CARVANA CO.CVNA
CARVANA CO. Fair Value Disclosure
NOTE 17 — FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company holds certain assets that are required to be measured at fair value on a recurring basis, and beneficial interests in securitizations for which it elected the fair value option. A description of the fair value hierarchy and the Company's methodologies are included in Note 2 — Summary of Significant Accounting Policies.
The following tables are a summary of fair value measurements and hierarchy level at December 31, 2025 and 2024:
| December 31, 2025 | |||||||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Money market funds | $ | 1,297 | $ | 1,297 | $ | — | $ | — | |||||||||||||||
Beneficial interests in securitizations | $ | 486 | $ | — | $ | — | $ | 486 | |||||||||||||||
Warrants | $ | 58 | $ | — | $ | — | $ | 58 | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Money market funds | $ | 1,154 | $ | 1,154 | $ | — | $ | — | |||||||||||||||
| Beneficial interests in securitizations | $ | 464 | $ | — | $ | — | $ | 464 | |||||||||||||||
Purchase price adjustment receivables | $ | 2 | $ | — | $ | — | $ | 2 | |||||||||||||||
Warrants | $ | 120 | $ | — | $ | — | $ | 120 | |||||||||||||||
Money Market Funds
Money market funds consist of highly liquid investments with original maturities of three months or less and are classified in cash and cash equivalents and restricted cash in the accompanying consolidated balance sheets.
Beneficial Interests in Securitizations
Beneficial interests in securitizations include rated notes and certificates of the securitization trusts, the same securities as issued to other investors as described in Note 8 — Securitizations and Variable Interest Entities. Beneficial interests in securitizations are initially treated as Level 2 assets when the securitization transaction occurs in close proximity to the end of the period and there is a lack of observable changes in the economic inputs. When the securitization transaction does not occur in close proximity to the end of the period and there have been observable changes in the economic inputs, beneficial interests in securitizations are classified as Level 3.
The Company's beneficial interests in securitizations include rated notes and certificates and other assets, all of which are classified as Level 3 due to the lack of observable market data. The Company determines the fair value of its rated notes based on non-binding broker quotes. The non-binding broker quotes are based on models that consider the prevailing interest rates, recent market transactions, and current business conditions. The Company determines the fair value of its certificates and other assets using a combination of non-binding market quotes and internally developed discounted cash flow models. The discounted cash flow models use discount rates based on prevailing interest rates and the characteristics of the specific
instruments. As of December 31, 2025 and 2024, the range of discount rates were 5.2% to 10.0% and 6.0% to 10.0%, respectively, and the weighted average of discount rates were 9.0% and 9.7%, respectively. Significant increases or decreases in the inputs to the models could result in a significantly higher or lower fair value measurement. The Company elected the fair value option on its beneficial interests in securitizations, which allows it to recognize changes in the fair value of these assets in the period the fair value changes. Changes in the fair value of the beneficial interests in securitizations are reflected in other expense (income), net in the accompanying consolidated statements of operations.
For beneficial interests in securitizations measured at fair value on a recurring basis, the Company's transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period on a quarterly basis. There were no transfers out of Level 3 during the years ended December 31, 2025 or 2024.
The Company sells certain of its beneficial interests in securitizations that are not required to be retained by the Risk Retention Rules. For the years ended December 31, 2025 and 2024, the Company sold beneficial interests in securitizations for a purchase price totaling $13 million and $9 million, respectively.
The following table presents additional information about Level 3 beneficial interests in securitizations measured at fair value on a recurring basis for the years ended December 31, 2025 and 2024:
Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Opening Balance | $ | 464 | $ | 366 | |||||||
| Received in securitization transactions | 240 | 272 | |||||||||
Payments received | (217) | (188) | |||||||||
| Change in fair value | 12 | 23 | |||||||||
| Sales of beneficial interests | (13) | (9) | |||||||||
| Ending Balance | $ | 486 | $ | 464 | |||||||
Purchase Price Adjustment Receivables
The Company's purchase price adjustment receivables are carried at fair value and classified as other assets and other current assets in the accompanying consolidated balance sheets. Under the Ally MPSA, the purchaser will make future cash payments to the Company based on the performance of the finance receivables sold. The fair value of the purchase price adjustment receivables are determined based on the extent to which the Company’s estimated performance of the underlying finance receivables exceeds a mutually agreed upon performance threshold of the underlying finance receivables as of measurement dates specified in the Ally MPSA. The Company develops its estimate of future cumulative losses based on the historical performance of finance receivables it originated with similar characteristics as well as general macro-economic trends. The Company then utilizes a discounted cash flow model to calculate the present value of the expected future payment amounts. Due to the lack of observable market data these receivables are classified as Level 3. The adjustments to the fair value of the purchase price adjustment receivables were a gain of $2 million and a loss of less than $1 million during the years ended December 31, 2025 and 2024, respectively, and are reflected in other expense (income), net in the accompanying consolidated statements of operations. The Company received the final payment associated with these purchase price adjustment receivables in September 2025.
Warrants
Root Warrants
In October 2021, the Company purchased Series A convertible preferred shares in Root, Inc. ("Root"), an equity security that does not have a readily determinable fair value. The Company elected to measure this investment using a measurement alternative pursuant to the accounting standards and recorded the investment at its cost of $126 million, which will subsequently be adjusted for observable price changes. The Company considered all relevant transactions since the date of its investment and has not recorded any impairments or upward or downward adjustments to the carrying amount of its investment in Root, as there have not been changes in the observable price of its equity interest through December 31, 2025.
Also in October 2021, the Company entered into a commercial agreement with Root, under which the Root auto insurance products were to be embedded into the Company's e-commerce platform. In accordance with the provisions of the commercial agreement, the Company received eight tranches of warrants to purchase shares of Root's Class A common stock (the "Root Warrants"). Three tranches of Root Warrants, for 2.4 million, 3.2 million, and 1.6 million shares of Root's Class A common stock, respectively, expired on September 1, 2025. Also on September 1, 2025, a fourth tranche of Root Warrants for 1.4 million shares of Root's Class A common stock became exercisable upon achievement of certain insurance sales metrics through the integrated auto insurance solution embedded into the Company's e-commerce platform. The remaining four tranches vest based upon achievement of additional defined milestones tied to insurance sales through the integrated solution and are considered derivative instruments. All remaining tranches of Root Warrants, including the fourth tranche that became exercisable on September 1, 2025, expire September 1, 2027.
Through June 30, 2025, the Company used a Monte Carlo simulation to estimate the fair value of these Root Warrants. The expiration of the first three tranches of Root Warrants on September 1, 2025, eliminated the prior interdependencies between the different tranches of Root Warrants. After September 1, 2025, the Company used a Black-Scholes model to estimate the fair value of these Root Warrants, which are classified as Level 3. The primary unobservable input utilized in determining the fair value of the Root Warrants was the expected volatility of Root's class A common stock, which was implied from the historical volatility of such common stock. As of December 31, 2025 and 2024, the expected volatility utilized in the valuations was 90% and 100%, respectively.
At contract inception, the Company recognized an asset of $30 million for the Root Warrants and deferred revenue, classified in other assets and other liabilities, respectively. In 2022, the Company determined it was probable that the volume of insurance products required to earn the Root Warrants would be achieved and recorded an additional $75 million of Root Warrants and deferred revenue based on the contract inception date fair value as determined by the Monte Carlo simulation applied as of such date. As of December 31, 2025 and 2024, the deferred revenue balance was $36 million and $57 million, respectively, and the Company recognized $21 million in Root Warrant revenue during each of the years ended December 31, 2025, 2024, and 2023. The deferred revenue is recognized over the expected contract performance period within other sales and revenues in the accompanying consolidated statements of operations.
The following table presents changes in the Company's Level 3 Root Warrants measured at fair value:
Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
Opening balance | $ | 120 | $ | 5 | |||||||
Unrealized (loss) gain | (64) | 115 | |||||||||
Ending balance | $ | 56 | $ | 120 | |||||||
In relation to the Root Warrants, the Company recognized a decrease in fair value of $64 million and an increase in fair value of $115 million during the years ended December 31, 2025 and 2024, respectively, which are included in other expense (income), net in the accompanying consolidated statements of operations.
Fair Value of Financial Instruments
The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities, and accounts payable to related party approximate fair value due to their respective short-term maturities. The carrying value of the short-term revolving facilities were determined to approximate fair value due to their short-term duration and variable interest rates that approximate prevailing interest rates as of each reporting period. The carrying value of sale leasebacks were determined to approximate fair value as each of the transactions were entered into at prevailing interest rates during each respective period and they have not materially changed as of or during the years ended December 31, 2025 and 2024. The carrying value of the financing of beneficial interests in securitizations was determined to approximate fair value because in the event of a decline in the fair value of the pledged collateral of the financing, the repurchase price of the pledged collateral will be increased by the amount of the decline.
The fair value of the Senior Notes, which are not carried at fair value on the accompanying consolidated balance sheets, was determined using Level 2 inputs based on quoted market prices for the identical liability. The fair value of the Senior Notes as of December 31, 2025 and 2024 was as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
Carrying value, net of unamortized debt issuance costs, unamortized premium, and accrued PIK interest | $ | 4,025 | $ | 4,549 | |||||||
| Fair value | $ | 4,403 | $ | 5,050 | |||||||
The fair value of finance receivables, which are not carried at fair value on the accompanying consolidated balance sheets, was determined utilizing the estimated sales price based on the historical experience of the Company. Such fair value measurement of the finance receivables, net is considered Level 2 under the fair value hierarchy. The carrying value and fair value of the finance receivables as of December 31, 2025 and 2024 were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Carrying value | $ | 813 | $ | 612 | |||||||
| Fair value | $ | 886 | $ | 670 | |||||||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.