CARVANA CO.CVNA
CARVANA CO. Stock Compensation Disclosure
NOTE 12 — EQUITY-BASED COMPENSATION
Equity-based compensation is recognized based on amortizing the grant-date fair value on a straight-line basis over the requisite service period, which is generally the vesting period of the award, less actual forfeitures. A summary of equity-based compensation recognized during the years ended December 31, 2025, 2024, and 2023 is as follows:
Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Restricted Stock Units and Awards | $ | 89 | $ | 81 | $ | 65 | |||||||||||
| Options | 18 | 21 | 16 | ||||||||||||||
| Total equity-based compensation | 107 | 102 | 81 | ||||||||||||||
| Equity-based compensation capitalized to property and equipment | (8) | (9) | (7) | ||||||||||||||
| Equity-based compensation capitalized to inventory | (3) | (2) | (1) | ||||||||||||||
| Equity-based compensation, net of capitalized amounts | $ | 96 | $ | 91 | $ | 73 | |||||||||||
During the years ended December 31, 2025, 2024, and 2023, the Company capitalized $8 million, $9 million, and $7 million, respectively, of equity-based compensation to property and equipment related to software development and $3 million, $2 million, and $1 million, respectively, to inventory related to reconditioning and inbound transportation of vehicles.
Equity-based compensation expense in cost of sales was $3 million, $1 million, and zero during the years ended December 31, 2025, 2024, and 2023, respectively. Equity-based compensation expense in selling, general and administrative expense was $96 million, $91 million, and $73 million during the years ended December 31, 2025, 2024, and 2023, respectively.
As of December 31, 2025, unrecognized equity-based compensation related to outstanding awards and the related weighted-average period over which it is expected to be recognized subsequent to December 31, 2025 is presented in the table below. Total unrecognized equity-based compensation will be adjusted for actual forfeitures.
| Unrecognized Equity-Based Compensation Related to Outstanding Awards (in millions) | Remaining Weighted-Average Amortization Period (in years) | ||||||||||
| Restricted Stock Units and Awards | $ | 148 | 2.3 | ||||||||
| Options | 23 | 1.9 | |||||||||
| Total unrecognized equity-based compensation | $ | 171 | |||||||||
2017 Omnibus Incentive Plan
In connection with the IPO, the Company adopted the 2017 Omnibus Incentive Plan (the "2017 Incentive Plan"). The number of shares authorized for issuance under the 2017 Incentive Plan is subject to an automatic annual increase (the "Automatic Increase") of the lesser of two percent of the Company's outstanding Class A common stock or an amount determined by the Compensation and Nominating Committee of the Board. On January 1, 2025, the number of shares authorized for issuance under the 2017 Incentive Plan increased by two percent of the then outstanding Class A common stock under the Automatic Increase. As of December 31, 2025, 20 million shares remained available for future equity-based award grants under this plan, which the Company may grant as stock options, stock appreciation rights, restricted stock awards, restricted stock units and other equity-based awards to employees, directors, officers, and consultants. The majority of equity granted by the Company vests over four-year periods based on continued employment with the Company.
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards ("RSAs") entitle recipients to vote and to receive all dividends declared with respect to such shares, payable upon vesting. RSAs vest over a period of two years, subject to the recipient's continued employment or service. During the year ended December 31, 2022, the Company issued certain employees an aggregate of less than 0.1 million RSAs pursuant to the terms of the 2017 Incentive Plan with a weighted-average grant-date fair value of $34.21. The Company determined the grant-date fair value of the RSAs based on the closing price of the Company's Class A common stock on the grant date. The Company did not grant any RSAs during the years ended December 31, 2025, 2024, and 2023.
Restricted stock units ("RSUs") do not entitle recipients to vote or receive dividends. RSUs generally vest over a period of four years, subject to the recipient's continued employment. RSUs also include performance-based awards granted to certain executive employees that cliff vest upon the achievement of certain financial targets, subject to the recipient's continued employment. During the years ended December 31, 2025, 2024, and 2023, the Company issued certain employees an aggregate of 0.4 million, 2.0 million, and 10.4 million RSUs, respectively, pursuant to the terms of the 2017 Incentive Plan with a weighted-average grant-date fair value of $250.22, $48.00, and $13.13, respectively. The Company determined the grant-date fair value of the RSUs based on the closing price of the Company's Class A common stock on the grant date. RSUs are settled in shares of Class A common stock on a one-to-one basis within thirty days of vesting.
RSA and RSU activity during the years ended December 31, 2025, 2024, and 2023 were as follows:
| Number of RSAs/RSUs (in thousands) | Weighted-Average Grant-Date Fair Value | ||||||||||
Outstanding at January 1, 2023 | 2,652 | $ | 52.62 | ||||||||
| Granted | 10,392 | $ | 13.13 | ||||||||
| Settled | (1,550) | $ | 41.39 | ||||||||
| Forfeited | (1,591) | $ | 24.25 | ||||||||
Outstanding and nonvested at December 31, 2023 | 9,903 | $ | 17.49 | ||||||||
| Granted | 1,984 | $ | 48.00 | ||||||||
| Settled | (4,938) | $ | 18.10 | ||||||||
| Forfeited | (446) | $ | 23.40 | ||||||||
Outstanding and nonvested at December 31, 2024 | 6,503 | $ | 25.93 | ||||||||
| Granted | 423 | $ | 250.22 | ||||||||
| Settled | (3,003) | $ | 26.13 | ||||||||
| Forfeited | (332) | $ | 41.04 | ||||||||
Outstanding and nonvested at December 31, 2025 | 3,591 | $ | 50.79 | ||||||||
Employee Stock Purchase Plan
In May 2021, the Company adopted an employee stock purchase plan (the "ESPP"), which went into effect on July 1, 2021. The ESPP allows substantially all employees, excluding members of senior management, to acquire shares of the Company's Class A common stock through payroll deductions over six-month offering periods, commencing on January 1 and July 1 of each year. The per share purchase price is equal to 90% of the fair market value of a share of the Company's Class A common stock on the last day of the offering period. Participant purchases are limited to maximums that may vary between $10,000 and $25,000 of stock per calendar year. The Company is authorized to grant up to 0.5 million shares of Class A common stock under the ESPP.
During the years ended December 31, 2025, 2024 and 2023, the Company issued 5,982, 10,396 and 32,790 shares of Class A common stock, respectively, and as of December 31, 2025, 361,986 shares of Class A common stock remained available for future issuance. During each of the years ended December 31, 2025, 2024 and 2023, the Company recognized less than $1 million of equity-based compensation expense related to the ESPP.
Non-Qualified Stock Options
Non-qualified stock options allow recipients to purchase shares of Class A common stock at a fixed exercise price. The fixed exercise price is equal to the price of a share of Class A common stock at the time of grant. The options typically vest 25% on the anniversary of the grant date and in equal monthly installments thereafter for a total vesting period of four years and expire ten years after the grant date.
Stock option activity during the years ended December 31, 2025, 2024, and 2023 was as follows:
| Number of Options (in thousands) | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
Outstanding at January 1, 2023 | 1,265 | $ | 80.26 | 6.4 | $ | — | |||||||||||||||||
| Options granted | 2,805 | $ | 10.07 | n/a | |||||||||||||||||||
| Options exercised | (17) | $ | 13.62 | $ | — | ||||||||||||||||||
| Options forfeited or expired | (47) | $ | 50.08 | n/a | |||||||||||||||||||
Outstanding at December 31, 2023 | 4,006 | $ | 31.75 | 8.1 | $ | 135 | |||||||||||||||||
| Options granted | 762 | $ | 44.80 | n/a | |||||||||||||||||||
| Options exercised | (441) | $ | 16.45 | $ | 59 | ||||||||||||||||||
| Options forfeited or expired | — | $ | — | n/a | |||||||||||||||||||
Outstanding at December 31, 2024 | 4,327 | $ | 35.60 | 7.5 | $ | 735 | |||||||||||||||||
| Options granted | — | $ | — | n/a | |||||||||||||||||||
| Options exercised | (1,295) | $ | 35.20 | $ | 400 | ||||||||||||||||||
| Options forfeited or expired | — | $ | — | n/a | |||||||||||||||||||
Outstanding at December 31, 2025 | 3,032 | $ | 35.78 | 6.7 | $ | 1,171 | |||||||||||||||||
Vested and exercisable as of December 31, 2025 | 1,630 | $ | 46.79 | 6.1 | $ | 611 | |||||||||||||||||
Expected to vest as of December 31, 2025 | 1,402 | $ | 22.97 | 7.4 | $ | 559 | |||||||||||||||||
The Company did not grant any options during the year ended December 31, 2025. During the years ended December 31, 2024 and 2023, the Company determined the grant-date fair value of the options granted using the Black-Scholes valuation model with the following weighted-average assumptions:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Expected volatility (1) | 93.8 | % | 74.6 | % | |||||||
| Expected dividend yield | — | % | — | % | |||||||
Expected term (in years) (2) | 6.00 | 6.30 | |||||||||
| Risk-free interest rate | 4.1 | % | 3.6 | % | |||||||
| Weighted-average grant-date fair value per option | $37.99 | $6.94 | |||||||||
(1) Measured using the Company's historical data, market option volatility and selected high-growth guideline companies and considering the risk factors that would influence the range of expected volatility because the Company does not have sufficient historical data to provide a reasonable basis upon which to estimate the expected volatility for the entirety of the term.
(2) Expected term represents the estimated period of time until an option is exercised and was determined using the simplified method because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.
Class A Units
During 2018, the Company granted certain employees Class A Units with service-based vesting over - to four-year periods and a grant-date fair value of $18.58 per Class A Unit. The grantees entered into the Exchange Agreement under which each LLC Unitholder (and certain permitted transferees thereof) may receive shares of the Company's Class A common stock in
exchange for their LLC Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to conversion ratio adjustments for stock splits, stock dividends, reclassifications, and similar transactions and subject to vesting.
A summary of the Class A Unit activity for the years ended December 31, 2025, 2024, and 2023 is as follows:
| Class A Units | |||||||||||
| Number of Class A Units (in thousands) | Weighted-Average Grant Date Fair Value | ||||||||||
Outstanding at January 1, 2023 | 79 | ||||||||||
| Granted | — | n/a | |||||||||
| Exchanged | — | n/a | |||||||||
| Forfeited | — | n/a | |||||||||
Outstanding at December 31, 2023 | 79 | ||||||||||
| Granted | — | n/a | |||||||||
| Exchanged | (13) | n/a | |||||||||
| Forfeited | — | n/a | |||||||||
Outstanding at December 31, 2024 | 66 | ||||||||||
| Granted | — | n/a | |||||||||
| Exchanged | (8) | n/a | |||||||||
| Forfeited | — | n/a | |||||||||
Outstanding at December 31, 2025 | 58 | ||||||||||
Vested as of December 31, 2025 | 58 | $ | 18.58 | ||||||||
Expected to vest as of December 31, 2025 | — | n/a | |||||||||
Class B Units
In March 2015, Carvana Group adopted the LLC Equity Incentive Plan. Under the LLC Equity Incentive Plan, Carvana Group could grant Class B Units to eligible employees, non-employee officers, consultants and directors with service-based vesting, typically to five years. In connection with the completion of the IPO, Carvana Group discontinued the grant of new awards under the LLC Equity Incentive Plan, however the LLC Equity Incentive Plan will continue in connection with administration of existing awards that remain outstanding. Grantees may receive shares of the Company's Class A common stock in exchange for Class B Units on a four-to-five conversion ratio, or cash at the option of the Company, subject to conversion ratio adjustments for stock splits, stock dividends, reclassifications, and similar transactions and subject to vesting and the respective participation threshold for Class B Units. Class B Units do not expire. There were no Class B Units issued during the years ended December 31, 2025, 2024, and 2023. As of December 31, 2025, outstanding Class B Units had participation thresholds between $0.00 to $12.00.
A summary of the Class B Unit activity for the years ended December 31, 2025, 2024, and 2023 is as follows:
| Class B Units | |||||||||||
| Number of Class B Units (in thousands) | Weighted-Average Participation Threshold per Class B Unit | ||||||||||
Outstanding at January 1, 2023 | 2,566 | $ | 5.60 | ||||||||
| Granted | — | n/a | |||||||||
| Exchanged | (34) | $ | 3.52 | ||||||||
| Forfeited | — | n/a | |||||||||
Outstanding at December 31, 2023 | 2,532 | $ | 5.62 | ||||||||
| Granted | — | n/a | |||||||||
| Exchanged | (546) | $ | 7.95 | ||||||||
| Forfeited | — | n/a | |||||||||
Outstanding at December 31, 2024 | 1,986 | $ | 4.98 | ||||||||
| Granted | — | n/a | |||||||||
| Exchanged | (333) | $ | 2.66 | ||||||||
| Forfeited | — | n/a | |||||||||
Outstanding at December 31, 2025 | 1,653 | $ | 5.44 | ||||||||
Vested as of December 31, 2025 | 1,653 | $ | 5.44 | ||||||||
Expected to vest as of December 31, 2025 | — | n/a | |||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.