Q1 2021 Carvana Co Earnings Call
Good afternoon, and welcome to the Carvana first quarter 2021 earnings conference call on.
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Now, let's turn on the conference over to Mike Levin, and Vice President of Investor Relations. Please go ahead.
The second Gary Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana is first quarter 2021 earnings Conference call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at investors Carvana Dotcom and the first quarter shareholder letter is also posted on the IR website.
Joining me on the call today are earning Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer before we start I would like to remind you that the following the discussion contains forward looking statements within the meaning of the federal securities laws, including but not limited to.
Carvana as market opportunities and the future financial results involve risks and uncertainties and may cause actual results to differ materially from those discussed here of detailed discussion of the material factors that cause actual results to differ from forward looking statements can be found and the risk factors section of coupons. Most recent form 10-K and form 10-Q for.
The forward looking statements and risks in this conference call are based on current expectations as of today and Carvana assumes no obligation to update or revise them for other as a result of new developments or otherwise unless otherwise noted on today's call. All comparisons are on a year over year basis. Our commentary today will include non-GAAP financial measures.
And between GAAP and non-GAAP metrics for our reported results can be found and our shareholder letter issued today, a copy of which can be found on our investor Relations website, and now that said I'd like to turn the call over to Ernie Garcia.
Thanks, Mike and thank you and for joining the call. The first quarter was another great quarter across the board and our shareholder letters, we always lay out our financial priorities of rapidly scaling the business of growing GPU and of demonstrating operating leverage and the first quarter. We made tremendous progress across each of these priorities, we grew units and revenue by 76% at.
104%, respectively, well your GPU by over $1000 year over year, and almost $300 quarter over quarter, and we love for EBITA margin by over 10% year over year, and two 5% quarter over quarter.
And even more impressively. These results were achieved despite meaningful operational constraints across the business and the significant investments we've been making to alleviate the and the first quarter. Our average weekly production was up 26% versus the fourth quarter. As a result of the relatively low inventory levels. We were carrying throughout the quarter unit volume is closely track production up 28% sequentially.
Importantly, the investments, we've made and ramping up our ops capacity and general and our inspection center capacity in particular are starting to pay off as the result of the ongoing focus and we'd be production levels have been up closer to 50% above the fourth quarter, more recently, which positions us well to begin growing inventory and increasing selection for our customers again for the first time since the pandemic.
Over a year ago.
At this point is the result of a lot of careful planning and hard work across our real estate inspection center at logistics market, often advocate teams, who will all put in tremendous efforts to catch up to demand and the fight off the pandemic driven at constraints of the last year and great job and thank you to those teams.
These efforts and the ongoing execution of our plan of positioned us well for a great 2020, one and 2022 and the foundation is continuing to be laid to enable us to continue scaling rapidly and the years beyond.
Eight years ago, we hadn't dreamed of change the way people buy cars and we've made a lot of progress when we look back and looked at a series of just the list of simple ideas that are easy to say and very hard to actually put into action.
It all started by imagining and new way to buy a car that was better for our customers and every important way the excitement of that dream enabled us to attract incredible people, who meet our dream thereof from there. It has just been ambition and hard work perseverance and constant learning and with the critical mass of enthusiastic customer focus ambitious people, we built the self reinforcing culture.
Ideas have taken up the long way and she is.
And <unk>, our first year, we had $4 million of revenue today, we're over 1000 times larger.
Moving forward, we're just as excited as we were then we are delivering to customers the best experiences available on buying or selling a car and the quality of the unit economics that emerge from the investments. We've made over time are showing up on our results. The scalability of our model is apparent and our business gets better as it gets bigger and we are still dreaming the ambition that underlies our dreams Burns as brightly today that day.
At the beginning and with every step we take we can see further down the field, while we're extremely proud of what we've built and the team that got US here, we're nowhere near where we ultimately want to be and either scale or scope, we're still at the beginning.
And to get for where we are to where we want to be we will maintain our customer focus and we'll keep surrounding ourselves with exceptional people will remain ambitious we will stay disciplined and prioritizing our efforts, we will keep working a little harder and those around us and will of fun along the way in.
In short we will traverse the path in front of us at the same way we of traverse the past behind US we know what to do we just have to keep doing it mark.
Thank you Ernie and thank you all for joining us for that Q1 was the strong quarter for Carvana across all key financial metrics and our financial results demonstrate significant progress toward our long term goals.
Retail units sold in Q1 totaled 92457 and increase of 76%.
Total revenue was $2 two for $5 billion and increase of 104%.
Revenue growth outpaced retail unit growth due to higher retail average selling prices and wholesale and other revenue.
We expect revenue growth to outpace retail unit growth again in Q2, and then we expect revenue growth to be similar to retail unit growth and the back half of the year.
Total GPU was 3006 hundred $56, and Q1 and increase of $1016 year over year and $277 sequentially.
Since Q1, and 2020 was impacted by the onset of COVID-19, and March I'll focus my commentary on sequential changes.
Retail GPU declined slightly to $1211 for $1265 and Q4, reflecting a continuation of approximately $200 per unit of transitory costs, primarily driven by rapidly ramping our reconditioning capacity in the midst of COVID-19, we do not expect.
The majority of these transitory costs to impact Q2.
Wholesale GPU increased the $227 from $108 and Q4, primarily driven by strong industry wide wholesale prices and the latter part of Q1.
Other GPU increased to $2218 from $2006 and Q4, primarily driven by completing two public securitizations for the first time and Q1 paired with an increase and ancillary product attach at rates that offset of onetime benefit in Q4.
EBITDA margin was negative one 3% and Q1 of two six percentage point improvement from negative three 9% and Q4, driven by both GPU gains and SG&A leverage.
We ended the quarter with more than $2 billion, and total liquidity resources, giving us significant flexibility to execute our plan.
We had another strong quarter of buying cars from customers and Q1 barring approximately as many cars from customers as we sold to them and achieving a customer source ratio of over 60% of.
Our success over the last few years has made the strength of our offering of buying cars from customers clear and we no longer expect to provide detailed statistics on buying cars from customers each quarter.
So far and Q2, we are seeing outstanding performance and in April we set a new company record for cars bought from customers. Both on an absolute basis and relative to retail units sold we are as excited as ever about the opportunities ahead.
We continue to focus on scaling our production capacity to meet demand.
In Q1, we opened our 12 IRC near Birmingham, Alabama, bringing our total annual production capacity to approximately 680000 units at full utilization we.
We remain on track to open one additional IRC in Q2 and eight in 2022, bringing our total capacity at full utilization to over one 5 million units by the end of 2020 two.
So far and Q1, we've opened 22, new markets, bringing our total to 288 and increasing our population coverage to more than 77% of the U S population.
In May and we also launched our first five markets and the Pacific Northwest and adding the last major region to our nationwide footprint.
After Q2, we expect our path to 95% population coverage to primarily consist of opening smaller fill end markets.
And our Q4 2020 shareholder letter, we outlined our expectations for the year of 2021, including accelerated retail units sold growth revenue growth in line with retail unit growth total GPU in the mid three thousands and of small EBITDA margin loss, while investing for growth and continuing our progress on demonstrated.
Leverage we remain on track to meet or exceed these expectations and we continue to be excited about 2021 as a significant step toward our long term goals.
Thanks for your attention we will now take questions.
We will now begin the question and answer session.
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Our first question comes from Sharon Zackfia with William Blair. Please go ahead.
Hi, Good afternoon, I did not expect to be first.
And I guess congratulations on on a great first quarter and and I'm trying to kind of think about your improvements that you've been making and.
And productivity and how we should think about that and for.
For the rest of the year and I think earn of you mentioned that soon you'll have available inventory ahead of the year ago period, I guess I'm wondering when will you be back to kind of pre pandemic levels. What's your at line of sight on that and then and I know you mentioned, the $200 and transitory costs on G. P. L. Obviously the year over year.
And your contraction was a little bit more than that on on the car itself and what else was pressure on that are you finding of that it's more competitive too to get inventory of having to pay a little bit more of that would be ideal the city any thoughts there would be great.
Sure.
So let's start with the with production.
As you know basically since the second quarter of last year, we've been pretty constrained and production given the pullback that we made that and then all of the demand that we've seen and and just trying to catch up.
So I think in the and the first quarter, we kept pace basically our sales grew sequentially at at effectively the same rate at <unk>.
Our production grew.
And to that kind of suggests that those constraints were still in place, but then post the end of the first quarter. We've made a lot of progress and we've continued to see our production growing so we now expect yield to grow inventory.
Basically what we're saying there is we've kind of gotten to a place where we expect production to be a little bit more than sales and we don't want to kind of specify exactly the the rates, which we expect inventory to grow but that's our middle mile marker to kind of now being the place we expect to grow inventory and we're pretty excited about that.
Obviously growing inventory helps with conversion across the site and so that's an important milestone that we've had but we're not going to quantify it from there we will keep working hard and trying to grow that as quickly as we can as we grow and the production capacity and we expect to be around one of the quarter million by the end of 2020, two and the market on a number too sure Yeah, and then I'll hit the question on retail GPU. So.
Q1, retail GPU was largely in line with our expectations when taking into account the transitory costs that we talked about in Q4 I think when you look on a year over year basis. In addition to those transitory costs last year, we talked some about the impact of some of the early phases of iteration on buying cars from customers on that positively.
<unk> GPU last Q1, so I think there is some base of back from those early phases of iteration that impacting the year over year comparison.
I think when we when.
And when we look at where we are headed from here. We did call out that we expect the majority of those transitory cost the impacted Q4 and Q1 this year to be gone by Q2, and so that's a tailwind to the retail GPU as we move towards <unk> to.
<unk> other things being equal obviously overall, we feel really good about our progress there.
And had a solid quarter in light of those transitory costs and end.
The step up in Q2.
Our next question is from Zacks Eadem with Wells Fargo. Please go ahead.
Hey, guys. Thanks for taking the question.
Now that you've entered the Pacific Northwest and now have reconditioning centers all over the country can you talk about the opportunity that start and listing your inventory regionally versus nationwide and to what extent this could unlock of higher level of GPU or operating efficiencies across the business.
Sure. So obviously, we're excited about what's on the Pacific Northwest that was kind of the last region of our footprint that we werent, yet and so I think.
Opening that up as exciting as it basically means you know from here to roughly our 95% population coverage goal and the long run and we basically have market fill in and so that's very exciting.
And so as we grow demand and generally in the existing markets and in new markets.
It just puts us in a position where we can economically carry a larger and larger inventory and so that's great news for conversion across the country.
And as inventory gets larger and larger you certainly have some duplication of inventory that is optimal where you want the take somebody of duplicative inventory and put it in different places around the country that are closer to customers to minimize delivery times, which is also at an input into the into conversion. So there is some of what you're talking about the kind of automat.
We happens with scale, where we're shipping distances should drop and conversion rates should go up.
We have all kinds of tests, all the time, where we're getting a good handle on how inventory size and pack conversion, how delivery times and pack conversion and kind of what the right thing is to do internally, but I don't think that we're going to give more concrete guidance on the precise expectations that we have around those different numbers.
Got it and then on production you got one more IRC to go this year, but could you talk about the glide path for adding more production lines and your existing facilities and how should we think about the full on block of the 680000 and capacity as we move through the year.
Sure. So I think all the way to look at that is to look at our past we've provided in our shareholder letter in Q4, 2020 you can kind of see our production capacity our facility production capacity and in each of our previous years and then you can get a sense of how long it took for us to unlock that facility capacity with the actual production budgets.
Looking at kind of sales rates in the future periods. So that will just give you a sense of of how quickly. We can we can unlock that something we've been working on at internally and is being able to unlock that production capacity more quickly.
We've spoken before about the other or many different operational parts of the business and all of those different parts of the business have different lag times associated with how quickly you can alleviate constraints. If you find yourself constrained and definitely production is the area with the longest lead times, it's the hardest the kind of.
And youll grow capacity very quickly there and we've seen that over the last year. So we definitely put a lot of focus on catching up and on making ourselves even more flexible and so.
You can see the the the results of that progress and kind of our sales growth for the last several quarters and and the fact that we're now expecting to grow inventory. So that's been a huge focal point and it's something that we think we are continuing to get better at.
Our next question is from Nick Jones with Citi. Please go ahead.
Great. Thanks for the questions I guess and what are the puts and takes and are investing in the production capacity, if maybe the chip shortage last longer than expected and and kids I mean can you be in a situation are we at too much capacity.
All fluid is that situation and then the second question I have is you know some of your legacy competitors of brick and mortar competitors of hanging up pretty large targets now.
You know Ernie how how do you feel the competition of change really if at all due to COVID-19 are people noticing what carvana and been doing all these years.
Sure. So I think firstly on the used market is fairly different and the new market, it's not totally and the patents impacted in many ways, but.
The used market all of those cars are already on the road today, there's around 270 million cars on the road and and basically of use transactions as customers trading with one another so it's not fundamentally impacted.
And by underlying production levels and the way that the new market is.
The new market.
He is impacting the use market true degree today, because the kind of decrease and available supply of new then kind of flows over and excess demand too late model use that kind of flows down to all of the other use.
And kind of near levels as well. So there are some impact there, but wouldn't expect them to be super pronounced I don't think thats like a first order driver of what's going to happen to the used market.
Over the next six months or a year of even more importantly than that I think you know production capacities and investment in and out of our long term future when.
And when we open these facilities and we unlocked at capacity by hiring and training.
The people and those inspection centers does that then means that we have the capacity to kind of build those cars over and over again the powers our growth.
The 2 million cars and beyond and end to becoming the largest most profitable automotive retailer. So those are big investments and our future of that that are kind of being made with a much longer lens than the current chip shortages that we're seeing today.
And then as it relates to competitors and I think.
There was probably no reasonable expectation of our path for them from kind of where we started to where we wanted to be that there wouldn't be competition, along the way I think we've been fortunate enough to have a fair amount of success and with success. There is always competition. So we expect the competition I think we should continue to expect competition and you should probably expect competition too.
And we'll continue to show up as we continue to have more success and the future.
I do think if you kind of step back and and evaluate the competitive environment.
This market the used car market does have a lot of really nice properties. You know first of all at the 40 million unit market and so the of.
Of the largest player has on the order of of 2% market share. We're now the second largest player.
And just eight years, but it's a highly highly fragmented and so even some of these.
The big holes that are being put out by by others in the industry. They still are very very small compared to the market itself and then by some measures of the market may be considered fairly competitive in the sense that there is tens of thousands of players and it but those tens of thousands of players, but at the heart of providing customers with a very similar experience. The one another and then when you start to look at kind of differentiate.
The experiences there's very very few players that really have the capacity to make the investments in time energy and money that are necessary to build and E. Commerce platform and we're way way ahead. There. So we're really excited about our position we think at the market that we operate in has really nice competitive dynamics.
All of constant and then we also think that the most important thing that we can do is stay focused on our customers on ourselves.
It's really easy for two competitors to look at each other and kind of chase each other and circles.
And we instead want to make sure that we're focusing on our customers that we're building out the solutions that they really need and then that we're focusing on ourselves and the last year has taught us. The when you see a lot of demand and you're trying to grow really rapidly that comes accompanied with a bunch of operational challenges that arent trivial to solve and.
So we need to be really focused on ourselves and our execution and we think if we do that we're going to achieve our goals.
The next question is from Chris <unk> with Exane BNP Paribas. Please go ahead.
Hey, guys. Thanks for taking the question.
And just wanted to focus solely on the retail GPU.
And at some of the movements and used car pricing of thought might of been a tailwind in Q1 versus the headwind in Q4.
And it was at the cases do not see that and then you know.
And B if it was at a used car pricing was more favorable this quarter, where they're at any other headwinds that we should be thinking of it as the amount of retail GPU and of course this quarter.
Sure. So I think there are always many dynamics of the going into the GP retail GPU I think this quarter, we certainly started to see appreciation and rapid appreciation and the wholesale market.
And to some degree and the retail market that really came on more toward the end of the quarter. So.
I think I'm not sure of that was a particularly large effect on our Q1 number.
So I think the main effects on Q1 of the.
We're the ones I called out, namely these transitory costs on the order of $200.
Roughly the same as what we experienced in Q4.
That was probably the biggest on.
Unusual impact on retail GPU in Q1, and as I mentioned, we expect the majority of those transitory cost to have disappeared by Q2.
And so.
We think the removal of those transitory impacts will be of tailwind of other things equal as we move towards Q2.
Gotcha, Okay. Thank you.
Thanks.
The next question is from Rajat Gupta with Jpmorgan. Please go ahead.
Hi, good afternoon, and good evening and thanks for taking my questions.
And just kind of question on the follow up to one of the previous question you argue.
Ivy open up more all of ours.
And the production capacity of the cruising.
And my best and piece of election freezes.
And I, just like the advertising leverage stopped and loved ones that happened.
Start to see.
A meaningful pick up and the library for.
How should we think about that.
And I like what for.
Sure. So I think there's probably a lot of ways to think about that so.
Certainly as we grow inventory all else constant we would expect conversion rates to go up as we kind of decrease delivery time, we would expect conversion rates to go up of the relationship from conversion rates to customer acquisition cost is very clear as conversion rates go up you would expect to see leverage and customer acquisition cost. So I think that those relationships would be as.
<unk>.
And I also think.
And if you take a look at kind of the cohort data that we've provided over the last several Q4s you can kind of thing and look at what our customer acquisition cost looks like and some of our older cohorts.
I think at our oldest cohort last Q4 of the protein on the order of $500 give or take versus the company level of around $100 I think and Q1. So I think we've kind of demonstrated what we can do with customer acquisition costs and those older markets of obviously and the older markets. We expect it to continue to go down over time, as we grow the inventory and and decrease the live.
The times and further build the brand. So hopefully that gives you a sense of of where we think that can go and then between here and there I think it's just a function of how many markets. We opened what we decide to do with our marketing budget. How quickly we can grow our inventory how quickly we can decrease our delivery times, how well we execute.
And in general we still feel like we're very early and brand building, we measure that and lots of different ways.
At virtually any measure of customer awareness of is still at low levels relative to where we want to be and so we're not being shy about continuing to invest and our brand and we will do that as long as we think that at the smart thing to do.
Got it that's helpful and gets on to find out and the GPU I know it wasn't broken out separately at this quarter.
But like just based on like my math at points of somewhere around like 6700 Bucks or so.
Unfortunately like the is that is that players are accurate and then just looking at.
And of course is the targets of the analyst day.
And of half years back obviously the rates are much lower.
What are the factors.
And I have driven this this uptake and is this is this kind of like the sustainable level that you would expect a into the on time or maybe even the higher.
Curious as to how to think about that and make one of more normalized finance GPU number should look like moving forward.
Sure. So first of all we didn't provide that breakout. So we don't intend to provide of gear I think you see at least understand our rationale there going back and time to our analyst day that you referenced.
At that time, we were selling on the order of a core of as many cars as we're selling today, our gpus on the order of <unk>.
<unk>, maybe even less than what it is today and I think our EBITDA margin, probably 10 or 15 points worse of.
And so at that time, and we're trying to provide pretty detailed walks for our investors and they can understand you know how those build up sort of occur overtime.
As we've matured and as we've seen a lot of progress and many of the different line items and and I think you know the the market in general has a much better understanding of how the things progressed.
And where does kind of simplifying our reporting and and kind of aligning more closely with industry standard and so we don't tend to kind of break it out at that level of detail of going forward.
That said you know I think it's not hard to infer the general area that its in as you pointed to and that general area is very exciting and at its very strong compared to what we initially outlined at that analyst day and 2018. So I think at a couple of reasons for that.
Some of them are fundamental and sustainable I think we've we've really we've done a pretty good job of that business and we've made a lot of fundamental progress in terms of the way that we're able to assess.
Assess credit risk and price credit risk and the way that we're able to monetize or finance platforms and there's a lot of things that we've done there that we're proud of and we think that there's probably some additional fundamental value that we can unlock I think we're also in something of the unique environment early in the pandemic, we tightened credit pretty dramatically.
And we've held credit tighter than probably would be the norm of all else constant we've generally over over kind of the last several quarters has been in a very low interest rate environment. So that's helpful. So there's a couple of things that aren't necessarily persist.
Persist and across time, but we still think that there's progress we've made there and then in the rest of other and we think that there's progress we made and our other existing items and we think of as there's progress being made by adding additional items as well over time. So we think the das.
One of several success stories relative to our long term.
The model that we put out at 2018, and we think that gives us a lot of flexibility going forward.
The next question is from Colin Sebastian with Baird. Please go ahead.
Thanks, Good afternoon, I have a couple of questions.
I guess first off I was hoping you could update us on the attach rates of other products and services and and how much room, there might be to growth those and then secondly.
There've been some questions around google's testing of the auto listing ads and curious if that's something that you might find attractive to participate in.
Or if you think that that might change the competitive landscape at all thanks.
Sure. So I apologize I think of him to give you kind of boring answers to those questions. So we don't plan to kind of break out of our attach rates for our other products and services. We definitely do believe that there is room to continue to improve there. We've made a lot of improvement over the last several years, but we think there's clearly room to go from here.
And so we'll work to do that and as far as Youll, Google testing the different AD products, we obviously use Google as one of our many customer acquisition channels.
And we use them in in the.
And search marketing and then we use them and several other ways as well. So I think we'll do that as as the marketing channel. We will evaluate at like we evaluate all of our other marketing channels and to the extent and it gives us the high quality return then we would expect to utilize that as well.
The next question is for Michael Montana with Evercore ISI. Please go ahead.
Thank you for taking the question. So first one I had was just around when you're able to self source of unit is there a sense that you can provide of the kind of tailwind of attack is true.
The GPU versus when you have to go to auction and I guess.
I was thinking you know potentially at 10% benefit and you know oversize of the dollars, but just wondering if you could give any clarity there and then kind of follow up.
Sure.
And Mark Yeah sure Yeah, I can take that one so I think.
It varies quarter to quarter, but a reasonable way to think about the benefit of sourcing of heart from customers is the <unk>.
Look at it and the context of our wholesale GPU. So basically what wholesale GPU captures is the difference between.
The our acquisition cost of a car from a customer and the wholesale market trading price of that car and so that's a good way to think about the cost benefit of customer sourcing and so.
That just gives you a sense and to give you a sense of that.
At vary quarter to quarter, just at this quarter, we were around $800 and so on wholesale GPU.
And so I think that's it does vary quarter to quarter, but that's a reasonable way to sort of keep track of the relative cost benefit of customer sourcing.
Okay that makes sense and then just the follow up question I had was any incremental color you can share. This year and then next year with the eight out of our seas.
And how to think about the capex outlook, what's kind of a normal number and then specifically how does this year and next year look.
Yeah sure so.
Rough way to think about.
The capital investment.
The investment related to one of these.
The 67000 unit Irc's is on the order of $50 million per IRC, maybe a little bit more than that but on that order of magnitude and then of course of the way we think about that from a financing perspective, as we have historically sale leaseback or.
<unk>.
We think that.
There's lots of.
The efficient ways and of <unk>.
Great market for financing those IRC investments, so that theyre not actually net outlays for the business.
But the finance outlays and so that's to give you a rough order of magnitude of how much they cost and I think.
And we feel really good about.
The desirability of those assets from a financing perspective.
The next question is from Nat Schindler with Bank of America. Please go ahead.
Yeah, great. Thank you guys and I think.
And the GPU questions can be done the desk, so I thought I'd try something all of the different.
Could you walk.
Walk through maybe on the you know what you saw probably more on the weekly or daily basis prior to the stimulus checks going out and go and then after them going out and and.
And how much impact that had on the quarter secondly.
On a related note with the tax filing date pushed out to May 15 does that have any impact on the seasonality that is usually more Q1 weighted as people get their tax returns.
And finally.
Well, let's just stop there.
And I can add more.
Sure.
And so nice multipart question and let's try to break it down so I think of let me try to combine basically the first two concepts I think both tax refunds and stimulus basically take the form of.
The government depositing relatively large checks in the bank accounts of many many people at once.
And so I think that didn't look materially different than it's looked in years past generally what happens is people start to get notifications through email or whatever else the Ted might hit their accounts and youll see kind of the evening before you will see a lot of traffic and activity happened on the site and on the next day Youll start to see and show up.
Think of that was undoubtedly material this year.
And as it relates to US I think a key statistic to keep in mind is we did gross sales sequentially, 28%. We also grew production sequentially, 26%. We undoubtedly saw increased demand kind of on the day after of stimulus.
Was dropped but then the form the that takes that just further compressed.
Your inventory, therefore, reducing our conversion rates for everyone and afterwards, and so I think if we had to try to imagine kind of what would've happened to our sales absent the stimulus.
I think the first of all of that is very hard to do but just directionally. We clearly would have been less kind of on the days and weeks immediately after stimulus and our expectations would have been more in.
And the in the weeks kind of a couple of weeks after the the stimulus dropped so I don't know how big the impact was but I think it was smaller for us this year than it would've been in previous years because in previous years, we're carrying enough inventory heading into that kind of an event to be able to handle that big onslaught of mad and and still have sufficient inventory for our customers' afterwards, so I do think it was a little bit.
<unk>.
And then the tax returns being pushed out a little bit I do think of that had an impact, but I think that impact is largely behind us the.
The vast majority of that impact is behind us I don't think that that's two meaningful for for the future.
So you don't expect the the normal Q1 tax refund.
Yeah call. It seasonality is going to be drawn out into Q2, it was pretty much still well taken up into the Q1 despite of being pushed out of we come up.
So the tax filing date was pushed out a month for them from what I believe as at April 15th of May 15th, but the date at which most customers getting money and their accounts has historically been sometime in February.
If you go back maybe 10 years. It was even kind of late January but it's been slowly kind of moving out and more recently has been the end of February.
And that this year at might've been a week later than normal.
And then probably had kind of a normal spread from the air in terms of when you see the the demand impact, but that didn't move as much at just the filing date itself moved and the filing date itself is far less powerful than.
On the day that the tax refunds are kind of released to the masses.
The next question is from <unk> Khan with true of Securities. Please go ahead.
Yeah, I think maybe.
Maybe on a on the related and not so since the the annoying.
Some of the stimulus and the AR.
And the tax seems to be behind us and maybe can you maybe give us some sense of how the April trends are looking like.
For you and and and how should we think about the the shape of the quarter and then I haven't thought of.
Sure so.
And we want to stay away I think from giving too much detailed kind of intra period color, but we provided an outlook and the shareholder letter.
And I think at that captures our expectations.
The demand has been very strong for for really the last year.
And for our offering and we've continually been.
Carrying a lower inventories and we wish that we were carrying we're excited now to kind of be at a place where we believe that we'll be able to start drawing inventory.
Which we think is helpful all else constant.
I would say things continue to look great from our perspective.
There's nothing notable to call out that would go on any of the direction and and kind of those expectations are.
What we have and our outlook.
Okay. Thanks, and then maybe.
And so you guys mentioned and then the opportunity for more and.
Italy for ancillary products.
Is there and a near term potential to and to do the new product in the background of many of them.
Amazing.
Oh, yes.
I think across the entire business. There is many many different things that we can focus on the obviously, we have a very complicated business from vehicle acquisition.
Transporting it to the inspection centers running the inspection centers merchandising at for customers pricing for customers.
Building the finance business.
Running our warranty product and there's so much that we can work on so we have across the business. We have on the order of 70 different product teams.
That are working on all of these various roadmaps at different points in time.
And we do our best to prioritize all of the different projects as intelligently as we can.
Generally speaking, we won't kind of youll.
And you'll comment on what that underlying prioritization looks like but there's no doubt that theres opportunity and the future to add additional products.
And at that could be potentially excited.
The next question is from Ron Josey with JMP Securities. Please go ahead.
Great. Thanks.
To ask two questions. Please I think just to follow up on an earlier question on the the expansion of the Pacific Northwest and can you just help and you talk about the distribution and the time to deliver and how you can flex. Your your just your supply chain into those five new markets and that overall region, which is new and then the second question is just you know on brand awareness and with 95% population coverage.
Now of insight and and I think still pretty low brand awareness as we've talked about 100 million and marketing spend and the quarter is is the.
Of the interesting I just wanted to get your sense on how and how we should think about marketing spend going forward. How you all are putting the dollars to work around brand awareness education spend and and performance. Thank you.
Sure. So it's at the Pacific Northwest is obviously something that we've been looking at for a long time, but it's a relatively isolated population center and the way up and the northwest and so it took us a long time to get the place where we thought it was sensible to kind of add that to our logistics network over the last month or two we've added.
And we also added.
The Salt Lake City area in Utah.
It gives us the mid point that allows us to connect.
And you up there we can also connect to California.
So we thought it was and Apple time, and obviously, our long term aspirations are to get to approximately 95% population coverage and to be of national brand and so that was something that we need to do at some point, we've been holding off as we've been so constrained and inventory, but given our expectation, we're going to grow inventory and our visibility into and we're headed over the next couple of years as well as the.
The our knowledge of our historical lag times and ramping up volumes and new markets. We thought now was a good time. So we went ahead and and pull the trigger on that and we're excited to kind of fill out the rest of our regional footprint.
On brand awareness I do think that we remain very low in brand awareness. We are dollar spend is starting to approach your pretty sizable numbers.
And that are meaningful compared to the marketing budgets of lots of companies, but we have to also keep in mind that kind of our accumulated dollar spend is still very low compared to a lot of more mature companies that have been around for a long time and.
So we do think that it's still early.
Spending a lot and brand we definitely spend a lot and kind of education I think you will for a customer to to buy car from Carvana. They have the first now that you exist. They asked the next understand what you do and kind of how it's different from buying a car on the traditional way and so we have a lot of it for value props that we have to educate them about and then they have to trust. The your real and you return Paula.
He is real and the taking out of trust the quality of car the comes their way and and all of those things just take time to build up of and consumer mind. So we're testing a lot. We're learning a lot as we go I think we're very excited about the position that we're in with customer acquisition costs, given the knowledge that we've accumulated over time by just looking at how we've levered our older cohorts.
So we're confident that we know how to lever of customer acquisition pretty significantly, but we also believe that we're very early and brand building and so as long as we find different channels and we think are hitting a different audience and educating them on a different way of like I.
And before we're not going to be shy about spending that money and building our brand and we think that's a good investment and long term.
The next question is from Alex Potter with Piper Sandler. Please go ahead.
Great. Thanks, a lot I had a question about certified pre owned was just wondering if you of our strategy for trying to break in there or is that you know of.
I meant that you would consider more or less off limits anything you'd be willing to share on that front would be interesting.
Sure. So I think there's maybe a couple of ways. The approach that problem. So the first of all every car that we sell at is certified at Carvana certified and our certification process was patterned off of.
And if some of the luxury manufacturers certification processes and so the cars that we deliver to customers or all of that kind of that that quality. The specific brand certified pre owned is generally reserved for the combination of kind of franchise dealers and oftentimes.
The the branded OEM warranty the they'd get associated with that sale of though that's not always necessarily of condition of the brand of certified pre owned.
So I think we do believe that we're breaking into that market by building a brand of of delivering very high quality cars and by building the logistics network and infrastructure of the reconditioning centers that are able to certify cars to that same quality.
So that's our goal, but the particular brand is generally protected by or for franchise dealers.
Okay understood and then last question and customer source ratio I'm.
Still really strong I can appreciate.
And that you won't be at disclosing that going forward I guess, maybe just qualitatively youre still running well ahead of what you thought you could do at several years ago, which has been great I'm sure at the tailwind for for GPU are you starting to get convinced now that you can actually keep running and definitely at these higher customer sourcing right.
Sure.
And at a very high level of the market for selling cars is around $40 million hospital units generally speaking of customers getting a car is also getting rid of another car and so the market for us buying cars at kind of theoretically at least very similar in size and if you look at.
Q1 sales of 92000 and and.
The number of cars bought for customers in a similar ballpark youre basically looking at something like 1% of the market. So I think the we're very very small compared to both of those markets. I do think they are connected in certain ways to brand, particularly our brand and and the speed at which we can build our brand and and generate awareness across.
Our customers that we both buy and sell cars, but they're also fairly disconnected in the sense at only.
Only a subset of those transactions happened simultaneously when at customer simultaneously buying a car trading and other car a lot of them are kind of separated and time, we're comfortable of Biochar and then maybe sell the car later sell a car on the Biochar later.
So I think they can grow independently.
And we've undoubtedly seen.
The tremendous tremendous amount of progress on that business over the last couple of years and we're extremely excited about it and I think.
Now basically at the retail business and the business of buying cars and customers are going to race each other to the unseen it'll finish line somewhere out and the great Blue Yonder.
The next question is from Seth Basham with Wedbush Securities. Please go ahead.
Thanks, a lot and good afternoon, and my question is back on the topic of finance GPU. It seems like and hit a high watermark there are with.
And with this quarters results and I'm trying to understand if you think that is.
The high watermark for 2021, where do you think that can go longer term.
Sure. So we I think for other GPU and general we've definitely hit.
Kind of our highest level ever.
As described earlier I do think that there are fundamental gains and we can continue to make and in every line item of other GPU and there are other opportunities for it and product and we can add over time. So I think at Thats exciting I also do think the it's hard to size.
The the kind of beneficial impact that exist in this environment, where one we're doing.
The thing that we have control over but is likely leading to slightly higher.
The other GPU, which is which is running with the tighter credit and then two we benefited from very low interest rates. So those are likely to unwind I think the balance of those things at <unk>.
Hard to precisely predict but we're clearly in great shape versus the the long term model that we outlined a couple of years ago and I think at its too early and we're and two unique of and environment to update that model. So we think in general.
Roughly the right way to continue to think about it and obviously, we've done very well against that model over the last several quarters.
Got it alright helpful and my follow up questions the surround reconditioning.
Have you been using third party reconditioning for things other than specialized services and the planned to do that and the future.
Sure. So I think in the past we talked about we have run at <unk>.
Various test.
And to try to see what are the various ways that we can ramp up our production capacity across the business that has included utilizing some third party of recon.
We are continuing to utilize some third party of recon today at <unk>.
<unk> a significant minority of of the cars, we produce overall and and that's our expectation for the future as well, but but it is something that we are utilizing and continuing at that today.
The next question comes from Jon Cohen to Oney with Jefferies. Please go ahead.
Hi, Thanks for taking my question.
Can you talk about the tight inventory environment and the wholesale market and some of the measures Carvana has implemented the unlock new channels for inventory acquisition and if you're expecting those measures to have any notable impacts on.
On the near term vehicle GPU outside of what's going on with coal with the wholesale prices.
First of all I can take that one so I mean I think.
And our number one channel for sourcing inventory has now become a sourcing cars directly from customers, which had several advantages.
And that we've talked about historically I think we're certainly going to continue to focus on that that's the business that we want to build and <unk>.
Continue to grow over.
Over the long term and so I think that's our number one area of focus and would be the sort of the first answer to that question I think in terms of the wholesale market dynamics.
We're still certainly buying cars on the wholesale market.
I think were foreign cars, we're making money on those cars and when retail them I think we feel very comfortable and the current environment and our.
From a sourcing perspective, our main area of focus is going to be continue to grow the business of buying cars from customers.
Okay.
Okay.
Great. Thank you so much.
Thank you.
And our final question comes from Edward of your room up with Keybanc. Please go ahead.
Hey, Thanks for squeezing me in just two quick ones for me I guess first on interest rates have you seen any significant movement.
And the interest rate dropping of consumers and has there been and impact and then a broader question.
And your competitors I guess as they scaled and has had kind of customer service and closed difficulties. Obviously your numbers have been phenomenal, but how would you score kind of at your customer service levels.
Particularly as you continue to ramp of your business. Thanks.
Sure.
I think on interest rates.
They've come down obviously since pre pandemic.
Dramatically and then they kind of bounce around a little bit from there the theres been some upward movement over the last quarter, so of it but nothing material and so.
And I don't think that there is the story there is that they are low I don't think the recent movements are super material.
In terms of customer service levels.
Our focus from day, one has been to build the business from the ground up the delivers great customer experiences and end to build all the things that are required.
To really enable those great experiences.
Differentiated and a fundamental way and.
That's always been our focus and I think when we look at kind of all of our scores for for.
And what customer experience looks like Theres, a lot of different things that drive that I think first and foremost is the way that we've designed the business and the way. The we've designed the customer experience and then I think from there you have got your technology and your processes and and the quality of all of those and kind of how good of and experience. Those are capable of delivering I think very importantly, the next layer is your cultural layer.
How much do all of the people to talk to your customers.
The the picture of customers' cars at deliver the car for the customers how much do they care about the customers and care about what we're doing together and and empathize with the exciting moment of the customers having when they are getting a car, which is the second largest purchase they make and their life and I think that we would like to think that we've done a pretty good job building a culture of there that really cares about deliver.
And great customer experiences and and I think the last layer is do you have sufficient capacity across your operations groups.
And to deliver to customers great experiences and I think over time, we've been constrained many many times and our eight year life, obviously throughout the pandemic you've heard of various constraints. If we go back for 2019, we have logistics and market ops constraints.
To that we had constraints on the call center and at different places and so we've had.
The constraints across the business at at various points in time those constraints generally do lead all the costs into our measures of customer experience going down a little bit.
Now when they go down.
And they've traditionally gone down by a relatively small amount and and they remain at levels that are far above industry standard and then importantly, when we continue to kind of staff up and and get our feet underneath of us and alleviate those constraints. We see them go right back to where they were which means that we're on a great place in the kind of foundational elements and out of the most which is in the design technology.
And culture and.
So we're really happy about the way that we've been able to manage customer experience, which is our primary goal through all of this growth that has driven us.
To be a 1000 times larger company today than we were in the first year that we launched the jazz and 13.
But undoubtedly there are impacts.
And from very high levels of growth and and those impacts are and the direction of that you would expect but I think we've done a good job managing them historically.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
For a little thanks, everyone for joining the call and.
And to the entire Carvana team. Thank you great quarter, great job for all of the operations teams.
This has been a long slog, you've done an incredible job coming in every day and delivering great customer experiences and we really appreciate it I hope that you hear the sincerity of that appreciation doesn't just sound like something that we say every call.
To the inspection and her team in particular.
This has been and absolute battle of Gray.
<unk> job for all of you I know that you've taken the last couple of calls and pin those up on your Walker for inspiration.
Clearly it did inspire you guys have done a great job, we really appreciate it. Please keep go and we still got a lot of ground to cover but thanks for all.
Have a good one.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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