most directly comparable GAAP measures, and calculations of Adjusted EBITDA margin, Total gross profit per retail unit, non-GAAP, and Total SG&A expenses per retail unit, non-GAAP is as follows:

Years Ended December 31,

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(dollars in millions, except per unit amounts)

Net income (loss) $ 404 $ 150 $ (2,894)

Net income $ 1,895 $ 404 $ 150

Income tax (benefit) provision (2,785) (4) 25

Interest expense 651 632 486

Interest expense, net 505 651 632

Other operating expense, net 3 12 8

Other (income) expense, net

Other expense (income), net

2,250 (73) (9)

Depreciation and amortization expense in cost of sales 111 140 169

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Share-based compensation expense in SG&A expenses 96 91 73

Goodwill impairment — — 847

Root warrant revenue (21) (21) (7)

Warrant revenue (21) (21) (21)

Loss (gain) on debt extinguishment

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Total revenues $ 20,322 $ 13,673 $ 10,771

Net income (loss) margin 3.0 % 1.4 % (21.3) %

Net income margin 9.3 % 3.0 % 1.4 %

Adjusted EBITDA margin 11.0 % 10.1 % 3.1 %

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Share-based compensation expense in cost of sales 3 1 —

Root warrant revenue (21) (21) (7)

Restructuring expense in cost of sales (1)

Warrant revenue (21) (21) (21)

Gross profit, non-GAAP $ 4,285 $ 2,996 $ 1,872

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Total SG&A expenses per retail unit, non-GAAP $ 3,433 $ 3,886 $ 4,900

(1) For the year ended December 31, 2022, includes $28 million of lease termination fees, net of amounts written off for the corresponding operating lease right-of-use assets and operating lease liabilities which were terminated, $26 million of expenses associated with workforce reductions, of which $7 million was recorded to cost of sales, and $3 million of other restructuring-related costs.

Liquidity and Capital Resources

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We generate additional cash flows through our financing activities including our short-term revolving inventory and finance receivable facilities and real estate and equipment financing, the issuance of debt securities, and new issuances of equity.

Historically, cash generated from financing activities has funded growth and expansion into new markets and strategic initiatives and we expect this to continue in the future.

In response to the macroeconomic environment, our focus in past years has been on driving profitability through initiatives to better conform our expense structure to unit volume levels and create a strong operational foundation, allowing us to shift focus throughout 2024 to the long-term phase of driving profitable growth.

We expect to continue our focus on profitability initiatives as we continue to grow.

Going forward, we expect to fund growth and expansion primarily through cash generated from operating activities, while retaining the option to utilize financing activities as a supplemental source if desired.

We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months.

Our ability to service our debt and fund working capital, capital expenditures, and business development efforts in the long-term depends on our ability to generate cash from operating and financing activities, which is subject to our future operating performance, as well as to general economic, financial, competitive, legislative, regulatory, and other conditions, some of which are beyond our control.

Our future capital requirements depend on many factors, including our ability to generate cash from operating activities, our ability to refinance indebtedness, our ability to obtain supplemental liquidity through debt, equity, including the issuance of equity pursuant to our ATM Program, strategic relationships or other arrangements on terms available or acceptable to us, our rate of revenue growth, our construction of IRCs and vending machines, the timing and extent of our spending to support our technology and software development efforts, our advertising spend, and increased population coverage.

Our future capital requirements depend on many factors, including our ability to generate cash from operating activities, our ability to refinance indebtedness, our ability to obtain supplemental liquidity through debt, equity, including the issuance of equity pursuant to our ATM Program, if used, strategic relationships or other arrangements on terms available or acceptable to us, our rate of revenue growth, our build-outs of ADESA auction sites to provide IRC capabilities, the timing and extent of our spending to support our technology and software development efforts, our advertising spend, and increased population coverage.

If we need to obtain supplemental liquidity, there can be no assurance that financing alternatives will be available in sufficient amounts or on terms acceptable to us in the future.

On July 19, 2023, the Company entered into an agreement (the "Distribution Agreement") to establish an ATM Program, and on July 31, 2024, the Company refreshed the ATM Program by entering into an Amended and Restated Distribution Agreement with Barclays Capital Inc., Citigroup Global Markets Inc., Moelis & Company LLC, and Virtu Americas LLC.

Under the ATM Program as of December 31, 2024, the Company could sell up to the greater of (i) shares of Class A common stock representing an aggregate offering price of $1.0 billion, or (ii) an aggregate of 35 million shares of Class A common stock, from time to time.

In the year ended December 31, 2024, we issued 6.8 million shares of Class A common stock at a weighted-average issuance price per share of $186.56, for gross proceeds of $1.3 billion, which we are using for general corporate purposes.

On February 19, 2025, the Company further refreshed the ATM Program by entering into a Second Amended and Restated Distribution Agreement with Barclays Capital Inc., Citigroup Global Markets Inc., and Virtu Americas LLC.

Under the ATM Program, the Company could sell up to the greater of (i) shares of Class A common stock representing an aggregate offering price of $1.0 billion, or (ii) an aggregate of 21 million shares of Class A common stock, from time to time.

As of December 31, 2025, $461 million of aggregate offering price remained available to be sold under the ATM Program.

During the year ended December 31, 2025, we issued 1.5 million shares of Class A common stock at a weighted-average issuance price per share of $364.93, for gross proceeds of $539 million.

However, there can be no assurance that we will sell further shares of Class A common stock through the ATM Program, or otherwise.

See Item 9B “Other Information” for a description of amendments to the ATM Program after December 31, 2024.

Finally, subject to the restrictions in the indentures governing the Senior Secured Notes, we or our affiliates have and may again, at any time, and from time to time, repurchase shares of our Class A common stock, our Senior Unsecured Notes, our Senior Secured Notes, or any other securities we may issue, from time to time, in open market transactions, privately negotiated transactions, in exchange for property or other securities or otherwise.

In addition, subject to the restrictions in the indentures governing the Senior Secured Notes and the terms of such notes and our Senior Unsecured Notes, we have and may again, redeem all or portions of such notes.

During the year ended December 31, 2024, we repurchased and cancelled $370 million of principal amount of 2028 Senior Secured Notes and redeemed $100 million of 2028 Senior Secured Notes.

Any additional repurchase or redemption decisions will be made after consideration of market conditions and liquidity needs and will be upon such terms and at such prices as we determine appropriate.

Subject to the restrictions in the indentures governing the Senior Secured Notes, we or our affiliates have and may again, at any time, and from time to time, repurchase shares of our Class A common stock, our Senior Unsecured Notes, our Senior Secured Notes, or any other securities we may issue, from time to time, in open market transactions, privately negotiated transactions, in exchange for property or other securities or otherwise.

In addition, subject to the restrictions in the indentures governing the Senior Secured Notes and the terms of such notes and our Senior Unsecured Notes, we may again, redeem all or portions of such notes.

During the year ended December 31, 2025, as permitted by the indenture, $611 million of principal amount of 2028 Senior Secured Notes were voluntarily repurchased and redeemed for $633 million, which included $7 million of accrued interest and $1 million of pro-rata write-offs of unamortized debt issuance costs and unamortized premium.

Further, during the year ended December 31, 2025, the Company repaid $98 million of principal amount of the 2025 Senior Unsecured Notes upon maturity.

Any additional repurchase or redemption decisions will be made after consideration of market conditions and liquidity needs and will be upon such terms and at such prices as we determine appropriate or as required under the indenture governing the applicable notes.

However, there is no guarantee that a repurchase or redemption will take place.

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Availability under short-term revolving facilities is distinct from the total commitment amount of these facilities because it represents the amount we are able to borrow as of period end, rather than committed future amounts that could be borrowed to finance future additional assets.

Effective November 1, 2023, we amended our vehicle inventory Floor Plan Facility to resize the line of credit to $1.5 billion through April 30, 2025.

As of December 31, 2024 and 2023, the short-term revolving facilities had a total commitment of $4.2 billion each period, an outstanding balance of $67 million and $668 million, respectively, and unused capacity of $4.1 billion and $3.5 billion, respectively.

Effective November 1, 2023, we amended our vehicle inventory Floor Plan Facility to resize the line of credit to $1.5 billion through April 30, 2025 and further renewed until April 30, 2027 on April 29, 2025.

See Note 9 — Debt Instruments of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

As of December 31, 2025 and 2024, the short-term revolving facilities had a total commitment of $5.0 billion and $4.2 billion, respectively, an outstanding balance of $58 million and $67 million, respectively, and unused capacity of $4.9 billion and $4.1 billion, respectively.

On October 20, 2025, the Company entered into a loan and security agreement (the "Loan Agreement") with Citizens Bank, N.A.

("Citizens Bank"), which provides for up to $250 million in aggregate principal amount of loans to finance certain equipment for its transportation fleet.

All loans extended under the Loan Agreement are secured by a first priority lien on the transportation fleet and will mature within four to seven years depending on the attributes of the financed equipment.

At maturity, a final payment of unamortized principal will be due to Citizens Bank.

These outstanding loans will bear interest at a rate based on the applicable SOFR swap rate, with tenors ranging from two and a half to four years, plus an applicable margin ranging from 2.80% to 2.95% depending on the maturity of the loan.

The Company has the option to prepay the outstanding balances of the loans prior to the Maturity Date.

Super senior debt capacity and pari passu senior debt capacity represents basket capacity to incur additional debt that could be senior or pari passu in lien priority as to the collateral securing the obligations under the Senior Secured Notes, subject to the terms and conditions set forth in the indentures governing the Senior Secured Notes.

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We historically have financed the majority of our retained beneficial interests in securitizations and expect to continue to do so in the future.

Additionally, in January 2025, we amended our Master Purchase and Sale Agreement to, among other things, reestablish the commitment by the purchaser to purchase up to $4.0 billion of principal balances of finance receivables between January 3, 2025 and January 2, 2026.

See Note 8 — Finance Receivable Sale Agreements, included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K for discussion regarding principal balances and unused capacity under the Master Purchase and Sale Agreement.

On October 28, 2025, the Ally MPSA was amended to, among other things, increase the commitment by Ally to purchase up to $6.0 billion of principal balance of finance receivables between October 28, 2025, and October 27, 2026.

See Note 7 — Finance Receivable Sale Agreements, included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

On October 24, 2025, we entered into a definitive loan purchase agreement with an independent, third-party purchaser for the sale of up to $4.0 billion of principal balance of finance receivables through October 2027.

Also, on October 24, 2025, we entered into a separate definitive loan purchase agreement with another independent, third-party purchaser for the sale of up to $4.0 billion of principal balance of finance receivables through December 2027.

In addition, on December 5, 2025, we entered into a third definitive loan purchase agreement with a third independent, third-party purchaser for the sale of up to $4.0 billion of principal balance of finance receivables through December 2027.

These agreements formalize existing relationships with loan purchasers and establish defined expectations for loan sale volume and sale procedures throughout the respective agreement periods.

During the year ended December 31, 2025, the Company separately acquired five franchise dealerships for total purchase consideration of $160 million, comprised of $101 million in cash and $59 million in trade vehicle floor plan payables.

Further, in connection with these franchise dealership acquisitions, the Company entered into a Master Loan and Security Agreement (the "Trade Floor Plan Facility") with Stellantis Financial Services, Inc.

("SFS") to finance certain of our purchases of new vehicle inventory, and such financed inventory secures the Trade Floor Plan Facility.

The line of credit under the Trade Floor Plan Facility is $214 million, allocated among sub-advance limits for each dealership location and type of vehicle inventory.

To optimize our cost of capital, in any given period we may choose not to maximize borrowings on our short-term revolving facilities, maximize revolving commitment size, or immediately sale-leaseback real estate;

and we may also choose to

retain beneficial interests in securitizations for varying amounts of time.

and we may also choose to retain beneficial interests in securitizations for varying amounts of time.

This has the benefit of reducing interest expense and debt issuance costs and providing flexibility to minimize financing costs over time.

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As of December 31, 2025 and 2024, our outstanding principal amount of indebtedness was $5.0 billion and $5.5 billion, respectively, summarized in the table below.

See Note 10 — Debt Instruments and Note 16 — Leases of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K for further information on our debt.

See Note 9 — Debt Instruments of our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K for further information on our debt.

(in millions)

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Floor plan facility $ 58 $ 67

Finance receivable facilities — 555

Financing of beneficial interests in securitizations 374 354

Real estate financing 485 485

Transportation fleet financing 23 —

Total asset-based financing 940 906

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Total included in long-term debt, net $ 4,747 $ 5,148

(1) Includes $105 million and $185 million of accrued paid-in-kind ("PIK") interest as of December 31, 2024 and 2023, respectively.

(1) Includes zero and $105 million of accrued paid-in-kind ("PIK") interest as of December 31, 2025 and 2024, respectively.

Accrued PIK interest increases the principal amount of Senior Secured Notes on each semi-annual interest payment date.

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Net cash provided by operating activities

Net cash (used in) provided by investing activities (13) 31

Net cash provided by (used in) financing activities 261 (868)

Net increase (decrease) in cash, cash equivalents and restricted cash

$ 1,036 $ 918

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period 1,760 594

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Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, and cash used to acquire customers.

Cash provided by operating activities was $918 million and $803 million for the years ended December 31, 2024 and 2023, respectively, an increase in cash provided by operating activities of $115 million, primarily due to an improvement in operating results and a $274 million reduction in interest paid due to higher PIK interest on the Senior Secured Notes in the year ended December 31, 2024, partially offset by increased vehicle inventory acquisitions and a lower ratio of finance receivables sold relative to originations of finance receivables.

Cash provided by operating activities was $1.0 billion and $918 million for the years ended December 31, 2025 and 2024, respectively, an increase in cash provided by operating activities of $118 million, primarily due to an improvement in operating results, partially offset by increased vehicle inventory acquisitions during the year ended December 31, 2025, together with an increase in interest paid due to our election to pay cash interest on the 2028 and 2030 Senior Secured Notes.

Investing Activities

Our primary use of cash for investing activities is purchases of property and equipment.

Cash used in and provided by investing activities was $13 million and $31 million during the years ended December 31, 2024 and 2023, respectively, an increase in cash used in investing activities of $44 million, primarily driven by lower proceeds received from the sale of property and equipment in the year ended December 31, 2024, partially offset by increased principal payments received on and proceeds from the sale of beneficial interests in securitizations during the year ended December 31, 2024.

Cash used in investing activities was $230 million and $13 million during the years ended December 31, 2025 and 2024, respectively, an increase in cash used in investing activities of $217 million, primarily due to the acquisition of five franchise dealerships during the year ended December 31, 2025, together with increased purchases of property and equipment.

Financing Activities

Cash flows from financing activities primarily relate to our short and long-term debt activity, including proceeds from and payments on our short-term revolving facilities.

Cash provided by and used in financing activities was $261 million and $868 million during the years ended December 31, 2024 and 2023, respectively, an increase in cash provided by financing activities of $1.1 billion primarily driven by higher net proceeds from our ATM Program and lower reliance on short-term revolving facilities during the year ended December 31, 2024.

Cash used in and provided by financing activities was $137 million and $261 million during the years ended December 31, 2025 and 2024, respectively, an increase in cash used in financing activities of $398 million primarily driven by the repurchases and redemption of certain of our Senior Secured Notes and payment at maturity of our 2025 Senior Unsecured Notes, and lower net proceeds from our ATM Program during the year ended December 31, 2025, partially offset by lower payments on short-term revolving facilities relative to proceeds from those facilities.

Contractual Obligations and Commitments

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Fair Value Measurements

We report money market securities, certain receivables, warrants to acquire Root's Class A common stock and beneficial interests in securitizations at fair value.

We report money market securities, certain receivables, warrants to acquire common stock and beneficial interests in securitizations at fair value.

See Note 17 — Fair Value of Financial Instruments, included in Part II, Item 8, "Financial Statement and Supplementary Data," of this Annual Report on Form 10-K, which is incorporated into this item by reference.

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We classify these receivables as held for sale, as we do not intend to hold the finance receivables we originate to maturity.

We typically sell the finance

receivables we originate.

We typically sell the finance receivables we originate.

We record a valuation allowance to report finance receivables at the lower of unpaid principal balance or fair value.

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Selling prices are derived from historical data and trends, such as sales price and inventory turn times of similar vehicles, as well as independent market resources.

Each reporting period we recognize any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value through cost of sales.

Each reporting period we recognize any necessary adjustments to

reflect vehicle inventory at the lower of cost or net realizable value through cost of sales.

To the extent that there are significant changes to estimated vehicle selling prices or decreases in demand for used vehicles, there could be significant adjustments to reflect our inventory at net realizable value.

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Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the evidence available, both positive and negative, as well as the objectivity and verifiability of that evidence, it is more likely than not that some portion or all of our deferred tax assets will not be realized.

The assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods by jurisdiction, our experience with loss carryforwards not expiring unutilized, and all tax-planning alternatives that may be available.

During the year ended December 31, 2025, we performed an assessment of the recoverability of deferred tax assets.

This assessment considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets.

These objective and subjective factors included, but were not limited to, a recent history of sustained profitability and utilization of deferred tax assets, which is objective and verifiable, and anticipated future earnings, including consideration of historical and future excess tax benefits related to equity-based compensation.

After evaluating the weight of all available evidence, we determined, based on the accounting standards applicable to such assessment, that there was sufficient evidence as a result of the aforementioned considerations to conclude it was more likely than not that our deferred tax assets will be realizable.

As such, during the year ended December 31, 2025, we (i) released $2.2 billion of our valuation allowance through income tax (benefit) provision in the accompanying consolidated statements of operations;

(ii) established $277 million of deferred tax assets related to increases in tax basis in Carvana Group through additional paid-in capital in the accompanying consolidated statements of stockholders' equity (deficit);

(iii) and recorded $547 million of income tax benefit as a result of current year activity through income tax (benefit) provision in the accompanying consolidated statements of operations.

We will continue to monitor the need for a valuation allowance against our deferred tax assets.

Tax Receivable Agreement

Our TRA liability is determined and recorded in accordance with ASC 450, Contingencies , which requires the determination of whether the liability is both probable and reasonably estimable.

The primary consideration is our usage of deferred tax assets, which currently have a full valuation allowance applied against them.

As such, we recognized a TRA liability of $82 million and $14 million as of December 31, 2024 and 2023, respectively, which represents the portion of the liability that is probable and reasonably estimable.

For the remaining $2.0 billion TRA liability as of December 31, 2024, we determined that it was more likely than not that our deferred tax assets subject to the TRA would not be realized.

Business Combination Purchase Price Allocation

The purchase price of an acquisition is allocated to the identifiable assets acquired and liabilities assumed based on their fair values at the date of acquisition, with the excess purchase price being recorded as goodwill.

The allocation of purchase price to the tangible and identifiable intangible assets acquired is specifically complex because of the significant estimates and assumptions involved in determining their fair values.

Due to this higher degree of complexity, we obtained the assistance of outside valuation experts in the allocation of purchase price to the tangible and identifiable intangible assets acquired.

While outside valuation experts were used, management has the ultimate responsibility for the valuation methods, models and inputs used and the resulting purchase price allocation.

Critical estimates used in valuing tangible assets associated with the ADESA Acquisition include, but are not limited to, the similarity of the acquired real property to market comparable transactions, costs of similar personal property in new condition, and economic obsolescence rates.

Critical estimates used in valuing identifiable intangible assets associated with the ADESA Acquisition include, but are not limited to, revenues and attrition rate.

The primary consideration is our usage of deferred tax assets, for which we have utilized and expect to utilize in the future and therefore no longer have a full valuation allowance applied against them.

As such and in connection with our conclusion that it was more likely than not that our deferred tax assets subject to the TRA would be realized, we determined it was probable our remaining TRA liability related to the tax savings we expect to realize from utilization of such deferred tax assets will be paid.

During the year ended December 31, 2025, we recorded TRA expense of $2.2 billion which was recorded to other expense (income), net in the accompanying consolidated statements of operations.

As of December 31, 2025 and 2024, we recorded a TRA liability of $2.3 billion and $82 million, respectively, of which $1.7 billion and $61 million, respectively, is due to related parties.

As of December 31, 2025 and 2024, $37 million and $17 million, respectively, is included in other current liabilities and $2.2 billion and $65 million, respectively, are included in other liabilities on the accompanying consolidated balance sheets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis