Related Party Transactions |
6 Months Ended |
|---|---|
Jun. 30, 2025 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | NOTE 6 — RELATED PARTY TRANSACTIONS Lease Agreements In November 2014, the Company and DriveTime Automotive Group, Inc. (together with its consolidated affiliates, collectively, "DriveTime"), a related party of the Company due to Ernest Garcia II, Ernest Garcia III, and entities controlled by one or both of them (collectively the "Garcia Parties") controlling and owning substantially all of the interests in DriveTime, entered into a lease agreement governing the occupation of two inspection and reconditioning centers, one each in Blue Mound, Texas and Delanco, New Jersey. The lease for the Blue Mound, Texas location expires in 2029, with two five-year renewal options, and the lease for the Delanco, New Jersey location expires in 2026, with one six-year renewal option. Pursuant to that lease agreement, the Company has made monthly lease payments based on DriveTime's actual rent expense and the Company was responsible for the actual insurance costs, tenant improvements required to conduct operations, and real estate taxes. In March 2025, the Company assumed DriveTime's lease for certain properties in the Blue Mound, Texas location on the same terms and conditions that were previously applicable to DriveTime and DriveTime was released from the lease. In February 2017, the Company entered into a lease agreement with DriveTime for sole occupancy of a fully operational inspection and reconditioning center in Winder, Georgia. In May 2024, the lease expiration for the Winder, Georgia location was extended to 2030, subject to two remaining renewal options of five years each. Expenses related to these operating lease agreements are allocated based on usage to inventory and selling, general and administrative expenses in the accompanying unaudited condensed consolidated balance sheets and statements of operations. Costs allocated to inventory are recognized as cost of sales when the inventory is sold. Total costs related to these operating lease agreements, including those noted above, were $1 million during each of the three months ended June 30, 2025 and 2024, and $1 million and $2 million during the six months ended June 30, 2025 and 2024, respectively, allocated between inventory and selling, general and administrative expenses. Office Leases In September 2016, the Company entered into a lease for office space in Tempe, Arizona. In connection with that lease, the Company entered into a sublease with DriveTime for the use of another floor in the same building. The lease and sublease each had a term of 83 months, subject to the right to exercise three five-year extension options. Pursuant to the sublease, the Company paid the rent equal to the amounts due under DriveTime's master lease directly to DriveTime's landlord. The lease and sublease expired in February 2024. The rent expense incurred related to the first floor sublease was less than $1 million during each of the three and six months ended June 30, 2024. In December 2019, Verde Opportunity Heath LLC, an affiliate of DriveTime ("Verde"), purchased an office building in Tempe, Arizona that the Company leased from an unrelated landlord prior to Verde's purchase. In connection with the purchase, Verde assumed that lease. The lease has an initial term of ten years expiring in 2029, subject to the right to exercise two five-year extension options. The rent expense incurred under the lease with Verde was less than $1 million during each of the three and six months ended June 30, 2025 and 2024. Wholesale Vehicle Sales and Purchases DriveTime purchases wholesale vehicles from the Company through competitive auctions that are open to other dealers. As a result, the Company recognized $6 million and $4 million of wholesale sales and revenues from DriveTime during the three months ended June 30, 2025 and 2024, respectively, and $10 million and $7 million during the six months ended June 30, 2025 and 2024, respectively. The Company purchased $3 million and $1 million of vehicles from DriveTime through competitive auctions that are open to other dealers during the three months ended June 30, 2025 and 2024, respectively, and $6 million and $2 million during the six months ended June 30, 2025 and 2024, respectively. Wholesale Marketplace Revenues DriveTime sells vehicles to, and purchases vehicles from, third parties and the Company through the Company's wholesale marketplace platform. These transactions occur through competitive auctions in which all registered buyers and sellers are able to bid on and purchase, or list and sell, wholesale vehicles. In addition, beginning in September 2023, certain auction locations generally provide customers, including DriveTime, with reconditioning services. As a result, the Company recognized $3 million of wholesale sales and revenues from DriveTime during each of the three months ended June 30, 2025 and 2024, and $7 million during each of the six months ended June 30, 2025 and 2024. The Company recognized less than $1 million of cost of sales to DriveTime related to reconditioning services during each of the three months ended June 30, 2025 and 2024 and less than $1 million and $1 million during the six months ended June 30, 2025 and 2024, respectively. Master Dealer Agreement In December 2016, the Company entered into a master dealer agreement with DriveTime (the "Master Dealer Agreement"), most recently amended in April 2021, pursuant to which the Company may sell VSCs to customers purchasing a vehicle from the Company. The Company earns a commission on each VSC sold to its customers and DriveTime is obligated by and subsequently administers the VSCs. The Company collects the retail purchase price of the VSCs from its customers and remits the purchase price net of commission to DriveTime. The Master Dealer Agreement further allows the Company to receive payments for excess reserves based on the performance of the VSCs versus the reserves held by the VSC administrator, once a required claims period for such VSCs has passed. During the three months ended June 30, 2025 and 2024, the Company recognized $81 million and $45 million, respectively, and during the six months ended June 30, 2025 and 2024, the Company recognized $151 million and $86 million, respectively, of commissions earned on VSCs sold to its customers and administered by DriveTime, net of a reserve for estimated contract cancellations, and payments for excess reserves to which it expects to be entitled, which are included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations. Beginning in 2017, DriveTime also administers the Company's limited warranty provided to all customers. The Company pays a per-vehicle fee to DriveTime to administer the limited warranty included with every purchase. The Company incurred $6 million and $4 million during the three months ended June 30, 2025 and 2024, respectively, and $11 million and $8 million during the six months ended June 30, 2025 and 2024, respectively, related to the administration of limited warranty. Profit Sharing Agreement In June 2018, the Company entered into an agreement with an unaffiliated third party, pursuant to which the Company would sell certain Road Hazard ("RH") and Pre-Paid Maintenance ("PPM") contracts. Under this agreement, third parties would administer the RH and PPM contracts, including providing customer and administrative services, and pay a profit sharing component to the Company. In 2022, the Company began selling equivalent offerings from DriveTime, pursuant to the Master Dealer Agreement discussed above, and all rights and obligations in connection with existing RH and PPM contracts were transferred to DriveTime (the "Transferred Contracts"). Finally, in December 2022, the Company entered into a profit sharing agreement with DriveTime with regard to the Transferred Contracts (the "Profit Sharing Agreement"). The Company recognized $2 million in revenue during each of the three months ended June 30, 2025 and 2024, and $4 million and $3 million during the six months ended June 30, 2025 and 2024, respectively, under the Profit Sharing Agreement. Servicing and Administrative Fees DriveTime provides servicing and administrative functions associated with the Company's finance receivables. The Company incurred expenses of $1 million and $3 million during the three months ended June 30, 2025 and 2024, respectively, and $3 million and $5 million during the six months ended June 30, 2025 and 2024, respectively, related to these services. Aircraft Time Sharing Agreement The Company entered into an agreement to share usage of two aircraft owned by Verde and operated by DriveTime on October 22, 2015, and the agreement was subsequently amended in 2017. Pursuant to the agreement, the Company agreed to reimburse DriveTime for actual expenses for each of its flights. The original agreement was for 12 months, with perpetual 12-month automatic renewals. Either the Company or DriveTime can terminate the agreement with 30 days’ prior written notice. The Company reimbursed DriveTime less than $1 million under this agreement during each of the three and six months ended June 30, 2025 and 2024. Accounts Payable Due to Related Party As of June 30, 2025 and December 31, 2024, $24 million and $17 million, respectively, was due to related parties primarily related to the agreements mentioned above, and is included in accounts payable and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. Tax Receivable Agreement Liability As further discussed in Note 14 — Income Taxes, as of June 30, 2025 and December 31, 2024, the Company recorded a tax receivable agreement ("TRA") liability of $131 million and $82 million, respectively, of which $98 million and $61 million, respectively, is due to related parties. Refer to Note 14 — Income Taxes for further discussion of the TRA. During the six months ended June 30, 2025, the Company made TRA payments of $17 million, of which $13 million was paid to related parties. Tax Payments on Behalf of Non-Controlling Members As further discussed in Note 14 — Income Taxes, during the three and six months ended June 30, 2025, the Company made mandatory composite and non-resident withholding tax payments on behalf of non-controlling members of $2 million and $4 million, respectively, of which $1 million and $3 million, respectively, was paid on behalf of related parties. Contributions of Class A Common Stock From Ernest Garcia III On January 5, 2022, in recognition of the Company selling its 1 millionth vehicle in the fourth quarter of 2021, the Company's CEO, Ernest Garcia III ("Mr. Garcia"), committed to giving then-current employees 23 shares of Class A common stock each from his personal shareholdings once employees reach their two-year employment anniversary ("CEO Milestone Gift" or "Gift"). As a result and during the three months ended March 31, 2022, the Company granted 23 restricted stock units ("RSUs") to each current employee, which vested after completion of their second year of employment, for a total of 435,035 RSUs granted during the period. For every Gift that vested, and pursuant to a contribution agreement (the "Contribution Agreement") entered into by and between the Company and Mr. Garcia on February 22, 2022, Mr. Garcia contributed to the Company, at the end of each fiscal quarter, the number of shares of Class A common stock, granted pursuant to the CEO Milestone Gift, that had vested during such quarter. The shares contributed were shares of Class A common stock that Mr. Garcia individually owned, at no charge. During the six months ended June 30, 2024, 1,104 RSUs vested and an equal number of shares of Class A common stock were contributed by Mr. Garcia. As of January 2024, all RSUs granted pursuant to the CEO Milestone Gift had vested or been forfeited. Although the Company does not expect Mr. Garcia to incur any tax obligations related to the contribution, the Company has agreed to indemnify Mr. Garcia from any such obligations that may arise.
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